This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
It didn’t take long for OpenAI to get out from under Microsoft’s (MSFT) shadow.
You’d be forgiven for thinking it was already among the tech giants as ChatGPT makes its mark on the world and embeds itself into phones and minds and (questionable) work products. Tuesday’s new agreement with Microsoft makes it official though: The next chapter in OpenAI’s life frees it up to make even more deals and pushes the AI princeling closer to becoming a Magnificent member of Big Tech.
The for-profit deal, like so many other AI pacts, juiced with investor excitement and the prospects of huge growth, sets both parties on a path to enrich themselves, with mutually reinforcing provisions. Now valued at $500 billion, OpenAI can more easily raise money, hire talent, and define its objectives without its nonprofit robes.
Microsoft, after generating a roughly 10x return already, will own 27% of the new public benefit corporation and has secured a purchase from OpenAI of $250 billion worth of Azure services. The company’s intellectual property rights for OpenAI’s models and products will be extended through 2032.
But the contours of the deal give way to a bigger idea. After restructuring to a traditional for-profit company, OpenAI has removed a major roadblock on the path to raising capital and potentially becoming a publicly traded company.
Microsoft had been one of the most consequential holdouts to OpenAI’s for-profit plan. Other outside parties, most notably Elon Musk, have objected to OpenAI’s deviation from its original nonprofit mission. (Musk’s rival AI company xAI is also suing OpenAI and Apple over allegations of anticompetitive behavior in promoting ChatGPT through the App Store.)
But it appears the AI rat race — at the scale of mega tech platforms — has no place for nonprofits. And whatever objections Microsoft had have since been squashed. It probably helped that Microsoft and OpenAI have enjoyed a lucrative partnership and will probably continue to.
OpenAI relied on the Azure cloud platform, while Microsoft provided billions in investments to OpenAI. The software and cloud giant’s stock has been strapped to the AI rocket ship, and its first-mover status has secured a leadership position, arguably ahead of rivals Amazon (AMZN) and Google (GOOG).
In a now-familiar dynamic, shares of Microsoft rose close to 4% after the updated partnership was announced. In recent weeks, Walmart (WMT), AMD (AMD), Broadcom (AVGO), and Nvidia (NVDA) have all received the OpenAI bump following deal announcements.
