(Reuters) – Microsoft (MSFT.O), opens new tab and OpenAI on Tuesday said they had reached a deal to allow the ChatGPT maker to restructure itself into a public benefit corporation, valuing OpenAI at $500 billion and clearing the way for it to become a publicly traded company.
Microsoft would hold a stake of about $135 billion – or 27% – in OpenAI Group PBC, which will be controlled by the OpenAI Foundation, a nonprofit. The deal removes a major constraint on raising capital for OpenAI, which was founded as a nonprofit AI safety group and which signed a deal in 2019 with Microsoft that gave the Redmond, Washington-based firm rights over much of OpenAI’s work in exchange for providing the costly cloud computing services neede2d to carry it out.
Microsoft shares jumped 4% on the deal, which could clear the way for OpenAI to become publicly traded in the future.
The deal keeps the two firms intertwined until at least 2032 with a massive cloud computing contract and with Microsoft retaining some rights to OpenAI products and AI models until then even if OpenAI reaches artificial general intelligence (AGI), the point at which AI systems can match a well-educated human adult. Microsoft’s previous 2019 agreement had many provisions that rested on when OpenAI reached that point, and the new deal requires an independent panel to verify OpenAI’s claims it has reached AGI.
“OpenAI has completed its recapitalization, simplifying its corporate structure,” Bret Taylor, the OpenAI Foundation’s board chair, said in a blog post. “The nonprofit remains in control of the for-profit, and now has a direct path to major resources before AGI arrives.”
Microsoft has invested $13.8 billion in OpenAI, with the deal on Tuesday implying that Microsoft had generated a return of nearly ten times its investment.
Gil Luria, head of technology research at DA Davidson, said the deal “resolves the longstanding issue of OpenAI being organized as a not-for-profit (organization) and settles the ownership rights of the technology vis-Ã -vis Microsoft. The new structure should provide more clarity on OpenAI’s investment path, thus facilitating further fundraising.”
Microsoft also said that it has secured a deal with OpenAI where the ChatGPT maker will purchase $250 billion of Azure cloud computing services. In exchange, Microsoft will no longer have a right of first refusal to provide computing services to OpenAI.
Microsoft also said that it will not have any rights to hardware produced by OpenAI. In March, OpenAI bought longtime Apple design chief Jony Ive’s startup io Products in a $6.5 billion deal.
Reporting by Deborah Sophia in Bengaluru and Stephen Nellis in Washington; Editing by Devika Syamnath and Franklin Paul
