Microsoft and OpenAI Negotiate $14 Billion Stake Amid Shift to For-Profit Model

Microsoft And OpenAI Clash Over $14 Billion As The AI Leader Converts To A For-Profit Business, Disrupting The Tech World

Microsoft and OpenAI are locked in a high-stakes financial and governance tug-of-war and everyone in the tech world is holding their breath. With Microsoft having invested nearly $14 billion in OpenAI since 2019, the question is how much of a piece of the pie Microsoft will get as OpenAI shifts gears from a nonprofit to a for-profit model. Both companies have roped in the big guns - Microsoft teaming up with Morgan Stanley and OpenAI getting advice from Goldman Sachs - to hash out the details of this major negotiation. Don't Miss: If there was a new fund backed by Jeff Bezos offering a 7-9% target yield with monthly dividends would you invest in it? This Adobe-backed AI marketing startup went from a $5 to $85 million valuation working with brands like L'Oréal, Hasbro, and Sweetgreen in just three years - here's how there's an opportunity to invest at $1,000 for only $0.50/share today. The tension goes beyond just dollars and cents. With CEO Satya Nadella at the helm, Microsoft is increasingly vocal about wanting more control, especially following recent turbulence in OpenAI's leadership. Nadella has made it clear that Microsoft is monitoring OpenAI's governance and decision-making. He hinted that as OpenAI moves toward making money, Microsoft is looking for a stronger say in how things are run. "I think [a global regulatory approach to AI is] very desirable, because I think we're now at this point where these are global challenges that require global norms and global standards," Nadella said at the World Economic Forum in Davos, Switzerland, calling for a unified approach to establishing standards and implementing proper safeguards for the technology. See Also: The global games market is projected to generate $272B by the end of the year -- for $0.55/share, this VC-backed startup with a 7M+ userbase gives investors easy access to this asset market. OpenAI, led by Sam Altman, isn't exactly small potatoes. With a jaw-dropping valuation of $157 billion after a recent funding round, it's a giant in the AI world, even though it's expected to rack up a $5 billion loss this year. That said, the move to turn a profit has set off some alarms. Critics argue that this pivot could push the company to put money first and its original mission - developing safe, ethical artificial general intelligence (AGI) - on the back burner. Trending: Deloitte's fastest-growing software company partners with Amazon, Walmart & Target - You can still get 4,000 of its pre-IPO shares for just $1,000 Negotiations aren't just about money; they're about control. Having invested so heavily, Microsoft wants a bigger say in how OpenAI operates. Some say these talks could redefine the future of AI, especially regarding sticky issues like data privacy and the ethical use of AI technology. The AI industry at large is watching this play out like a cliffhanger. Microsoft and OpenAI have had a fruitful partnership so far, with OpenAI's cutting-edge tech powering up Microsoft products like Azure and Office. Microsoft and OpenAI keep their lips sealed on the nitty-gritty of the talks, leaving everyone to speculate. Read Next: These five entrepreneurs are worth $223 billion - they all believe in one platform that offers a 7-9% target yield with monthly dividends 'Scrolling to UBI': Deloitte's #1 fastest-growing software company allows users to earn money on their phones - invest today with $1,000 for just $0.25/share Market News and Data brought to you by Benzinga APIs

OpenAI's $157 Billion Valuation: What It Means for Microsoft

Microsoft and OpenAI are currently engaged in pivotal negotiations concerning Microsoft's equity stake in OpenAI. These discussions hold significant weight as OpenAI transitions from a nonprofit to a for-profit entity. This shift is occurring amidst OpenAI's rising valuation and ongoing financial restructuring, underscoring the importance of this strategic dialogue. The outcome of these negotiations could have far-reaching implications for both companies and the broader artificial intelligence (AI) sector. In today's fast-paced tech world, where innovation is the currency and collaboration is key, the ongoing negotiations between Microsoft and OpenAI are capturing significant attention. Imagine investing billions into a promising startup, only to find yourself at a crossroads as it shifts its foundational structure. That's precisely where Microsoft finds itself, having poured approximately $13.75 billion into OpenAI since 2019. As OpenAI transitions from a nonprofit to a for-profit entity, the stakes are high, and the conversations are crucial. These discussions are not just about numbers and shares; they reflect a deeper narrative about the evolving landscape of artificial intelligence and the strategic maneuvers required to stay ahead. While the financial figures are staggering, with OpenAI's valuation skyrocketing to $157 billion, the heart of the matter lies in the intricate dance of corporate restructuring and governance. For Microsoft, this isn't just about safeguarding its investment; it's about making sure a seat at the table in shaping the future of AI. The negotiations are a testament to the complexities of aligning leadership, equity, and strategic goals in a rapidly changing industry. As both companies navigate this pivotal moment, they are setting the stage for a new chapter in AI development, one that promises to redefine how technology and business intersect. Stay tuned as we provide more insight deeper into the implications of these negotiations and what they mean for the future of AI. Since 2019, Microsoft has invested approximately $13.75 billion in OpenAI, demonstrating a strong commitment to advancing AI technologies. This substantial investment reflects Microsoft's strategic interest in harnessing AI's potential to drive innovation and growth. OpenAI's valuation has soared to an impressive $157 billion, largely fueled by recent funding rounds. Despite this remarkable valuation, OpenAI has yet to achieve profitability, with a projected $5 billion loss on $3.7 billion in revenue for the current year. This financial scenario presents both challenges and opportunities for Microsoft and OpenAI, as they navigate the complexities of investment and growth in the AI landscape. OpenAI's transition to a for-profit public benefit company marks a significant shift in its corporate structure. The nonprofit entity will retain a minority stake in the newly formed for-profit organization. This restructuring is designed to attract more investors, thereby driving further innovation and development in AI technologies. The move is seen as a strategic effort to balance profit motives with mission-driven goals, making sure that OpenAI can continue to pursue its core objectives while expanding its financial base. A central focus of the negotiations is Microsoft's ownership stake and governance rights in OpenAI. These discussions also involve CEO Sam Altman and other leaders, who are expected to receive equity in the restructured company. Concerns about Altman's equity stake and governance issues highlight the complexity of aligning leadership incentives with corporate objectives. Microsoft's CEO, Satya Nadella, is particularly interested in securing greater influence in OpenAI's governance, especially after Altman's brief ouster by OpenAI's board. This aspect of the negotiations underscores the intricate balance between leadership, governance, and strategic direction. To navigate these complex negotiations, OpenAI has enlisted the expertise of Goldman Sachs, while Microsoft has engaged Morgan Stanley for advisory services. These advisors play a crucial role in making sure that both parties reach a mutually beneficial agreement aligned with their strategic interests. The involvement of these prominent financial institutions highlights the high stakes and complexity of the negotiations, as both companies seek to optimize their positions in the evolving AI landscape. Governance remains a critical focus in the negotiations. Microsoft's desire for greater influence in OpenAI's governance structure reflects its strategic interest in safeguarding its substantial investment. The brief ouster of Altman by OpenAI's board has intensified these discussions, emphasizing the need for a robust governance framework that supports both innovation and accountability. The outcome of these negotiations could set a precedent for governance structures in the tech industry, particularly in the rapidly evolving field of AI. The negotiations between Microsoft and OpenAI exemplify the dynamic interplay between investment, corporate restructuring, and governance in the tech industry. As these discussions progress, they are likely to shape the future trajectory of both companies and the broader AI landscape. The strategic decisions made during these negotiations could influence the direction of AI development and deployment, impacting industries and societies worldwide. Below are more guides on Investment from our extensive range of articles.

OpenAI, Microsoft in $14B tussle as AI giant changes into for-profit...

Microsoft is reportedly in a tussle with OpenAI over what size piece it will get of the artificial intelligence juggernaut as the latter prepares to transform itself from nonprofit to for-profit company. Both firms have turned to investment banks for advice in the high-stakes negotiations as Microsoft seeks a major slug of equity in OpenAI in exchange for the $14 billion in cash it has injected into the company thus far, according to the Wall Street Journal. Microsoft, headed by CEO Satya Nadella, has hired Morgan Stanley, the paper reported, citing unnamed sources close to the situation. OpenAI -- headed by 39-year-old tech tycoon Sam Altman -- has meanwhile hired Goldman Sachs, the sources said. Microsoft is OpenAI's biggest investor and began its massive cash infusions in 2019. The company was a participant in a recently closed $6.6 billion fundraising round that valued OpenAI at a whopping $157 billion - even though it is expected to lose $5 billion this year. Aside from the size of Microsoft's equity take, the companies are expected to negotiate the extent of its governance rights, the report said. The Post has reached out to Microsoft and OpenAI for comment. OpenAI's board is planning to restructure as a for-profit benefit corporation, in which company leaders weigh both societal impact and profit when making decisions, according to multiple reports. The nonprofit entity that has governed OpenAI since 2015 will continue to exist and retain a stake in the for-profit entity, but it will no longer be in charge. OpenAI's nonprofit board briefly ousted Altman from the CEO job last fall, only to see him retake the helm after Nadella and other key investors intervened. The jockeying over equity rights is playing out amid signs of behind-the-scenes tension between Microsoft and OpenAI, according to a separate report. Altman and his allies were miffed at Microsoft's decision to hire AI pioneer Mustafa Suleyman, the New York Times reported. Suleyman is head of Microsoft's in-house consumer AI unit and reports directly to Nadella. Suleyman cofounded the Google-owned DeepMind research lab and later ran the startup Inflection AI. Most of the latter's staff followed Suleyman to Microsoft. Some OpenAI staffers bristled at a recent incident in which Suleyman reportedly lambasted the startup for not delivering new AI technology to Microsoft colleagues as quickly as he thought they should, according to the Times. Others at Altman's firm were said to be irritated that Microsoft engineers had bypassed mutual agreed protocols while downloading OpenAI software. Meanwhile, OpenAI has reportedly pushed Microsoft for more favorable terms as it looks to secure more computing power to run its AI programs - and to allow it to seek sources outside the company. Internal documents obtained by the Times suggest OpenAI's computing costs will surge as high as $37.5 billion per year by 2029. Microsoft and other key investors in the most recent fundraising round reportedly have the right to renegotiate OpenAI's valuation - or receive their money back entirely - if the for-profit shift isn't complete within two years. Altman is also expected to receive an equity stake in the for-profit entity - though he pushed back on one Bloomberg report stating that he could receive a 7% slice worth more than $10 billion, calling it "ludicrous."

Microsoft and OpenAI are haggling over the tech giant's stake in the startup

Microsoft and OpenAI may be working on a decidedly new-fangled technology, but they're haggling over an age-old business question: how much equity should I get for my investment? The two companies each hired investment banks to help answer how Microsoft's roughly $13.75 billion worth of investments in OpenAI since 2019 will translate after the startup converts from a non-profit to a for-profit corporation, according to the Wall Street Journal. OpenAI hired Goldman Sachs to advise it during the process, and Microsoft brought on Morgan Stanley, the Journal reported. The two blue chip banks will now have to help their clients, who have deep ties, navigate a thorny financial question as they determine how much of OpenAI will be owned by Microsoft. Microsoft and Morgan Stanley declined to comment. OpenAI and Goldman Sachs did not respond to a request for comment. The negotiations over Microsoft's ownership stake comes as OpenAI's valuation has soared. The developer behind ChatGPT was valued at $157 billion after it closed a round of funding earlier this month. Investors in that round included the chipmaker Nvidia, venture capital firm Thrive Capital, and Masayoshi Son's SoftBank. In January 2023, just a few months after the November 2022 release of ChatGPT-3, Microsoft made a massive $10 billion investment into OpenAI that valued the startup at $86 billion. Meanwhile, OpenAI is still unprofitable and projects a $5 billion loss this year on $3.7 billion in revenue. Yet OpenAI expects to see extraordinary growth, with its topline ballooning to $11.6 billion next year, according to internal company estimates reported by the New York Times. Under OpenAI's non-profit status, Microsoft's investment entitled it to a portion of the profits generated from a for-profit subsidiary that was run by the board of OpenAI. The for-profit subsidiary was originally structured to cap the profits it could reap. Microsoft's portion of the cap was also capped at a certain level. In September, Reuters reported that OpenAI intends to restructure itself into a for-profit public benefit company, a special designation that would allow it to commit itself to goals meant to better society as well as return value to shareholders. The non-profit will still exist, although it won't continue to be the entity under which the new for-profit version of OpenAI operates. The non-profit will still own a minority stake in the new for-profit version of the company. The move was done in an effort to make the company more attractive to investors, who presumably are eagerly lining up to make offers for a stake in the company synonymous with the AI revolution. As part of its restructuring, OpenAI will also give CEO Sam Altman equity in the company. Altman previously said he had a "tiny bit of exposure via the YC investment," referring to Y Combinator, the legendary startup accelerator of which he was the president. In this newly formed company Altman, and other leaders, would likely be granted a much larger share, as is common practice for executives. At a company-wide meeting in September, Altman said there were no plans for him to get a "giant equity stake" in OpenAI after earlier reports said that he might receive as much as 7% of the company. At the same meeting, Altman and OpenAI CFO Sarah Friar mentioned that investors had raised concerns about Altman not having a stake in the company he was leading. Microsoft will also likely seek to negotiate the extent of its governance rights in OpenAI. When OpenAI's board briefly fired Altman in November 2023, Microsoft CEO Satya Nadella was caught off guard about the decision, despite its massive investments in OpenAI. In a series of media appearances following Altman's reinstatement, Nadella reiterated Microsoft's commitment to OpenAI but hinted that he would want greater say in its corporate governance. "At this point, I think it's very clear that something has to change around the governance," Nadella told CNBC in November 2023, as Altman's ouster was unfolding.

OpenAI's For Profit Structure Adds Valuation Complexity to Microsoft And Other Equity Investors: Report - Microsoft (NASDAQ:MSFT)

Both companies enlisted financial advisors to navigate the high-stakes discussions as OpenAI transitions to a for-profit model. OpenAI and Microsoft Corp MSFT are entering high-stakes negotiations to determine converting Microsoft's $14 billion investment in OpenAI into equity in the AI company. OpenAI, the creator of ChatGPT, recently closed a funding round that valued the company at $157 billion, which adds complexity to the discussions around equity distribution. The negotiations marked a significant shift as OpenAI transitioned from its original nonprofit structure to a for-profit corporation, the Wall Street Journal reports. Also Read: Meta's AI Open-Source Claims Draw Criticism, OSI Pushes For Transparency OpenAI and Microsoft are facing tensions in their partnership due to financial strain and rising expenses at OpenAI. OpenAI, expecting a $5 billion loss this year, has asked Microsoft for additional funding and computing power, but Microsoft has been hesitant after OpenAI's leadership changes. This has strained the relationship between the two companies, the New York Times reports. OpenAI is grappling with soaring costs and pressure to find more affordable computing options, while Microsoft is concerned about its dependence on OpenAI's AI technologies. As both companies renegotiate terms, OpenAI's projected computing expenses are expected to rise significantly, potentially reaching $37.5 billion annually by 2029. Microsoft, OpenAI's largest investor, stands to gain a substantial stake in one of the most valuable AI startups in the US. According to WSJ, both companies have hired major financial advisors to assist in the negotiations. Microsoft works with Morgan Stanley MS, while OpenAI has brought in Goldman Sachs GS. Microsoft, early investors like Khosla Ventures, and OpenAI employees have rights to future profits from the for-profit entity. However, their returns are capped. This means Microsoft needs to recoup its $13.75 billion investment before seeing profit returns, the WSJ report said. OpenAI, whose monthly revenue hit $300 million in August, proposed increasing the chatbot's price by 10% in 2024 and doubling it to $44 over the next five years as it gains traction. The ChatGPT parent's revenue in August more than tripled from the previous year, with 350 million monthly users as of June. OpenAI's new AI-powered search engine, SearchGPT, aims to compete with Alphabet Inc's GOOG GOOGL Google, challenging its long-standing search market dominance. Price Action: MSFT stock is up 0.24% at $417.72 at the last check Friday. Also Read: Microsoft Azure, Office 365, and Gaming To Drive Low Double Digit Growth: Analyst Photo via Shutterstock This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors. Market News and Data brought to you by Benzinga APIs

OpenAI, Microsoft reportedly hire banks to renegotiate partnership terms - SiliconANGLE

OpenAI, Microsoft reportedly hire banks to renegotiate partnership terms OpenAI and Microsoft Corp. have reportedly hired investment banks to help revise the terms of their partnership. The Wall Street Journal today cited sources as saying that OpenAI is being advised by Goldman Sachs. Microsoft, in turn, has reportedly hired Morgan Stanley. The two banks previously participated in a deal that gave the ChatGPT developer access to a $4 billion revolving line of credit. OpenAI launched in 2015 as a nonprofit research group. Four years later, it created a for-arm that now leads its artificial intelligence development efforts. As part of a record $6.6 billion funding round that it closed earlier this month, OpenAI reportedly plans to reincorporate the for-profit arm as a benefit corporation and remove caps that previously limited investors' returns. The newly reported negotiations with Microsoft are said to focus on how big of a stake the tech giant will receive in OpenAI following the restructuring. Since 2019, Microsoft has invested more than $13 billion in the ChatGPT developer. According to the Journal, the current terms of their partnership specify that the tech giant will receive most of OpenAI's initial profits until it recoups its investment. Microsoft will subsequently be given a 49% stake in the company. Besides the size of Microsoft's stake in OpenAI, the negotiations reportedly focus on what governance rights it will receive. That raises the possibility the tech giant may once again seek a board seat. Microsoft received an observer seat last November, but gave it up this past July in a move seen as an attempt to stave off regulatory scrutiny. OpenAI's new negotiations with Microsoft may cover other topics as well. A day before the Journal report, the New York Times revealed that the ChatGPT developer had repeatedly tried to revise its agreement with Microsoft over the past year. As part of the effort, OpenAI reportedly secured a contractual exception that will allow it to purchase up to $10 billion worth of cloud infrastructure from Oracle Corp. More recently, the AI provider reportedly convinced Microsoft to charge less for access to its Azure cloud platform. OpenAI reportedly expects to lose about $5 billion on $3.7 billion in revenue this year. Reducing cloud costs, which likely account for a significant portion of the company's losses, could help it move close towards profitability. OpenAI reportedly expects to become profitable by 2029 and grow its annual revenue to $100 billion during that time frame. OpenAI Chief Executive Officer Sam Altman said in a statement that "we're deeply grateful for our partnership with Microsoft; the early big bet they took on us and the vast compute resources they've provided have been essential to our research breakthroughs, benefiting both companies greatly."