Shares of Microsoft (NASDAQ:MSFT) jumped about 4% premarket on Tuesday after the company signed an agreement with OpenAI (OPENAI) that would value its stake at about $135B in the AI giant.
Microsoft said it supports the OpenAI board moving forward with formation of a public benefit corporation, or PBC, and recapitalization.
Following the recapitalization, Microsoft holds an investment in OpenAI Group PBC valued at about $135B, representing around 27% on an as-converted diluted basis, inclusive of all owners — employees, investors, and the OpenAI Foundation, the software giant said in a blog post on Tuesday.
Microsoft noted that excluding the impact of OpenAI’s recent funding rounds, the company held a 32.5% stake on an as-converted basis in the OpenAI for-profit.
In addition, Microsoft said that OpenAI has contracted to buy an incremental $250B of Azure services, and Microsoft will no longer have a right of first refusal to be OpenAI’s compute provider.
“The agreement preserves key elements that have fueled this successful partnership – meaning OpenAI remains Microsoft’s frontier model partner and Microsoft continues to have exclusive IP rights and Azure API exclusivity until Artificial General Intelligence (AGI),” said Microsoft in the blog post.
AGI is a type of artificial intelligence that aims to mimic the cognitive abilities of the human brain.
Under the agreement, once AGI is declared by OpenAI, that declaration will now be verified by an independent expert panel.
Microsoft’s IP rights for both models and products are extended through 2032 and now include models post-AGI, with appropriate safety guardrails.
Microsoft’s IP rights to research, defined as the confidential methods used in the development of models and systems, will remain until either the expert panel verifies AGI or through 2030, whichever is first, the company noted.
Microsoft’s IP rights now exclude OpenAI’s consumer hardware.
In May, OpenAI announced a partnership with former Apple (AAPL) executive Jony Ive, noting that Products, Inc. team officially merged with OpenAI. Ive and LoveFrom remain independent and assumed deep design and creative responsibilities across OpenAI. OpenAI CEO Sam Altman andIve intend to build a device for AI.
Microsoft said OpenAI can now jointly develop some products with third parties. API products developed with third parties will be exclusive to Azure. Non-API products may be served on any cloud provider.
In addition, Microsoft said that it can now independently pursue AGI alone or in partnership with third parties.
The revenue share agreement remains until the expert panel verifies AGI, though payments will be made over a longer period of time.
OpenAI can now provide API access to U.S. government national security customers, regardless of the cloud provider.