Synopsis
Microsoft's stock dipped following a new deal with OpenAI. The partnership ends Microsoft's exclusive access to OpenAI's technology. Microsoft remains a primary cloud partner until 2032. OpenAI gains freedom to work with other cloud providers. This move impacts Microsoft's competitive AI advantage. Financial terms have also been adjusted.Listen to this article in summarized format
Shares of Microsoft tumbled nearly 3% after the announcement on Monday, while Alphabet and Amazon gained slightly. The company said it will remain OpenAI’s primary cloud partner and retain rights to use the startup’s intellectual property through 2032.
New deal
Under the reworked partnership, Microsoft will remain OpenAI's primary cloud partner and will hold a license to ChatGPT creator's intellectual property through 2032. Microsoft will also not pay a revenue share to OpenAI.
OpenAI products would also first ship on Microsoft's Azure cloud-computing platform unless the software giant cannot or chooses not to roll out the capabilities.
However, the changes give OpenAI greater freedom to sell and deploy its technology across cloud platforms, including those operated by Microsoft rivals Amazon and Alphabet's Google. Investors view this as a dilution of Microsoft’s competitive edge in AI. Under the new terms, the financial arrangement between the two companies are also changed, with revenue-sharing provisions continuing in a capped form through 2030.
Frayed ties
Microsoft was an early backer of the Sam Altman-led company, benefitting from early access to ChatGPT models in the AI race. But tensions have been rising between the companies as OpenAI strikes cloud deals with rival companies and investors scrutinise Microsoft's reliance on OpenAI.
The Financial Times reported in March that Microsoft was weighing legal action against Amazon and OpenAI over a $50 billion cloud deal that could breach its exclusive cloud partnership.
