OpenAI restructures into public-benefit firm, Microsoft takes 27% stake

A deal between Microsoft and OpenAI gives the ChatGPT maker the right to convert from a private company, valuing OpenAI at $500 billion, and allowing it to have more freedom to conduct its business.

The deal, which was announced on Tuesday, removes a significant hurdle to raising money for OpenAI, which has been in place since 2019.

In exchange for the expensive cloud computing services required to carry out the work, it had signed a contract with Microsoft at the time that gave the tech giant rights to a large portion of it. These restrictions had grown to become a significant source of tension between the two businesses as its ChatGPT service gained traction.

According to the companies, Microsoft will still own about $135 billion, or 27 percent, in OpenAI Group PBC, which will be run by the nonprofit OpenAI Foundation.

Microsoft, based in Redmond, Washington, United States, has invested $13.8 billion in OpenAI, which suggests the company has made a nearly 10 percent return on its investment as of Tuesday.

Microsoft’s stock increased by 2.5 percent, revaluing its stock at $4 trillion.

The agreement allows the two companies to remain connected until at least until at least 2032, with the release of a significant cloud computing contract and Microsoft’s continued ownership of OpenAI products and artificial intelligence (AI) models even if OpenAI reaches the point where AI systems can match a well-educated human adult.

simplified corporate structure

Since OpenAI’s establishment as a nonprofit AI safety group in September, ChatGPT has grown in popularity and become the face of AI for many consumers. It has more than 700 million weekly users.

As the business expanded, the Microsoft deal limited OpenAI’s ability to secure computing contracts and raise money from outside investors as a result of the company’s growing demand for computing resources.

The board chair of the OpenAI Foundation, Bret Taylor, stated in a blog post that “OpenAI has completed its recapitalization and simplified its corporate structure. The nonprofit continues to be in charge of the for-profit and is now on a direct path to significant resources before AGI arrives.

When OpenAI reached that point, Microsoft’s previous 2019 agreement contained numerous restrictions, and the new agreement calls for the evaluation of OpenAI’s claims that it has AGI.

“OpenAI continues to be subject to ongoing scrutiny for data usage, transparency, and safety oversight. Overall, this structure should give 50 Park Investments’ CEO, Adam Sarhan, a clearer path forward in terms of innovation and accountability.

The deal “satisfies the long-standing problem of OpenAI being organized as a not-for-profit organization] and settles Microsoft’s ownership rights,” according to Gil Luria, head of technology research at DA Davidson. The new structure should make OpenAI’s investment strategy more transparent, facilitating further fundraising.

Microsoft also disclosed that it has reached a deal with OpenAI to buy $250 billion worth of Microsoft Azure cloud computing services. Microsoft will no longer have the option to refuse to provide OpenAI with computing services in exchange.