Microsoft unveils 27% stake in OpenAI, shares rise 4%; ChatGPT maker now valued at $500 billion

Microsoft and OpenAI said Tuesday they had reached an agreement to allow the ChatGPT maker to restructure itself into a public benefit company, valuing OpenAI at $500 billion and paving the way for it to become a publicly traded company. Microsoft is said to have a stake of about $135 billion – or 27% – in OpenAI Group PBC, which will be controlled by the OpenAI Foundation, a nonprofit organization. The deal removes a major constraint on raising capital for OpenAI, which was founded as a nonprofit AI safety group and signed a deal with Microsoft in 2019 that gave the Redmond, Washington-based company rights to much of OpenAI’s work in exchange for providing the expensive cloud computing services needed to run it.

Shares of Microsoft rose 4% on the deal, which could pave the way for OpenAI to become publicly traded in the future.

The deal will keep the two companies intertwined with a massive cloud computing contract until at least 2032, with Microsoft retaining some rights to OpenAI products and AI models until then, even as OpenAI reaches artificial general intelligence (AGI), the point where AI systems can rival a well-trained adult human. Microsoft’s previous agreement from 2019 contained many provisions that relied on OpenAI reaching that point, and the new deal requires an independent panel to verify OpenAI’s claims that it has achieved AGI.

“OpenAI has completed its recapitalization, simplifying its corporate structure,” said Bret Taylor, chairman of the OpenAI Foundation, in a blog post. “The nonprofit retains control of the for-profit organization and now has a direct route to key resources before AGI arrives.”

Microsoft has invested $13.8 billion in OpenAI, with the deal on Tuesday implying that Microsoft had achieved a return of nearly ten times its investment.

Gil Luria, head of technology research at DA Davidson, said the deal “resolves the long-standing problem of OpenAI being organized as a not-for-profit organization and governing ownership rights of the technology to Microsoft. The new structure should provide greater clarity on OpenAI’s investment path, facilitating further fundraising.” Microsoft also said it has struck a deal with OpenAI that will see the ChatGPT maker buy $250 billion in Azure cloud computing services. In return, Microsoft will no longer have the right of first refusal to provide computing services to OpenAI.

Microsoft also said it will not have rights to hardware produced by OpenAI. In March, OpenAI bought the startup io Products from former Apple Design Chief Jony Ive for $6.5 billion.