OpenAI for-profit restructuring given go-ahead by Microsoft in new non-binding deal

2 hours ago 3

Microsoft has signed a non-binding memorandum with OpenAI for its next phase
OpenAI may want to go public after it distances itself from Microsoft
It already uses Google and others for compute power

Microsoft and OpenAI have signed a non-binding agreement to restructure OpenAI into a for-profit company.

Details of the agreement have not been confirmed, but OpenAI could ultimately want to go public after raising capital and adopting a more conventional corporate governance model following its huge success in recent years with generative AI.

The news comes after huge investments from Microsoft into the ChatGPT maker, including $1 billion in 2019 and a further huge multibillion-dollar investment in 2023 that later turned out to be worth around $10 billion – around 18% of its total revenue for the second calendar quarter of 2023.

OpenAI to enter its next business phase

“OpenAI and Microsoft have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership,” OpenAI and Microsoft shared.

“We are actively working to finalize contractual terms in a definitive agreement. Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety.”

Under previous terms, Microsoft had exclusive rights to sell OpenAI’s software via Azure and had preferential access to its technology, but this has since changed. Today, Microsoft is no longer OpenAI’s sole compute provider. In July, we learned that Google Cloud would be joining forces with OpenAI for compute power.

OpenAI is also seeking some degree of independence by reducing reliance on third parties, building out its own data center as part of the $500 billion Project Stargate.

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Reuters reporting citing a memo from OpenAI nonprofit board chairman Bret Taylor suggests the nonprofit arm could receive more than $100 billion in funding – about 20% of the $500 billion valuation OpenAI is reportedly seeking in private markets.

However, with regulatory hurdles now standing between OpenAI’s change of structure and its future, quite what the shakeup could mean for the ChatGPT maker remains unclear.

Microsoft’s share price increase peaked at 2.5% in after-hours trading following the announcement, marking investor confidence in its decision to free OpenAI from its reins.