OpenAI Strikes Deal With Microsoft in For-Profit Switch

OpenAI has completed its restructuring, pushing longtime benefactor Microsoft’s valuation north of $4 trillion.

The artificial intelligence (AI) startup announced Tuesday (Oct. 28) that it had transformed its for-profit arm into a public benefit corporation. The new arrangement gives Microsoft a 27% stake — worth roughly $135 billion — in that unit.

“What began as an investment in a research organization has grown into one of the most successful partnerships in our industry,” OpenAI wrote on its blog.

“As we enter the next phase of this partnership, we’ve signed a new definitive agreement that builds on our foundation, strengthens our partnership, and sets the stage for long-term success for both organizations.”

The agreement gives Microsoft exclusive intellectual-property rights to OpenAI technology until 2032. OpenAI is purchasing another $250 billion worth of Microsoft’s Azure cloud-computing services, the companies said, though Microsoft will no longer have a right of first refusal to be OpenAI’s compute provider.

In addition, the new arrangement allows Microsoft to now independently pursue artificial general intelligence (AGI) on its own or with third parties. (AGI refers to a version of AI that can perform at or above the level of humans.)

OpenAI says that if and when AGI is “declared” by OpenAI, said declaration will be verified by an independent panel of experts.

As many observers have noted, OpenAI’s status could clear the path for the company to go public and help it attract more talent. Microsoft and OpenAI have been partners since 2019, with Microsoft investing $14 billion in the company.

The deal follows a long stretch of negotiations between the companies, as well as debate over whether OpenAI could hold onto its initial mission.

The question led to a lawsuit from Elon Musk’s xAI and other parties over its corporate status, as critics contended that OpenAI had deviated from its nonprofit ethos by trying to convert into a for-profit company.

OpenAI responded in April with a countersuit accusing Musk of engaging in fraudulent business practices under California law. The case is set to go to trial next year.

Microsoft’s move above the $4 trillion mark was not a first for that company, as it reached that level in July. However, fellow tech giant Apple also joined the $4 trillion club on Tuesday thanks to strong demand for the latest iPhone. Both companies sit just below Nvidia, valued at $4.78 trillion as of Tuesday afternoon.

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