Microsoft and OpenAI have agreed to a preliminary deal to revise their collaboration, allowing OpenAI to transition to a traditional profit-oriented framework and potentially go public. Specifics of the updated commercial terms were not revealed, but both parties are in the process of finalizing a formal agreement. Microsoft’s initial investments in OpenAI totaled $1 billion in 2019 and an additional $10 billion in early 2023.

In their previous arrangement, Microsoft held exclusive rights to market OpenAI’s software tools on its Azure cloud platform and had priority access to the startup’s technology. While Microsoft was originally the sole computing provider for OpenAI, this year it loosened its grip to enable OpenAI to pursue its independent data center project, Stargate. This included sealing substantial long-term contracts worth $300 billion with Oracle and securing another cloud deal with Google.

As OpenAI’s revenue climbs into the billions, it aims to establish a more conventional corporate structure and forge partnerships with other cloud providers to enhance sales and ensure sufficient computing resources to meet demand. Microsoft, on the other hand, seeks ongoing access to OpenAI’s technology even if OpenAI achieves human-level intelligence, a development that could terminate their current partnership under existing terms.

Under the current agreement, OpenAI’s nonprofit division stands to receive over $100 billion — approximately 20% of its targeted $500 billion valuation in private markets — positioning it as one of the most well-funded non-profits. The ownership stake Microsoft will hold in OpenAI and whether it will maintain exclusive access to OpenAI’s latest technologies remain undisclosed.

OpenAI faces regulatory obstacles ahead, requiring approval from attorneys general in California and Delaware for its new structure. The company aims to finalize the transition by the end of the year or risk losing substantial funding tied to that timeline.