Microsoft has a deal to access OpenAI technology until 2031. Microsoft has a 27% stake in OpenAI, estimated at $ 135 billion, which is nearly 10 times its $13.75 billion investment since 2019.
OpenAI has finalised a long-awaited restructuring that makes Microsoft, its largest shareholder, making its a market capitalization to $4 trillion.
Under the new deal, Microsoft will buy a 27% stake in OpenAI. Now that it has become a profit organisation, they are seeing new investments as shareholders are allowed to own equity. The company argues that going public is necessary to raise capital to develop large language models.
Sam Altman, CEO of OpenAI, stated that an IPO is the most likely path for the company’s capital needs, though no specific plans have been made.
Microsoft shares rose 2% after the announcement, pushing its valuation over $4 trillion and joining Nvidia and Apple.
OpenAI was founded in 2015; since then, its mission has been to ensure that artificial general intelligence (AGI) has the benefits of humans. Microsoft was previously the biggest obstacle to it’s transition to a for-profit company.
Microsoft has a deal to access OpenAI technology until 2031. Microsoft has a 27% stake in ChatGPT‘s parent company, estimated at $ 135 billion, which is nearly 10 times its $13.75 billion investment since 2019.
Once the AI company becomes profitable, it will allow other investors, such as SoftBank, Thrive Capital, Andreessen Horowitz, and Sequoia Capital, to hold equity in the AI firm for the first time, rather than just sharing in profits.
A company insider stated that the CEO, Altman, will not receive equity as part of this restructuring and has no plans to do so.
If OpenAI goes public, investors who are passionate about the company could receive substantial returns. Jensen Huang, CEO of Nvidia, suggested that the company’s IPO could take place as early as next year, calling it potentially one of the most successful offerings ever. The company has agreed to invest up to $100 billion in OpenAI in the coming years.
The company has stated that its non-profit, now called the OpenAI Foundation, will hold 26% of the new company. The company is now valued at around $130 billion, with employees and other investors owning the remaining 47%.
The board of the non-profit unit will be responsible for ensuring that the company’s initial mission of making AGI benefit humanity is fulfilled. Altman will be part of both the profit and non-profit board of directors.
The Foundation will focus on funding research into critical industries such as health care, disease cures, and technical solutions.
The deal has been approved by the attorneys general of Delaware (where it was founded) and California (where it is headquartered).
During the negotiations between the two parties, the primary focus was on control issues. OpenAI was advised by Goldman Sachs and Michael Klein, and Microsoft was advised by Morgan Stanley.
When Microsoft initially invested in OpenAI, CEO Satya Nadella gained access to it’s technology and exclusive rights as its cloud provider. However, as OpenAI’s ambitions grew, tensions emerged over resources and the allocation of computing power, especially as it started to compete with companies like Google and Anthropic.
With the new agreement, Microsoft has lost its exclusive cloud rights. However, Microsoft will still have access to the generative AI giant’s technology until 2032.
According to a person familiar with the whole deal, they spoke from the Microsoft side and stated that they have made an excellent deal for our shareholders, generating substantial value and securing important partnership guarantees.
An independent panel will now be responsible for determining whether AGI has been reached, though its makeup and the precise definition of AGI remain undecided.
Additionally, Microsoft will retain access to OpenAI’s research methods and development techniques until 2030.
