Microsoft and OpenAI Renegotiate Partnership Amid AI Advancements

Microsoft's Access to OpenAI Tech Is Focus of Contract Talks

Microsoft Corp. is in advanced talks to land a deal that could give it ongoing access to critical OpenAI technology, an agreement that would remove a major obstacle to the startup's efforts to become a for-profit enterprise. The companies have discussed new terms that would let Microsoft use OpenAI's latest models and other technology even if the startup decides it has reached its goal of building a more powerful form of AI known as artificial general intelligence (AGI), according to two people familiar with the negotiations. Under the current contract, OpenAI attaining AGI is seen as a major milestone at which point Microsoft would lose some rights to OpenAI technology.

Microsoft in advanced talks for continued access to OpenAI tech, Bloomberg News reports

July 29 (Reuters) - Microsoft (MSFT.O), opens new tab is in advanced talks for a deal that would give the Windows maker continued access to critical OpenAI technology in the future, Bloomberg News reported on Tuesday, citing two people familiar with the negotiations. The companies have discussed new terms that would allow Microsoft to use OpenAI's latest models and technology even if the ChatGPT maker declares it has achieved artificial general intelligence (AGI), or AI that surpasses human intelligence, the report said. A clause in OpenAI's current contract with Microsoft will shut the software giant out of some rights to the startup's advanced technology when it achieves AGI. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, Bloomberg News reported. Microsoft and OpenAI did not immediately respond to a Reuters request for comment. OpenAI needs Microsoft's approval to complete its transition into a public-benefit corporation. The two have been in negotiations for months to revise the terms of their investment, including the future equity stake Microsoft will hold in OpenAI. Last month, The Information reported that Microsoft and OpenAI were at odds over the AGI clause. OpenAI is also facing a lawsuit from Elon Musk, who co-founded the company with Sam Altman in 2015 but left before it surged in popularity, accusing OpenAI of straying from its founding mission -- to develop AI for the good of humanity, not corporate profit. Microsoft is set to report June quarter earnings on Wednesday, with its relationship with OpenAI in the spotlight, as the startup turns to rivals Google (GOOGL.O), opens new tab, Oracle and CoreWeave (CRWV.O), opens new tab for cloud capacity. Reporting by Deborah Sophia in Bengaluru; Editing by Sahal Muhammed Our Standards: The Thomson Reuters Trust Principles., opens new tab

Microsoft in advanced talks for continued access to OpenAI tech, Bloomberg reports

July 29 (Reuters) - Microsoft (MSFT.O), opens new tab is in advanced talks for a deal that would give the Windows maker continued access to critical OpenAI technology in the future, Bloomberg News reported on Tuesday, citing two people familiar with the negotiations. The companies have discussed new terms that would allow Microsoft to use OpenAI's latest models and technology even if the ChatGPT maker declares it has achieved artificial general intelligence (AGI), or AI that surpasses human intelligence, the report said. A clause in OpenAI's current contract with Microsoft will shut the software giant out of some rights to the startup's advanced technology when it achieves AGI. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, Bloomberg News reported. OpenAI did not immediately respond to a Reuters request for comment, while Microsoft declined to comment. OpenAI needs Microsoft's approval to complete its transition into a public-benefit corporation. The two have been in negotiations for months to revise the terms of their investment, including the future equity stake Microsoft will hold in OpenAI. Last month, the Information reported that Microsoft and OpenAI were at odds over the AGI clause. OpenAI is also facing a lawsuit from Elon Musk, who co-founded the company with Sam Altman in 2015 but left before it surged in popularity, accusing OpenAI of straying from its founding mission -- to develop AI for the good of humanity, not corporate profit. Microsoft is set to report June-quarter earnings on Wednesday, with its relationship with OpenAI in the spotlight, as the startup turns to rivals Google (GOOGL.O), opens new tab, Oracle and CoreWeave (CRWV.O), opens new tab for cloud capacity. Reporting by Deborah Sophia in Bengaluru; Editing by Sahal Muhammed and Maju Samuel Our Standards: The Thomson Reuters Trust Principles., opens new tab

Microsoft's AI edge under scrutiny as OpenAI turns to rivals for cloud services

July 29 (Reuters) - Microsoft (MSFT.O), opens new tab investors head into Wednesday's earnings with one big question: is the company's artificial intelligence edge at risk as partner OpenAI turns to rivals Google, Oracle and CoreWeave (CRWV.O), opens new tab for cloud services? Exclusive licensing deals and access to OpenAI's cutting-edge models have made Microsoft one of the biggest winners of the generative AI boom, fueling growth in its Azure cloud business and pushing its market value toward $4 trillion. In the April-June quarter, the tie-up is expected to have driven a 34.8% increase in Azure revenue, in line with the company's forecast and higher than the 33% rise in the previous three months, according to data from Visible Alpha. But that deal is being renegotiated as OpenAI eyes a public listing, with media reports suggesting a deadlock over how much access Microsoft will retain to ChatGPT maker's technology and its stake if OpenAI converts into a public-benefit corporation. The conversion cannot proceed without Microsoft's sign-off and is crucial for a $40 billion funding round led by Japanese conglomerate SoftBank Group, $20 billion of which is contingent on the restructuring being completed by the end of the year. OpenAI, which recently deepened its Oracle tie-up with a planned 4.5 gigawatts data center capacity, has also added Google Cloud among its suppliers for computing capacity. UBS analysts said investor views on the Microsoft-OpenAI partnership are divided, though the software giant holds an upper hand. "Microsoft's leadership earned enough credibility ... such that the company will end up negotiating terms that will be in the interest of its shareholders," the analysts said. Some of that confidence is reflected in the company's stock price, which has risen by more than a fifth so far this year. In the April-June period, Microsoft's fiscal fourth quarter, the company likely benefited from a weaker dollar, stronger non-AI Azure demand and PC makers pulling forward orders for its Windows products ahead of possible U.S. tariffs. Revenue is expected to have risen 14% to $73.81 billion, according to data compiled by LSEG, its best growth in three quarters. Profit is estimated to have increased 14.2% to $25.16 billion, slightly slower than the previous quarter as operating costs rose. Capital spending will also be in focus after rival Alphabet (GOOGL.O), opens new tab raised its annual outlay by $10 billion last week. Microsoft has repeatedly said it remains capacity constrained on AI, and in April signaled continued growth in capex after planned spending of over $80 billion last fiscal year, though at a slower pace and on shorter-lived assets such as AI chips. Dan Morgan, senior portfolio manager at Synovus Trust who owns Microsoft shares, said the spending has been paying off. "Investors may still be underestimating the potential for Microsoft's AI business to drive durable consumption growth in the agentic AI era." Reporting by Aditya Soni in Bengaluru; Editing by Shinjini Ganguli Our Standards: The Thomson Reuters Trust Principles., opens new tab

Microsoft and OpenAI try to rebalance their relationship

Why it matters: The rising tensions are a reflection of how much the world has changed in the six years since the two companies placed their fate in each other's hands, sources tell Axios. * Despite recent efforts to diversify, each company still relies heavily on the other. State of play: Microsoft and OpenAI are renegotiating partly because Microsoft must sign off on OpenAI's plan to revamp its business into a fully for-profit entity. * OpenAI has made restructuring a key priority, giving recent investors financial recourse if the conversion doesn't happen within months. * SoftBank, for example, could reduce the billions of dollars it has promised to invest if the restructuring isn't complete by year's end. * The plan would convert Microsoft's 49% stake in a capped-profit entity into a share of the company's overall business -- a calculation that also dictates how much of the business will go to OpenAI's nonprofit arm, employees and other investors like SoftBank and Khosla Ventures. * The two sides also disagree over how to divide future revenue from their joint business over the coming years. Yes, but: While ownership stakes and revenue shares are a driving factor in renegotiating the deal, both sides have other terms they would like to see changed. * Tensions are high, some of which came to the surface when OpenAI sought to acquire AI coding startup Windsurf, a deal that was eventually scuttled. What Microsoft wants * Continued access to OpenAI's technology: Microsoft currently has rights to all of OpenAI's models and technology. But those rights get significantly curtailed once OpenAI has achieved so-called artificial general intelligence, a vague term that usually means AI that can outperform humans at a range of business tasks. What OpenAI wants * Changes to the business structure: First and foremost, OpenAI needs to convert Microsoft's stake in the capped-profit business into a more typical ownership percentage in order to move forward with the restructuring. * Choice when it comes to cloud providers: OpenAI initially had to acquire all its computing horsepower to train and operate ChatGPT and OpenAI's other services from Microsoft. OpenAI has since brokered some flexibility, but its needs have grown enormously and the ChatGPT-maker is looking to build compute capacity at a scale that could dwarf Microsoft's other computing needs. * Also, under the current deal customers can only get OpenAI services through Microsoft or via OpenAI. OpenAI would also like to be able to deliver its services directly from other popular cloud providers, like Amazon Web Services. Between the lines: Both companies are working to reduce their mutual dependence. * Microsoft has its own Phi family of small language models and its Azure AI Foundry hosts other models, including Meta's Llama and OpenAI's Grok, as well as the DeepSeek models developed in China. * OpenAI's Stargate data center projects involve SoftBank, Oracle and, in some cases, foreign governments and investors. The company has also made a deal to get some cloud computing capacity from Google. The other side: While both companies are hedging their bets, their fortunes remain deeply intertwined. * Microsoft, for example, disclosed as part of Wednesday's earnings report that Azure is now a $75 billion per year business. OpenAI drives a significant chunk of that revenue and is key to Microsoft's ability to compete with Google, Anthropic and others. What they're saying: Neither Microsoft nor OpenAI would talk on the record about the discussions. However, sources say reports of a frayed relationship are overblown.

Microsoft nears OpenAI agreement for ongoing tech access

Microsoft Corp. is in advanced talks to land a deal that could give it ongoing access to critical OpenAI technology, an agreement that would remove a major obstacle to the startup's efforts to become a for-profit enterprise. The companies have discussed new terms that would let Microsoft use OpenAI's latest models and other technology even if the startup decides it has reached its goal of building a more powerful form of AI known as artificial general intelligence (AGI), according to two people familiar with the negotiations. Under the current contract, OpenAI attaining AGI is seen as a major milestone at which point Microsoft would lose some rights to OpenAI technology. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, according to three people with knowledge of the situation, who requested anonymity to discuss a private matter. OpenAI Chief Executive Officer Sam Altman and Satya Nadella, his Microsoft counterpart, discussed the restructuring at the Allen & Co. conference in Sun Valley, Idaho, earlier this month, two of the people said. While the tone of the talks has been positive, some of the people cautioned that the deal isn't finalized and could hit new roadblocks. Moreover, OpenAI's restructuring plans face other complications, including regulatory scrutiny and a lawsuit filed by Elon Musk, an early backer who split with the company and accused the startup of defrauding investors about its commitment to its charitable mission. (OpenAI has pushed back at Musk's claims and said the billionaire is trying to slow down the company.) Negotiations over OpenAI's future as a profit-company have dragged on for months. Microsoft, which backed OpenAI with some $13.75 billion and has the right to use its intellectual property, is the biggest holdout among the ChatGPT maker's investors, Bloomberg previously reported. At issue is the size of Microsoft's stake in the newly configured company. The talks have since broadened into a renegotiation of their relationship, with the software maker seeking to avoid suddenly losing access to the startup's technology before the end of the current deal, which expires in 2030. Microsoft and OpenAI declined to comment. A fraying partnership The partnership between the two companies helped inaugurate the AI age. Microsoft built the supercomputer that OpenAI used to develop the language models behind ChatGPT and, in exchange, won the right to bake the technology into its software offerings. The relationship began to fray when the OpenAI board fired (and then rehired) Altman in November 2023, an episode that shook Microsoft's faith in its partner. The rift only widened when the two companies began competing for the same customers -- consumers who use their chatbots at home and corporations that have deployed the AI assistants to boost office productivity. Even as executives publicly touted their close ties, OpenAI sought to loosen its dependence on Microsoft, winning permission to build data centers and other AI infrastructure with rival companies. OpenAI is eager to alter its complicated nonprofit structure, in part to secure additional funding to keep building data centers to power its next-generation AI models. SoftBank Group Corp., which has said it would back OpenAI with tens of billions of dollars, has the option to reduce that outlay if OpenAI's restructuring isn't completed by the end of the year. OpenAI wants a larger slice of the revenue currently shared with Microsoft, and has sought adjustments to Microsoft's access to its intellectual property, two of the people said. Microsoft is looking for continued access to OpenAI technology after the current contract expires in 2030. There are a range of concerns for OpenAI. The startup wants to ensure its business is well-positioned with whatever share of revenue and equity Microsoft receives, in part to guarantee its nonprofit will be well-resourced with a significant stake in OpenAI, one person said. OpenAI also wants the ability to offer customers distinct products built on top of its models even if Microsoft has access to the same technology, the person said. And OpenAI wants to be able to find a way to provide its services to more customers, including government providers, not all of which are on Azure, Microsoft's cloud computing platform, the person said. At the same time, OpenAI seeks to guarantee that Microsoft adheres to strict safety standards when deploying OpenAI's technology, especially as it gets closer to AGI, the person said. The AGI question Reaching agreement on what happens once OpenAI achieves artificial general intelligence has been particularly thorny. It's not clear why the language is in the contract, but it gives OpenAI a built-in way to strike out on its own just as its technology matures. The startup publicly defines AGI as "highly autonomous systems that outperform humans at the most economically valuable work." The existing contract has separate clauses related to that threshold, which can be triggered by technical or business milestones, according to two people familiar with the matter. OpenAI's board has the right to determine when the company has reached AGI on a technical level. Under that scenario, Microsoft would lose access to technology developed beyond that point, one of the people said. The business milestone would arrive once OpenAI has demonstrated it can reach around $100 billion in total profits for investors, including Microsoft, giving it the wherewithal to repay the return Microsoft is entitled to under the existing contract, one person said. In that scenario, Microsoft would lose its rights to OpenAI technology, including products developed before that trigger, another person said. Microsoft has the right to weigh in on the business milestone, but if the two companies end up at odds over the claim, they could wind up in court, two people said. Another provision in the current contract bars Microsoft from pursuing AGI technology itself, some of the people said. Microsoft, for its part, has demonstrated some flexibility in revised contract terms. The company agreed to waive some intellectual property rights related to OpenAI's $6.5 billion acquisition of io, the startup co-founded by iPhone designer Jony Ive, two of the people said. The software giant was less accommodating over OpenAI's proposed acquisition of AI coding startup Windsurf, the people said. That deal fell apart earlier this month, in part because of the tension with Microsoft, Bloomberg reported. Windsurf, which sells coding tools that compete with Microsoft's products, didn't want the tech giant to have access to its intellectual property -- a condition that OpenAI was unsuccessful in getting Microsoft's agreement on, people familiar said. Ultimately, Windsurf's co-founders and a small group of staffers agreed to join Alphabet Inc.'s Google in a $2.4 billion deal. In recent weeks, the companies have been negotiating Microsoft's ownership in a restructured OpenAI -- with the two sides discussing an equity stake for Microsoft in the low- to mid-30% range, according to a person familiar with the matter. The Financial Times previously reported on the stake talks. But if Microsoft deems the stake and other changes to the contract insufficient, the company is willing to abandon the talks and stick with the current contract terms, another person said. "If a deal were to be signed, it would take away a hurdle, at least from the investor's perspective," Kash Rangan, an analyst at Goldman Sachs, said in an interview with Bloomberg Television on Tuesday. "Both parties have so much to gain from this." 2025 Bloomberg L.P. Distributed by Tribune Content Agency, LLC.

Microsoft pushes for AGI-proof deal with OpenAI

As OpenAI explores going fully for-profit, Microsoft is pushing for a larger stake and long-term rights. Microsoft and OpenAI are reportedly engaged in advanced discussions concerning a new agreement. This agreement aims to secure Microsoft's continued access to OpenAI's technology, even in the event that OpenAI achieves artificial general intelligence (AGI). According to a Bloomberg report citing anonymous sources, these negotiations have been ongoing for several months with the intention of facilitating OpenAI's transition into a fully commercial enterprise. The prospective agreement is designed to address potential limitations within OpenAI's current operational structure. OpenAI is presently structured as a mission-driven nonprofit organization with oversight over a capped for-profit entity. This unique arrangement is intended to restrict the extent to which OpenAI can fully commercialize its products or raise capital. Despite having already raised billions of dollars and functioning similarly to a traditional technology company, OpenAI desires to remove these constraints. Microsoft finds a major privacy flaw in Apple's Spotlight search Microsoft, as OpenAI's primary financial backer, having invested $13.75 billion and securing rights to some of OpenAI's intellectual property, has presented what Bloomberg describes as "meaningful roadblocks" to OpenAI's transition to a fully for-profit model. These discussions have reportedly been protracted. Microsoft seeks a larger ownership stake in the restructured company. It also aims to ensure its access to OpenAI's technology extends beyond the existing agreement, scheduled to expire in 2030 or upon OpenAI's declaration of achieving AGI. Microsoft's Azure OpenAI Service is built upon OpenAI's models. The company has integrated OpenAI's technology into Copilot across platforms such as Windows, Office, and GitHub. A premature cutoff of access to OpenAI's technology, triggered by a declaration of achieving AGI, would represent a significant strategic setback for Microsoft. OpenAI has also reportedly indicated to its investors an expectation to pay Microsoft a reduced share of its revenue as the company progresses. One source revealed to Bloomberg that OpenAI also aims to secure guarantees that Microsoft will deploy its technology in a safe manner, particularly as AGI becomes a closer reality. The pursuit of safety measures reflects a growing concern as AI capabilities advance. The transition of OpenAI into a fully for-profit company presents potential benefits for Microsoft. The current structure imposes limits on investor returns, whereas a standard for-profit structure would enable Microsoft to receive formal equity and potentially significant financial returns, in addition to retaining access to OpenAI's technology. Bloomberg reports that the ongoing negotiations involve a potential equity stake for Microsoft in the "low- to mid-30% range."

Microsoft's AI edge under scrutiny as OpenAI turns to rivals for cloud services - The Economic Times

Exclusive licensing deals and access to OpenAI's cutting-edge models have made Microsoft one of the biggest winners of the generative AI boom, fueling growth in its Azure cloud business and pushing its market value toward $4 trillion.Microsoft investors head into Wednesday's earnings with one big question: is the company's artificial intelligence edge at risk as partner OpenAI turns to rivals Google, Oracle and CoreWeave for cloud services? Exclusive licensing deals and access to OpenAI's cutting-edge models have made Microsoft one of the biggest winners of the generative AI boom, fueling growth in its Azure cloud business and pushing its market value toward $4 trillion. In the April-June quarter, the tie-up is expected to have driven a 34.8% increase in Azure revenue, in line with the company's forecast and higher than the 33% rise in the previous three months, according to data from Visible Alpha. But that deal is being renegotiated as OpenAI eyes a public listing, with media reports suggesting a deadlock over how much access Microsoft will retain to ChatGPT maker's technology and its stake if OpenAI converts into a public-benefit corporation. The conversion cannot proceed without Microsoft's sign-off and is crucial for a $40 billion funding round led by Japanese conglomerate SoftBank Group, $20 billion of which is contingent on the restructuring being completed by the end of the year. OpenAI, which recently deepened its Oracle tie-up with a planned 4.5 gigawatts data center capacity, has also added Google Cloud among its suppliers for computing capacity. UBS analysts said investor views on the Microsoft-OpenAI partnership are divided, though the software giant holds an upper hand. "Microsoft's leadership earned enough credibility ... such that the company will end up negotiating terms that will be in the interest of its shareholders," the analysts said. Some of that confidence is reflected in the company's stock price, which has risen by more than a fifth so far this year. In the April-June period, Microsoft's fiscal fourth quarter, the company likely benefited from a weaker dollar, stronger non-AI Azure demand and PC makers pulling forward orders for its Windows products ahead of possible U.S. tariffs. Revenue is expected to have risen 14% to $73.81 billion, according to data compiled by LSEG, its best growth in three quarters. Profit is estimated to have increased 14.2% to $25.16 billion, slightly slower than the previous quarter as operating costs rose. Capital spending will also be in focus after rival Alphabet raised its annual outlay by $10 billion last week. Microsoft has repeatedly said it remains capacity constrained on AI, and in April signaled continued growth in capex after planned spending of over $80 billion last fiscal year, though at a slower pace and on shorter-lived assets such as AI chips. Dan Morgan, senior portfolio manager at Synovus Trust who owns Microsoft shares, said the spending has been paying off. "Investors may still be underestimating the potential for Microsoft's AI business to drive durable consumption growth in the agentic AI era."

Microsoft's access to OpenAI tech is focus of contract talks - The Economic Times

The companies have discussed new terms that would let Microsoft use OpenAI's latest models and other technology even if the startup decides it has reached its goal of building a more powerful form of AI known as artificial general intelligence (AGI), according to two people familiar with the negotiations. Microsoft Corp. is in advanced talks to land a deal that could give it ongoing access to critical OpenAI technology, an agreement that would remove a major obstacle to the startup's efforts to become a for-profit enterprise. The companies have discussed new terms that would let Microsoft use OpenAI's latest models and other technology even if the startup decides it has reached its goal of building a more powerful form of AI known as artificial general intelligence (AGI), according to two people familiar with the negotiations. Under the current contract, OpenAI attaining AGI is seen as a major milestone at which point Microsoft would lose some rights to OpenAI technology. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, according to three people with knowledge of the situation, who requested anonymity to discuss a private matter. OpenAI Chief Executive Officer Sam Altman and Satya Nadella, his Microsoft counterpart, discussed the restructuring at the Allen & Co. conference in Sun Valley, Idaho, earlier this month, two of the people said. While the tone of the talks has been positive, some of the people cautioned that the deal isn't finalized and could hit new roadblocks. Moreover, OpenAI's restructuring plans face other complications, including regulatory scrutiny and a lawsuit filed by Elon Musk, an early backer who split with the company and accused the startup of defrauding investors about its commitment to its charitable mission. (OpenAI has pushed back at Musk's claims and said the billionaire is trying to slow down the company.) Negotiations over OpenAI's future as a profit-company have dragged on for months. Microsoft, which backed OpenAI with some $13.75 billion and has the right to use its intellectual property, is the biggest holdout among the ChatGPT maker's investors, Bloomberg previously reported. At issue is the size of Microsoft's stake in the newly configured company. The talks have since broadened into a renegotiation of their relationship, with the software maker seeking to avoid suddenly losing access to the startup's technology before the end of the current deal, which expires in 2030. Microsoft and OpenAI declined to comment. A fraying partnership The partnership between the two companies helped inaugurate the AI age. Microsoft built the supercomputer that OpenAI used to develop the language models behind ChatGPT and, in exchange, won the right to bake the technology into its software offerings. The relationship began to fray when the OpenAI board fired (and then rehired) Altman in November 2023, an episode that shook Microsoft's faith in its partner. The rift only widened when the two companies began competing for the same customers -- consumers who use their chatbots at home and corporations that have deployed the AI assistants to boost office productivity. Even as executives publicly touted their close ties, OpenAI sought to loosen its dependance on Microsoft, winning permission to build data centers and other AI infrastructure with rival companies. OpenAI is eager to alter its complicated nonprofit structure, in part to secure additional funding to keep building data centers to power its next-generation AI models. SoftBank Group Corp., which has said it would back OpenAI with tens of billions of dollars, has the option to reduce that outlay if OpenAI's restructuring isn't completed by the end of the year. OpenAI wants a larger slice of the revenue currently shared with Microsoft, and has sought adjustments to Microsoft's access to its intellectual property, two of the people said. Microsoft is looking for continued access to OpenAI technology after the current contract expires in 2030. There are range of concerns for OpenAI. The startup wants to ensure its business is well-positioned with whatever share of revenue and equity Microsoft receives in part to guarantee its nonprofit will be well-resourced with a significant stake in OpenAI, one person said. OpenAI also wants the ability to offer customers distinct products built on top of its models even if Microsoft has access to the same technology, the person said. And OpenAI wants to be able to find a way to provide its services to more customers, including government providers, not all of which are on Azure, Microsoft's cloud computing platform, the person said. At the same time, OpenAI seeks to guarantee that Microsoft adheres to strict safety standards when deploying OpenAI's technology, especially as it gets closer to AGI, the person said. The AGI question Reaching agreement on what happens once OpenAI achieves artificial general intelligence has been particularly thorny. It's not clear why the language is in the contract, but it gives OpenAI a built-in way to strike out on its own just as its technology matures. The startup publicly defines AGI as "highly autonomous systems that outperform humans at most economically valuable work." The existing contract has separate clauses related to that threshold, which can be triggered by technical or business milestones, according to two people familiar with the matter. OpenAI's board has the right to determine when the company has reached AGI on a technical level. Under that scenario, Microsoft would lose access to technology developed beyond that point, one of the people said. The business milestone would arrive once OpenAI has demonstrated it can reach around $100 billion in total profits for investors including Microsoft -- giving it the wherewithal to repay the return Microsoft is entitled to under the existing contract, one person said. In that scenario, Microsoft would lose its rights to OpenAI technology, including products developed before that trigger, another person said. Microsoft has the right to weigh in on the business milestone, but if the two companies end up at odds over the claim, they could wind up in court, two people said. Another provision in the current contract bars Microsoft from pursuing AGI technology itself, some of the people said. Microsoft, for its part, has demonstrated some flexibility in revised contract terms. The company agreed to waive some intellectual property rights related to OpenAI's $6.5 billion acquisition of io, the startup co-founded by iPhone designer Jony Ive, two of the people said. The software giant was less accomodating over OpenAI's proposed acquisition of AI coding startup Windsurf, the people said. That deal fell apart earlier this month, in part because of the tension with Microsoft, Bloomberg reported. Windsurf, which sells coding tools that compete with Microsoft's products, didn't want the tech giant to have access to its intellectual property -- a condition that OpenAI was unsuccessful in getting Microsoft's agreement on, people familiar said. Ultimately, Windsurf's co-founders and a small group of staffers agreed to join Alphabet Inc.'s Google in a $2.4 billion deal. In recent weeks, the companies have been negotiating Microsoft's ownership in a restructured OpenAI -- with the two sides discussing an equity stake for Microsoft in the low- to mid-30% range, according to a person familiar with the matter. The Financial Times previously reported on the stake talks. But if Microsoft deems the stake and other changes to the contract insufficient, the company is willing to abandon the talks and stick with the current contract terms, another person said.

Microsoft Seeks to Extend Access to OpenAI Technology | PYMNTS.com

Under the companies' current deal, Microsoft would lose access to any new technology from OpenAI when that company's board determines it has developed AGI, Bloomberg reported Tuesday (July 29). This provision has been a barrier to OpenAI's efforts to transform itself into a for-profit corporation, and a new agreement could help it move toward that goal, according to the report. The companies could reach an agreement within weeks, although things could change because a deal has not been finalized, the report said, citing unnamed sources. Neither Microsoft nor OpenAI immediately replied to PYMNTS' request for comment. The companies have been renegotiating their relationship since OpenAI announced its plans to become a for-profit company, according to the report. Microsoft, which has invested about $13.75 billion in OpenAI, has blocked the move because of disputes about the size of its stake in the company and its access to OpenAI's technology, the report said. It was reported in September that OpenAI planned to restructure its core business into a for-profit benefit corporation that wouldn't be controlled by its nonprofit board. The planned restructuring would make the company more attractive to investors, as it would operate more like a typical startup. OpenAI was founded in 2015 as a nonprofit AI research organization and added a for-profit entity called OpenAI LP as a subsidiary of the nonprofit. It was reported in December that Microsoft and OpenAI had been in talks since October about how to restructure the AI firm. At that time, it was reported that the talks centered on Microsoft's equity stake in the for-profit entity; whether Microsoft would continue to be OpenAI's exclusive cloud provider; how long Microsoft would maintain its right to use OpenAI's intellectual property in its products; and whether Microsoft would continue to take 20% of OpenAI's revenue.

Microsoft, OpenAI discuss contract details, with focus on startup's tech

Create a free Seeking Alpha account to access breaking news and valuable research tools " Microsoft (NASDAQ:MSFT) is in advanced discussions to sign a deal that could give it ongoing access to vital OpenAI technology, an agreement that would remove a major hurdle to the AI startup's efforts to become a for-profit organization, Bloomberg News reported citing people with knowledge of the matter. The companies have talked about new terms that would let Microsoft use OpenAI's latest models and other technology even if the ChatGPT decides it has reached its goal of building artificial general intelligence, or AGI, the report added. AGI refers to the hypothetical intelligence of a machine that has the ability to understand or learn any intellectual task that a human can. Microsoft and OpenAI did not immediately respond to a request for comment from Seeking Alpha. Under the current agreement, OpenAI reaching AGI is seen as a major mark, at which point Microsoft would lose some rights to OpenAI technology. Negotiators have been meeting regularly and an agreement may come together in some weeks. Earlier this month, Microsoft's CEO Satya Nadella and OpenAI CEO Sam Altman discussed the restructuring at the Allen & Co. conference in Sun Valley Idaho, the report noted. However, the deal is not finalized and could hit new hurdles, according to the report. Discussions over OpenAI's future as a profit-company have been going on for months. Microsoft, which backed OpenAI with about $13.75B and has the right to use the startup's intellectual property, is the biggest holdout among OpenAI's investors, the news agency reported previously. At issue is the size of Microsoft's stake in the newly configured company. The discussions have since broadened into a renegotiation of their relationship, with Microsoft looking to avoid suddenly losing access to OpenAI's technology before the end of the current deal, which ends in 2030, according to the report. OpenAI wants a larger part of the revenue currently shared with Microsoft, and is seeking adjustments to Microsoft's access to its intellectual property, the report added. Microsoft is seeking continued access to OpenAI technology after the current contract expires in 2030. There are concerns for OpenAI. The company wants to make sure that its business is well-positioned with whatever share of revenue and equity Microsoft receives in part to guarantee its nonprofit will be well-resourced with a significant stake in OpenAI, the report noted. The startup also wants the ability to offer customers different products made on top of its models even if Microsoft has access to the same technology. OpenAI wants to be able to find a way to provide its services to more customers, including government providers, not all of which are on Microsoft's cloud computing platform Azure, according to the report. In addition, OpenAI is looking to guarantee that Microsoft abides by strict safety standards when deploying the company's technology, especially as it gets closer to AGI. OpenAI publicly defines AGI as "highly autonomous systems that outperform humans at most economically valuable work." The current contract has separate clauses related to that mark, which can be triggered by technical or business milestones, the report noted. OpenAI's board has the right to decide when the company has reached AGI on a technical level. Under this scenario, Microsoft would lose access to technology developed beyond that point, as per the report. The business milestone would be reached when OpenAI has shown it can get to about $100B in total profits for investors including Microsoft -- giving it the wherewithal to repay the return Microsoft is entitled to under the current agreement. In this scenario, Microsoft would lose its rights to OpenAI technology, including products developed before that trigger, the report added. The U.S. software giant has the right to decide on the business milestone, but if the two companies do not agree over the claim, they could end up in court. Another provision in the current contract restricts Microsoft from pursuing AGI technology itself, the report noted. Microsoft had agreed to waive some intellectual property rights related to OpenAI's $6.5B acquisition of io, the startup co-founded by iPhone designer Jony Ive, the report stated. However, Microsoft was less inclined towards OpenAI's proposed acquisition of AI coding startup Windsurf. That deal did not go through, in part because of the tension with Microsoft, the report added. Windsurf sells coding tools that compete with Microsoft's products and it did not want Microsoft to access to its intellectual property, a clause that OpenAI was unsuccessful in getting Microsoft's agreement on, the report noted. Later Windsurf's co-founders and a small group of employees agreed to join Alphabet's (GOOG) (GOOGL) Google in a $2.4B deal. The companies have been negotiating Microsoft's ownership in a restructured OpenAI, with the two companies discussing an equity stake for Microsoft in the low- to mid-30% range, the report noted. The Financial Times had previously reported on discussions related to the stake. However, if Microsoft thinks the stake and other changes to the contract are not enough, the company is willing to end the talks and stick with the current contract terms, the report added. More on Microsoft Today's chaos. 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Microsoft's AI edge under scrutiny as OpenAI turns to rivals for cloud services

Exclusive licensing deals and access to OpenAI's cutting-edge models have made Microsoft one of the biggest winners of the generative AI boom, fueling growth in its Azure cloud business and pushing its market value toward US$4 trillion. In the April-June quarter, the tie-up is expected to have driven a 34.8 per cent increase in Azure revenue, in line with the company's forecast and higher than the 33 per cent rise in the previous three months, according to data from Visible Alpha. But that deal is being renegotiated as OpenAI eyes a public listing, with media reports suggesting a deadlock over how much access Microsoft will retain to ChatGPT maker's technology and its stake if OpenAI converts into a public-benefit corporation. The conversion cannot proceed without Microsoft's sign-off and is crucial for a US$40 billion funding round led by Japanese conglomerate SoftBank Group, US$20 billion of which is contingent on the restructuring being completed by the end of the year. OpenAI, which recently deepened its Oracle tie-up with a planned 4.5 gigawatts data center capacity, has also added Google Cloud among its suppliers for computing capacity. UBS analysts said investor views on the Microsoft-OpenAI partnership are divided, though the software giant holds an upper hand. "Microsoft's leadership earned enough credibility ... such that the company will end up negotiating terms that will be in the interest of its shareholders," the analysts said. Some of that confidence is reflected in the company's stock price, which has risen by more than a fifth so far this year. In the April-June period, Microsoft's fiscal fourth quarter, the company likely benefited from a weaker dollar, stronger non-AI Azure demand and PC makers pulling forward orders for its Windows products ahead of possible U.S. tariffs. Revenue is expected to have risen 14 per cent to US$73.81 billion, according to data compiled by LSEG, its best growth in three quarters. Profit is estimated to have increased 14.2 per cent to US$25.16 billion, slightly slower than the previous quarter as operating costs rose. Capital spending will also be in focus after rival Alphabet raised its annual outlay by US$10 billion last week. Microsoft has repeatedly said it remains capacity constrained on AI, and in April signaled continued growth in capex after planned spending of over US$80 billion last fiscal year, though at a slower pace and on shorter-lived assets such as AI chips. Dan Morgan, senior portfolio manager at Synovus Trust who owns Microsoft shares, said the spending has been paying off. "Investors may still be underestimating the potential for Microsoft's AI business to drive durable consumption growth in the agentic AI era." ---

Microsoft in advanced talks for continued access to OpenAI tech, Bloomberg News reports

(Reuters) -Microsoft is in advanced talks for a deal that would give the Windows maker continued access to critical OpenAI technology in the future, Bloomberg News reported on Tuesday, citing two people familiar with the negotiations. The companies have discussed new terms that would allow Microsoft to use OpenAI's latest models and technology even if the ChatGPT maker declares it has achieved artificial general intelligence (AGI), or AI that surpasses human intelligence, the report said. A clause in OpenAI's current contract with Microsoft will shut the software giant out of some rights to the startup's advanced technology when it achieves AGI. Negotiators have been meeting regularly, and an agreement could come together in a matter of weeks, Bloomberg News reported. Microsoft and OpenAI did not immediately respond to a Reuters request for comment. OpenAI needs Microsoft's approval to complete its transition into a public-benefit corporation. The two have been in negotiations for months to revise the terms of their investment, including the future equity stake Microsoft will hold in OpenAI. Last month, The Information reported that Microsoft and OpenAI were at odds over the AGI clause. OpenAI is also facing a lawsuit from Elon Musk, who co-founded the company with Sam Altman in 2015 but left before it surged in popularity, accusing OpenAI of straying from its founding mission -- to develop AI for the good of humanity, not corporate profit. Microsoft is set to report June quarter earnings on Wednesday, with its relationship with OpenAI in the spotlight, as the startup turns to rivals Google, Oracle and CoreWeave for cloud capacity. (Reporting by Deborah Sophia in Bengaluru; Editing by Sahal Muhammed)

Microsoft's AI edge under scrutiny as OpenAI turns to rivals for cloud services

(Reuters) -Microsoft investors head into Wednesday's earnings with one big question: is the company's artificial intelligence edge at risk as partner OpenAI turns to rivals Google, Oracle and CoreWeave for cloud services? Exclusive licensing deals and access to OpenAI's cutting-edge models have made Microsoft one of the biggest winners of the generative AI boom, fueling growth in its Azure cloud business and pushing its market value toward $4 trillion. In the April-June quarter, the tie-up is expected to have driven a 34.8% increase in Azure revenue, in line with the company's forecast and higher than the 33% rise in the previous three months, according to data from Visible Alpha. But that deal is being renegotiated as OpenAI eyes a public listing, with media reports suggesting a deadlock over how much access Microsoft will retain to ChatGPT maker's technology and its stake if OpenAI converts into a public-benefit corporation. The conversion cannot proceed without Microsoft's sign-off and is crucial for a $40 billion funding round led by Japanese conglomerate SoftBank Group, $20 billion of which is contingent on the restructuring being completed by the end of the year. OpenAI, which recently deepened its Oracle tie-up with a planned 4.5 gigawatts data center capacity, has also added Google Cloud among its suppliers for computing capacity. UBS analysts said investor views on the Microsoft-OpenAI partnership are divided, though the software giant holds an upper hand. "Microsoft's leadership earned enough credibility ... such that the company will end up negotiating terms that will be in the interest of its shareholders," the analysts said. Some of that confidence is reflected in the company's stock price, which has risen by more than a fifth so far this year. In the April-June period, Microsoft's fiscal fourth quarter, the company likely benefited from a weaker dollar, stronger non-AI Azure demand and PC makers pulling forward orders for its Windows products ahead of possible U.S. tariffs. Revenue is expected to have risen 14% to $73.81 billion, according to data compiled by LSEG, its best growth in three quarters. Profit is estimated to have increased 14.2% to $25.16 billion, slightly slower than the previous quarter as operating costs rose. Capital spending will also be in focus after rival Alphabet raised its annual outlay by $10 billion last week. Microsoft has repeatedly said it remains capacity constrained on AI, and in April signaled continued growth in capex after planned spending of over $80 billion last fiscal year, though at a slower pace and on shorter-lived assets such as AI chips. Dan Morgan, senior portfolio manager at Synovus Trust who owns Microsoft shares, said the spending has been paying off. "Investors may still be underestimating the potential for Microsoft's AI business to drive durable consumption growth in the agentic AI era." (Reporting by Aditya Soni in Bengaluru; Editing by Shinjini Ganguli)