Microsoft (MSFT +0.18%) began investing in OpenAI in 2019, long before ChatGPT was launched. For years, it was unclear what Microsoft actually owned, how much it had invested in OpenAI, or what that stake was worth. Microsoft said in a statement in 2023 that it doesn't own any portion of OpenAI, but it is entitled to a share of profit distributions.
OpenAI had an unusual corporate structure. It was founded as a non-profit and then converted to a "capped-profit" company, a hybrid structure in which investors receive a return on their investment up to a certain limit.
Now, that all seems to have resolved itself in Microsoft's favor. On Tuesday, OpenAI said it completed its recapitalization and simplified its corporate structure. The non-profit entity is now called the OpenAI Foundation, which has majority control of the for-profit component, OpenAI Group Public Benefit Corp. (PBC).
According to an agreement between OpenAI and Microsoft, Microsoft will own 27% of OpenAI PBC, and its stake is valued at approximately $135 billion. OpenAI was valued at $500 billion in a recent insider share sale.
Microsoft had invested $13.8 billion in OpenAI, starting with a $10 billion investment in 2019, meaning the company has made a paper profit of $121 billion. That may be the biggest return on a start-up in history and makes it one of the best investments of all time.
That's not the only way Microsoft wins
The agreement between Microsoft and OpenAI offers other benefits to Microsoft as well.
Microsoft's IP rights for models and products are extended through 2032, and OpenAI has contracted to purchase an incremental $250 billion of Azure services. API products developed by OpenAI with third parties will be exclusive to Azure.
The agreement also gives each party more freedom to pursue AGI and their own goals.
Overall, it removes much of the uncertainty that had shrouded the Microsoft-OpenAI relationship and the value of Microsoft's stake. While it will likely be years before OpenAI turns a profit, as it's engaged in a massive artificial intelligence infrastructure development project, having made agreements to invest hundreds of billions of dollars in new data centers being developed by others.
Additionally, Microsoft still enjoys the upside potential of its investment in OpenAI, as its valuation could easily move higher from here as it's regarded as the market leader in generative AI.
NASDAQ: MSFT
Key Data Points
Microsoft is in the driver's seat
The OpenAI investment is likely the biggest coup Microsoft has pulled off under CEO Satya Nadella, and Nadella deserves credit for recognizing the opportunity in generative AI and partnering with OpenAI.
Under his stewardship, Microsoft also forged a detente with Apple that has benefited both companies, and he accelerated the company's cloud ambitions early on.
Azure, the company's cloud infrastructure, is Microsoft's biggest growth engine, topping $75 billion in revenue in fiscal 2025, which ended in June, growing 34% and making up more than a quarter of the company's revenue.
Azure has been outgrowing Amazon Web Services, the market leader in cloud infrastructure, for years, and could soon surpass it in revenue, especially if it maintains a growth rate of 34%.
The partnership with OpenAI has been key to Azure's ability to gain market share, and it's stepped up pressure on rivals like Amazon and Alphabet, who have had to play catch-up in generative AI. Both companies have also invested in Anthropic, seeking to form their own partnership with a leading AI start-up.
Even without the OpenAI partnership, Microsoft is one of the most dominant companies with a tech empire that spans enterprise software, including its Office suite, the Windows operating system, gaming like Xbox and Activision Blizzard, LinkedIn, and the Azure cloud computing business.
However, the OpenAI partnership gives it the upper hand in the AI race as well as a $135 billion stake in one of the most disruptive companies in the world. Altogether, that makes Microsoft a no-brainer stock to own.
