Microsoft, OpenAI reach new deal valuing OpenAI at $500 billion

Microsoft and OpenAI on Tuesday announced that they had reached an agreement allowing the maker of ChatGPT to restructure itself into a public benefit corporation, valuing the company at $500 billion and paving the way for it to become publicly listed.

Under the deal, Microsoft will hold a stake of about $135 billion – or 27% – in OpenAI Group PBC, which will be overseen by the OpenAI Foundation, a non-profit. The agreement removes a major barrier to raising capital for OpenAI, which was originally founded as a non-profit AI safety organisation. In 2019, OpenAI signed a deal with Microsoft granting the Redmond-based firm rights over much of its work in exchange for costly cloud computing services.

Microsoft shares rose 4% following the announcement, which analysts said could accelerate OpenAI's path to becoming a publicly traded company.

The deal binds the two firms until at least 2032 through a vast cloud computing contract, with Microsoft retaining rights to certain OpenAI products and AI models even if the company achieves artificial general intelligence (AGI) – the point at which AI systems can match the reasoning ability of a well-educated human adult. Unlike the 2019 agreement, the new deal requires an independent panel to verify any claim by OpenAI that it has reached AGI.

"OpenAI has completed its recapitalisation, simplifying its corporate structure," Bret Taylor, chair of the OpenAI Foundation's board, said in a blog post. "The non-profit remains in control of the for-profit, and now has a direct path to major resources before AGI arrives."

Microsoft has so far invested $13.8 billion in OpenAI, with Tuesday's deal implying a return of nearly ten times its investment.

Gil Luria, head of technology research at DA Davidson, said the agreement "resolves the longstanding issue of OpenAI being organised as a not-for-profit and settles the ownership rights of the technology vis-à-vis Microsoft. The new structure should provide more clarity on OpenAI's investment path, thus facilitating further fundraising."

Microsoft also confirmed that OpenAI will purchase $250 billion worth of Azure cloud computing services. In return, Microsoft will no longer hold the right of first refusal to provide computing services to OpenAI.

The tech giant further stated it will not have rights to any hardware produced by OpenAI. In March, OpenAI acquired former Apple design chief Jony Ive's start-up, io Products, in a $6.5 billion deal.