Microsoft, OpenAI Sign Non-Binding Deal to Pave Way for Restructuring
Microsoft and OpenAI have signed a non-binding agreement to redefine the terms of their partnership, a move that could allow OpenAI to transition into a for-profit company and eventually pursue an initial public offering (IPO).
The announcement, made on Thursday, signals a new chapter in one of the most high-profile collaborations in the artificial intelligence sector, following the explosive growth of OpenAI’s ChatGPT. While specific financial and commercial details remain undisclosed, both companies confirmed they are working to finalize a definitive deal in the coming months.
OpenAI, which has seen its revenue soar into the billions, is seeking a more conventional corporate structure to raise significant capital for AI research and development. The company is targeting a $500 billion valuation in private markets and plans to expand its partnerships with multiple cloud service providers to meet rising global demand for computing power.
Microsoft first invested $1 billion in OpenAI in 2019, followed by another $10 billion in early 2023. Under their existing agreement, Microsoft held exclusive rights to sell OpenAI’s tools via its Azure cloud platform and had priority access to OpenAI’s cutting-edge technologies. However, earlier this year, OpenAI gained greater operational independence, including the freedom to develop its own data center network, known internally as Project Stargate. This shift saw OpenAI sign long-term deals worth $300 billion with Oracle and establish a separate cloud partnership with Google.
For Microsoft, the restructuring talks are crucial to securing continued access to OpenAI’s models and innovations, particularly if OpenAI announces a breakthrough toward human-level artificial intelligence—a milestone that would terminate parts of their current agreement.
As part of the restructuring, OpenAI’s nonprofit arm is expected to receive over $100 billion, or roughly 20% of the company’s target valuation, according to a memo by board chairman Bret Taylor. This would make it one of the world’s most well-funded nonprofit organizations.
Regulatory approval remains a key hurdle, with attorneys general in California and Delaware required to sign off on the restructuring plan. OpenAI aims to complete the transition before year-end to avoid jeopardizing billions in pledged funding tied to the timeline.
The collaboration between Microsoft and OpenAI has been central to the rapid development of AI tools for both consumers and businesses. However, the two companies are also competitors. Microsoft has been ramping up efforts to develop its own AI models to reduce reliance on OpenAI’s technology.
If finalized, the new deal would reshape the dynamics of their partnership, potentially setting the stage for one of the biggest public offerings in the tech sector while accelerating the global race for AI dominance.
