Key Points
- OpenAI has transitioned to a for-profit company with a new agreement with Microsoft.
- This deal frees OpenAI to make more partnerships and pursue ambitious AI development plans, including 30 gigawatts of computing resources for $1.4 trillion.
- OpenAI is now valued at $500 billion, making it easier to raise capital and attract talent.
- Microsoft owns 27% of the new entity, secured $250 billion in Azure service purchases, and extended its IP rights.
OpenAI didn’t stay in Microsoft’s shadow for long. Most people already think of it as a tech giant, with ChatGPT making a big impact across the world. But a new agreement with Microsoft, announced on Tuesday, officially makes it so. This deal gives OpenAI the freedom to pursue more partnerships and moves the AI company closer to becoming a major player in Big Tech.
After shaking hands with Microsoft, OpenAI CEO Sam Altman shared his big plans for AI. He said the company aims to develop 30 gigawatts of computing power, at a cost of a massive $1.4 trillion.
This new for-profit deal, like many others in the AI world, is fueled by excited investors and promises of huge growth. It sets both OpenAI and Microsoft on a path to get rich, with benefits for both. Now valued at $500 billion, OpenAI can more easily raise money, hire top talent, and set its own goals without its old nonprofit rules.
Microsoft has already seen about a 10-fold return on its investment. It will now own 27% of the new public benefit corporation and has a deal to purchase $250 billion in Azure services from OpenAI. Microsoft also has the right to use OpenAI’s intellectual property for its models and products until 2032.
But the deal’s details point to a bigger idea. By becoming a traditional for-profit company, OpenAI has removed a major barrier to raising capital and possibly becoming a publicly traded company.
Microsoft was one of the biggest holdouts against OpenAI’s for-profit plan. Others, especially Elon Musk, have criticized OpenAI for moving away from its original nonprofit mission. (Musk’s AI company, xAI, is even suing OpenAI and Apple, claiming they’re unfairly promoting ChatGPT through the App Store.)
It seems the intense race in AI, especially among big tech platforms, has no room for nonprofits. Whatever concerns Microsoft had are now gone. It probably helped that Microsoft and OpenAI have had a very profitable partnership and will likely continue to do so.
OpenAI used Microsoft’s Azure cloud platform, and Microsoft invested billions in the company. Microsoft’s stock has soared thanks to AI, giving it a leading position, arguably ahead of rivals like Amazon and Google.
Following a familiar trend, Microsoft shares went up nearly 4% after the updated partnership was announced. In recent weeks, Walmart, AMD, Broadcom, and Nvidia all saw their stock prices rise after announcing deals with OpenAI.
Even before this change, OpenAI was becoming a central force in the AI world through its many financial ties and partnerships, making it seem too big to fail. Becoming a for-profit company isn’t the final step, and it doesn’t guarantee success. But it will definitely help.
