Microsoft, OpenAI announce new agreement: Remove the 'biggest note in contract' that caused tension between the two companies

ChatGPT-maker OpenAI has struck a major deal with tech giant Microsoft to restructure itself into a public benefit corporation (PBC), a move that solidifies CEO Sam Altman's authority within the burgeoning AI industry and grants the $500 billion startup significant new latitude to grow. The agreement, announced Tuesday, October 29, untangles key limitations on capital-raising that have constrained OpenAI since its 2019 partnership with Microsoft. That initial deal granted Microsoft broad rights over OpenAI's work in exchange for the massive, costly cloud computing resources needed for its research. However, the unexpected, rapid explosion of the AI assistant ChatGPT three years ago strained those original terms, creating significant tension between the companies.

"OpenAI has completed its recapitalization, simplifying its corporate structure," said Bret Taylor, board chair of the OpenAI Foundation, in a blog post. "The nonprofit remains in control of the for-profit, and now has a direct path to major resources before AGI arrives."




The OpenAI Foundation, which holds a 26% stake in the new Group PBC and a warrant for additional shares, will continue to be controlled by its board, whose members -- including Altman and Taylor -- have the power to appoint and remove the PBC’s board members.

Microsoft and OpenAI avoid messy breakup, for now

Crucially, the deal removes Microsoft’s former right of first refusal to be OpenAI's sole compute provider -- a requirement that had been a major source of friction as the company's computing needs soared. Microsoft has instead secured a separate agreement for OpenAI to purchase $250 billion in Azure cloud computing services. Furthermore, Microsoft will no longer have rights to any consumer hardware produced by OpenAI.

In a reversal of earlier talks, an OpenAI spokesperson confirmed that Altman will not receive equity in the restructured company. His annual compensation of approximately $76,000 will remain unchanged. The spokesperson added that the company has no immediate plans for a potential public offering.

Microsoft to hold 27% in OpenAI

Despite the restructuring, Microsoft remains a central figure in OpenAI’s future, retaining a 27% stake in the new PBC. This stake is valued at around $135 billion.

The deal is a massive win for the Redmond-based tech titan, which has invested $13.8 billion in OpenAI, implying a return of nearly 10 times its investment. Microsoft shares reacted positively to the news, rising 2.1% and sending the company’s market capitalization back above $4 trillion.

The partnership is now formally cemented until at least 2032 through the massive cloud computing contract and continued rights to certain OpenAI products and AI models. OpenAI will also continue to share about 20% of its revenue with Microsoft for years to come.

The deal also addresses the companies' shared, long-term goal of Artificial General Intelligence (AGI) -- the point at which an AI system can match a well-educated human adult. The new agreement requires an independent panel to verify OpenAI's claims of reaching AGI, at which point the revenue-share and cloud commitments are expected to end.