TLDR
- Microsoft is in complex restructuring negotiations with OpenAI that could extend into 2026, potentially delaying OpenAI’s $10 billion SoftBank funding
- Key dispute involves Microsoft’s exclusive cloud hosting rights versus OpenAI’s desire to partner with Google and Amazon Web Services
- Microsoft wants to eliminate the AGI clause that could cut its access to OpenAI technology if artificial general intelligence is achieved
- Microsoft expects to hold 30-35% of OpenAI following restructuring, having invested over $13 billion to date
- OpenAI is valued at $300 billion but discussing secondary sales at $500 billion valuation despite ongoing uncertainty
Microsoft Corporation finds itself in crucial negotiations with OpenAI that could reshape the future of artificial intelligence partnerships. The talks center on rewriting their commercial contract that runs until 2030.
OpenAI’s corporate restructuring plans are hitting roadblocks as both companies struggle to agree on key terms. The ChatGPT maker needs this deal to complete its transition to a structure that allows traditional equity ownership.
Multiple sources close to the negotiations say there remains distance between the two sides on critical issues. This could push discussions well beyond the December 31 deadline that triggers SoftBank’s right to withhold $10 billion in funding.
The first major sticking point involves Microsoft’s exclusive rights to host OpenAI’s models on Azure cloud service. Currently, Microsoft acts as the sole gatekeeper to this valuable technology through its application programming interface access.
OpenAI wants to expand partnerships with Google and Amazon Web Services, similar to rival Anthropic’s approach. This would boost OpenAI’s API sales revenue, which represents roughly 25% of its $12 billion annual recurring revenue.
Microsoft has little incentive to share access with rival cloud providers. The companies are negotiating a narrow compromise that would only allow OpenAI to serve government customers not already on Azure.
Intellectual Property Access Disputes
The second major issue involves Microsoft’s future access to OpenAI’s intellectual property and training methods. Microsoft wants to understand how future AI models are developed rather than simply using finished products.
A related battle centers on the AGI clause written into their original contract. This provision allows OpenAI to cut Microsoft’s IP access if the company achieves artificial general intelligence.
The AGI clause defines this milestone as “a highly autonomous system that outperforms humans at most economically valuable work.” Microsoft CEO Satya Nadella wants this clause removed entirely.
OpenAI insists on keeping some version of the AGI clause as it provides powerful leverage over the tech giant. One person familiar with negotiations called it “negotiating chit” and compared it to “mutually assured destruction.”
The resolution of these disputes will determine what percentage of OpenAI equity Microsoft receives after restructuring. Microsoft expects to hold between 30-35% of the company following its $13 billion investment.
Funding Pressures Mount
OpenAI’s funding situation adds urgency to these negotiations. SoftBank’s $10 billion commitment includes terms allowing withdrawal if conversion doesn’t happen by year-end 2025.
The AI startup raised $8.3 billion in March as part of SoftBank’s larger $40 billion funding round. That round valued OpenAI at $300 billion, up from $157 billion in October.
Despite restructuring uncertainty, OpenAI is discussing secondary share sales at a $500 billion valuation. This would mark up SoftBank’s investment by approximately two-thirds from its March entry point.
The company has also received interest from investors willing to participate in primary fundraising at even higher valuations. OpenAI executives remain confident about continued capital access regardless of structure.
OpenAI’s March funding round was many times oversubscribed according to sources familiar with the process. This suggests strong investor appetite despite ongoing corporate uncertainty.
Discussions between the companies are being led by their chief financial officers. OpenAI’s Sarah Friar and Microsoft’s Amy Hood are managing the complex negotiations.
Both companies issued a joint statement expressing optimism about their partnership. They described their relationship as “long-term” and “productive” while confirming ongoing talks.
Even if Microsoft negotiations conclude quickly, other hurdles remain for OpenAI’s restructuring. Discussions with existing shareholders and attorneys-general in California and Delaware could extend the timeline further.
The negotiations represent a pivotal moment for both companies as they navigate the rapidly evolving AI landscape. Microsoft’s investment gives it substantial influence over OpenAI’s future direction.
OpenAI currently operates under a profit-sharing structure rather than traditional equity ownership. The restructuring would allow investors to hold actual shares in the business and enable a future IPO.
The talks are expected to continue through the end of 2025, with Microsoft and OpenAI working to resolve remaining differences before critical funding deadlines arrive.
