Why OpenAI is now closer to becoming 'Magnificent'

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The next chapter in OpenAI's dealmaking frees it to make even more

companies :: 1day ago :: source - yahoo finance

By Hamza Shaban

Why OpenAI is now closer to becoming 'Magnificent' . Yahoo finance

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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.

After reaching a deal with Microsoft, OpenAI (OPAI.PVT) CEO Sam Altman laid out his ambitious AI plans and said the company is committed to developing 30 gigawatts of computing resources for $1.4 trillion.

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.

Even before the restructuring plan, OpenAI, through its interlocking financing and partnerships, was fashioning itself into a central node, an entity too big in the AI ecosystem to fail. Its conversion to a for-profit concern isn't the final step, and it won't ensure that outcome. But it will help.

Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.