What to know about OpenAI's new deal with Microsoft

The big picture: After a reorganization, Microsoft holds a $135 billion stake in OpenAI, but the two companies' paths are likely to diverge in coming years.

• The new deal offers the tech giants the ability to move much faster as they compete to dominate in the next phase of AI.
• OpenAI has more freedom to seek hyper-growth, and Microsoft gets an opening to hedge its AI bets with a range of partners.

What OpenAI gets:

Most importantly for OpenAI, it was able to complete its restructuring, ensuring that recent investments from SoftBank and others proceed as scheduled.

• OpenAI gets the flexibility to ink new infrastructure deals without giving Microsoft a right of first refusal.
• This makes sense for both parties, given that OpenAI has already committed to $1.4 trillion in infrastructure spending and envisions eventually adding $1 trillion per year in new capacity, far exceeding the investment Microsoft would want on its balance sheet.
• OpenAI also gains the rights to develop consumer hardware without worrying about Microsoft having access to whatever it is that Sam Altman and Jony Ive are cooking up.

What Microsoft gets:

In addition to having a more easily quantified stake in the company, Microsoft gains $250 billion in new business commitments to its Azure cloud services.

• Microsoft, and therefore its customers, get longer-term certainty of access to OpenAI's technology.
• Under the new deal, Microsoft maintains access to key OpenAI intellectual property through 2032 and doesn't lose all of it the moment that OpenAI reaches what it calls artificial general intelligence (AGI), a sore point for Microsoft under the prior deal.

Reality check: While OpenAI can say when it thinks AGI has been reached, that determination now must be affirmed by an independent board.

• Microsoft can also pursue AGI on its own, should it have the desire and capability to do so.
• If it uses OpenAI's IP as part of those efforts, it's subject to certain limits.

What they're saying: "By securing IP rights through 2032, Microsoft protects the foundation of its Copilot strategy and Azure OpenAI monetization," William Blair analyst Jason Ader said in a research note. "Still, Azure will now have to compete for more of OpenAI's workloads going forward."

• BNP Paribas also sees the revised deal as a positive for Microsoft.
• "We believe today's announcement removes a long-standing overhang as investors now have greater clarity into the future of the OpenAI/Microsoft partnership," it said in a research note.

• "Moreover, the new $250 billion Azure commitment (we imagine largely for OpenAI inferencing) should assuage concerns that Microsoft is simply foregoing hundreds of billions in potential revenue for others to seize."

Yes, but: Microsoft and OpenAI are the clear winners here, others less so.

• Although the restructuring was given the OK by attorneys general in Delaware and California, it appears unlikely that the new nonprofit will allow the public the same power it had under the old structure.
• The new nonprofit will be richly endowed — but will have fewer guardrails for ensuring that the for-profit entity hews to its mission of safely developing superintelligence for the benefit of all humanity.
• The nonprofit's primary control lever is its power to appoint (and remove) the board members of OpenAI's for-profit endeavor. The nonprofit will also maintain a safety committee chaired by a board member who is not on the for-profit entity's board.
• Public Citizen was among the groups panning OpenAI's restructuring. "Today's announcement from OpenAI is an attempt to entrench the status quo, in which [the] OpenAI nonprofit serves at the beck and call of OpenAI for-profit, even though the nonprofit is supposed to exert operational control over the for-profit," Public Citizen co-president Robert Weissman said in a statement.

What's next: The new pact cools tensions for now, but with Microsoft and OpenAI competing on many fronts, new flashpoints are likely.