OpenAI and its largest backer, Microsoft (MSFT), are engaged in high-stakes negotiations over the ChatGPT maker’s future. The Financial Times was the first to report on the matter, stating that the two are renegotiating the terms of their multi-billion-dollar partnership. OpenAI is aiming to pursue an initial public offering (IPO) in the future, while Microsoft seeks to secure continued access to OpenAI’s advanced artificial intelligence (AI) models.
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OpenAI and Microsoft’s Roots Run Deep
To date, the tech giant has invested nearly $13.75 billion in the Sam Altman-led AI startup. A key consideration in the negotiation remains how the two will value Microsoft’s equity in OpenAI’s new profit-oriented business. The report suggests that Microsoft is willing to give up a part of its equity stake in exchange for access to OpenAI’s new models developed after 2030. Their original contract, signed when Microsoft first invested $1 billion in 2019, has a cutoff date of 2030, and is also being revised.
Microsoft has invested billions in OpenAI and, in return, has embedded ChatGPT into its platform and apps. Meanwhile, it also provides the large computational power required to run OpenAI’s models through its Azure Cloud platform.
OpenAI Undergoes Strategic Restructuring
OpenAI is exploring several strategic options to enhance its profitability and lucrative investment appeal to investors. Altman has constantly highlighted the importance of transforming OpenAI into a for-profit structure because it has to raise more and more capital for large-scale research and development initiatives. However, last week, the company announced that will abandon pursuing a for-profit conversion, following severe opposition from ex-employees and experts, including co-founder Elon Musk‘s legal injunction.
Having said that, Altman maintained that OpenAI would continue to pursue plans for its business arm to become a public benefit corporation, designed to focus on social good while making profits. Rivals Anthropic and Musk’s xAI follow a similar corporate structure. The proposed for-profit structure would have removed control from OpenAI’s non-profit arm, converting the company entirely into a for-profit entity. In contrast, the IPO is for OpenAI’s business arm, wherein the non-profit will still continue to hold a major stake and influence in governance.
Additionally, OpenAI also said that it will be offering a smaller revenue share to Microsoft as it moves ahead with its broad-based internal restructuring. At the same time, Altman hired Fidgi Simo, CEO of Instacart (CART), to be the new CEO of OpenAI’s Applications Department.
Is Microsoft a Good Stock to Buy Now?
Wall Street remains highly bullish about Microsoft’s long-term stock trajectory. On TipRanks, MSFT stock has a Strong Buy consensus rating based on 30 Buys versus five Hold ratings. Also, the average Microsoft price target of $506.31 implies 15.4% upside potential from current levels. Year-to-date, MSFT stock has gained 4.3%.
