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U.S.-based AI developer OpenAI announced on Tuesday that it has completed the process of converting its primary business into a for-profit corporation, with tech titan Microsoft now holding a 27% stake valued at approximately $135 billion.
The OpenAI Foundation, now restructured as a nonprofit entity, holds equity in the for-profit company, which is valued at around $130 billion, making it one of the best-funded philanthropic organizations ever, according to a statement from OpenAI.
The deal has received regulatory approval, including from Delaware Attorney General Kathy Jennings, effectively resolving a year-long review process regarding OpenAI’s transition to a for-profit corporation. This development clears the way for OpenAI to raise funds, attract talent, and potentially pursue an initial public offering (IPO) in the future.
Under the new agreement, Microsoft said that it will continue to be a major player in OpenAI’s operations, with the tech giant receiving extended intellectual rights for OpenAI's models and products through 2032.
Additionally, OpenAI has committed to purchasing $250 billion in Azure cloud services from Microsoft, although Microsoft no longer holds first refusal rights as OpenAI’s primary compute provider. This new arrangement provides both companies with more flexibility in their respective business operations while strengthening their ongoing collaboration.
The shift to a for-profit structure comes as OpenAI has grown from a research lab into one of the world’s most valuable startups, largely due to the success of its ChatGPT model.
Microsoft's growing investments in OpenAI, which started with a $1 billion commitment in 2019 and included an additional $10 billion stake in 2023, have fueled OpenAI's growth. The investments have enabled the integration of OpenAI’s technology into Microsoft’s product suite, including Bing search and Office applications.
The new structure allows OpenAI to expand its business further, pursue collaborations with third-party companies, and offer some of its products on competing cloud platforms.
The restructuring also addresses internal governance issues that arose in November 2023, when OpenAI's board fired and then reinstated CEO Sam Altman after a highly publicized dispute. The company’s shift to a for-profit model aims to resolve these tensions, giving OpenAI greater autonomy and the ability to pursue its mission while also ensuring stability for future growth.
Altman expressed confidence that the new structure would enable OpenAI to focus on developing transformative AI technologies, with an initial focus on areas such as disease prevention. He also emphasized the importance of responsible AI development, ensuring that the technology maximizes benefits while minimizing potential risks.
As part of the new agreement, Microsoft has gained greater freedom to pursue the development of artificial general intelligence (AGI), a field that was previously central to their partnership. Both companies will continue to focus on advancing AGI technologies, with the potential to collaborate with additional partners, according to the deal.
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