Satya Nadella and Sam Altman shake hands as Microsoft and OpenAI announce a new agreement to extend their partnership. Image Source: ChatGPT-5
Microsoft and OpenAI Reach Tentative Partnership Deal
Key Takeaways: Microsoft–OpenAI Partnership and Restructuring
Microsoft and OpenAI signed a non-binding memorandum of understanding (MOU) to extend their partnership.
The agreement could remove barriers for OpenAI’s restructuring into a for-profit company.
Microsoft and the OpenAI nonprofit are each expected to hold roughly 30% stakes in the proposed company.
The OpenAI nonprofit would retain control and an endowment stake valued at $100 billion, potentially making it one of the largest philanthropies on paper.
The deal follows months of tense negotiations and disputes over exclusive access, cloud contracts, and AI definitions.
Microsoft shares rose 2% in after-hours trading following the announcement.
OpenAI faces regulatory scrutiny in California and Delaware and opposition from Elon Musk, Meta, and advocacy groups.
Microsoft and OpenAI Partnership: A Fragile Truce
Microsoft and OpenAI announced that they have reached a tentative agreement to extend their collaboration. While the terms are non-binding and still under negotiation, the deal is widely seen as a truce after months of strained negotiations over cloud contracts, exclusivity, and access to advanced AI models.
"Microsoft and OpenAI have signed a non-binding memorandum of understanding (MOU) for the next phase of our partnership. We are actively working to finalize contractual terms in a definitive agreement. Together, we remain focused on delivering the best AI tools for everyone, grounded in our shared commitment to safety."
The memorandum of understanding (MOU) lays the groundwork for a definitive agreement that could ease OpenAI’s path toward a new for-profit structure.
By the Numbers: Microsoft–OpenAI Deal
30% — stake expected for both Microsoft and the OpenAI nonprofit.
$100 billion — estimated value of the nonprofit’s endowment stake.
$19 billion — investor funding at risk if the restructure fails by year’s end.
2% — after-hours increase in Microsoft shares after the deal announcement.
November 2023 — when Sam Altman was briefly ousted, sparking Microsoft’s in-house AI efforts.
Path to For-Profit Conversion
OpenAI is finalizing its plan to create a for-profit company while maintaining nonprofit oversight. Under the proposal, the nonprofit board would retain control and hold a stake valued at more than $100 billion.
This would make the nonprofit one of the world’s largest philanthropies on paper, though questions remain about how and when funds could be distributed. Microsoft and the nonprofit are each set to receive about 30% of the new entity, with the rest allocated to employees and investors.
Initially, OpenAI wanted the new company to be separate from the nonprofit. But it pulled back in May after criticism that the plan might illegally divert charitable assets to private investors.
The restructure has triggered scrutiny from regulators. Attorneys general in California and Delaware are investigating whether the plan complies with charitable law, while opponents including Elon Musk, Meta Platforms, and advocacy groups are pushing back. Musk has also sued OpenAI.
OpenAI has promised investors it will complete the restructure by year’s end or risk losing $19 billion in funding. Currently, the company operates as a subsidiary issuing profit-sharing units instead of stock — a setup that is unpopular among investors and incompatible with a public listing.
Tensions Between Microsoft and OpenAI
The relationship between Microsoft and OpenAI has grown increasingly complex as cooperation has blurred into competition. At one point, OpenAI even considered appealing to antitrust regulators in hopes of breaking free from Microsoft’s influence. Microsoft is not only OpenAI’s exclusive cloud provider but also has direct access to its most advanced technology, a position that gives Microsoft extraordinary leverage over the startup’s future.
That leverage became a central issue in the most recent negotiations. OpenAI pushed for the ability to sell its AI products through other cloud providers, while Microsoft resisted, seeking to preserve exclusive access — even if OpenAI’s systems reached artificial general intelligence (AGI). In response, Microsoft proposed raising the bar to an even higher threshold: artificial superintelligence.
Because the final terms of the deal were not disclosed, it remains unclear which side prevailed in these disputes.
From Partners to Rivals
Microsoft was once key to OpenAI’s early success, investing billions in funding, building data centers to train its AI models, and integrating its technology into products like Office 365 and GitHub Copilot. In return, Microsoft gained early access to OpenAI’s breakthroughs.
But the overnight success of ChatGPT caught Microsoft off guard. Concerned about overreliance on OpenAI — especially after Sam Altman was briefly fired in November 2023 — Satya Nadella launched an in-house AI lab led by one of Altman’s rivals. Microsoft also backed away from a massive data center project called Stargate, which Altman had championed.
Over time, OpenAI executives grew more distrustful of Microsoft and became more hesitant to share their latest models, leading to the companies drifting apart.
Microsoft’s Diversification Strategy
In recent months, Microsoft has quietly begun testing its own homegrown AI models to power Copilot, which historically relied on OpenAI’s models.
Microsoft has also expanded to rival partnerships. It struck a deal with Anthropic to integrate its models into Microsoft 365, accessed through Amazon Web Services (AWS). Microsoft already uses Anthropic models in GitHub, and Windows also incorporates non-OpenAI systems. Earlier this year, Microsoft’s cloud unit began hosting models from Elon Musk’s xAI.
While OpenAI continues to serve as Microsoft’s main AI partner, Microsoft has found that Anthropic’s models perform better for certain functions in 365, according to one person familiar with the matter.
Q&A: Microsoft–OpenAI Agreement
Q: What did Microsoft and OpenAI agree to?
A: They signed a non-binding MOU to extend their partnership, easing tensions and supporting OpenAI’s restructuring plans.
Q: Why is OpenAI restructuring?
A: To create a for-profit company that can attract investment while keeping nonprofit oversight and a large endowment stake.
Q: How much will Microsoft own in the new company?
A: Reports suggest Microsoft and the OpenAI nonprofit will each hold about 30%, with the rest going to employees and investors.
Q: What challenges does OpenAI face?
A: Regulatory investigations in California and Delaware, lawsuits from Elon Musk, and criticism from Meta and advocacy groups.
Q: How did Microsoft shares react?
A: Shares rose 2% in after-hours trading after the announcement.
What This Means: Why the Microsoft–OpenAI Deal Matters
The agreement marks a fragile reset between Microsoft and OpenAI after months of disputes over cloud contracts, exclusivity, and AI definitions.
For OpenAI, the deal is essential to securing investor trust, satisfying regulators, and pushing ahead with its restructuring. For Microsoft, it preserves access to OpenAI’s models while reducing dependence by backing rivals like Anthropic and xAI, and developing its own models.
The uneasy partnership highlights a central tension in the AI industry: cooperation and competition often go hand in hand. As AI adoption accelerates, even the most powerful players are forced to strike a balance between collaboration and independence.
Editor’s Note: This article was created by Alicia Shapiro, CMO of AiNews.com, with writing, image, and idea-generation support from ChatGPT, an AI assistant. However, the final perspective and editorial choices are solely Alicia Shapiroo’s. Special thanks to ChatGPT for assistance with research and editorial support in crafting this article.