CNBC's MacKenzie Sigalos joins 'Money Movers' to discuss OpenAI and Microsoft's uneasy truce in the AI-race, as OpenAI attempts a for-profit shift in its hope to IPO.

San Francisco

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

OpenAI has moved closer to completing its transition to a for-profit entity after reaching a preliminary agreement with Microsoft. The deal is expected to unlock $40 billion in funding and is a key step toward an eventual public offering. The agreement includes commercial terms such as Azure exclusivity, intellectual property access, and revenue sharing, alongside a recapitalization that converts Microsoft’s investment into standard equity and grants OpenAI’s nonprofit arm a $100 billion stake.

The restructuring still requires approval from state attorneys general in Delaware and California, and ongoing litigation, including lawsuits from co-founder Elon Musk, continues to pose potential hurdles. The final terms of the agreement are anticipated within the next two months, after which OpenAI may pursue additional financing and move closer to an IPO.

OpenAI restructuring clears hurdle

OpenAI is one step closer to its long-awaited for-profit transition after cutting a preliminary deal with Microsoft. Mackenzie Segalos digs into the billions this could unlock for the AI darling in today's Tech Check. Matt. Mike, this is a big win for OpenAI. They needed the restructure wrapped by year-end to unlock $40 billion in funding and set up an eventual IPO. And Microsoft, they've been the main bottleneck. So after a year of tense talks that intensified this summer, the two finally agreed on a package that pairs commercial terms like Azure exclusivity, IP access, and revenue sharing with a recapitalization that converts Microsoft's investment into standard equity while also giving OpenAI's nonprofit arm a $100 billion stake. Now, this is a big moment for both companies because like it or not, their futures are intertwined for their foreseeable future. They've been tied together since long before chat GBT made OpenAI a household name. Microsoft's flagship products run on OpenAI's tech and Azure's blowout growth owes a lot to OpenAI's compute demand. Now, at the same time, OpenAI showed its own leverage at the negotiating table by turning to Oracle for a $300 billion cloud pact, a move widely read as a snub to Azure, just as Microsoft signaled that it has options, too, by reportedly testing Anthropic and building its own models. But ultimately, Microsoft gave OpenAI what it wanted, and investors out here in Silicon Valley now expect to see some major concessions that were quietly made behind closed doors. So watch out for fresh partnerships or contracts that Microsoft may have secured in return, potentially on the scale of the Broadcom or Oracle deals. Guys? Mac, I assume among many of the implications that you laid out there, it would also perhaps better equip OpenAI to wage the talent wars. I mean, you have basically an ability to say this is our structure going forward. We have a for-profit entity, and who knows what it means if Meta's setting the market on this AI talent. But that seems like one outgrowth of this. Well, absolutely. The big whisper out here in the Valley is that OpenAI wants to go public, and it had to convert into a public benefit corporation in order to foam the runway from that. We've heard that from CFO Sarah Fryer, that this is a prerequisite to listing. And that's the point at which you might see them convert from half a trillion dollars valuation into something that puts it into that trillion dollar AI club. They certainly helped put Broadcom and Oracle there in the last week. So what's the other big whisper, Mac, in terms of timeline for an IPO? So what I am hearing is that in terms of the conversion, which really has to happen first, in the next one to two months, we're finally going to get a final set of terms, both on that commercial agreement. Because remember, OpenAI is looking for more diversity to sell its products through other clouds. They also want to renegotiate their revenue share because these two players, Microsoft and OpenAI, are competing for the same enterprise contracts now. So all of that has to be ironed out. They also need to get approval from state AGs in Delaware and in California. And once they get to that point, then it unlocks a soft bank financing and then they would be eligible to potentially get on that IPO path. And finally, Mac, I mean, I admit to have lost track of all of the litigation and all the different factions that were trying to oppose this move or change it. Is this now in the clear now or might there be something that slows it down? It is not in the clear. So Elon Musk has repeatedly brought different lawsuits against OpenAI. And one of those cases is going to a jury trial in the spring. And that's part of why we also have these AGs in the mix, really scrutinizing that nonprofit structure. And you also have to keep this in mind. Elon Musk was a co-founder of OpenAI. He left. He now runs a rival company, XAI, and he has very big opinions about the direction of where OpenAI should go. He also had that hostile takeover bid earlier this year looking to buy OpenAI for $97 billion. So a lot at play.

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Chicago

Trump backs down on sending National Guard to Chicago

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Orem

What we know about the Charlie Kirk shooting suspect's arrest

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New York

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Utah man suspected in Charlie Kirk murder taken into custody

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Tunis

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Brasilia

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Jerusalem

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Doha

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Fort Pierce

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Photos released of "person of interest" in Charlie Kirk assassination

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Washington

Trump says he'll award Charlie Kirk the Presidential Medal of Freedom

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Warsaw

Ukraine Invasion

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London

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Kathmandu

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OpenAI restructuring clears hurdle

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