TMTPOST --   Microsoft Corporation   shares rose nearly 2%   to close at   their   new record of $542.07   on Tuesday,   driving   the company ’ s   market value   to   top   $4   trillion.   Microsoft   re-entered   the $4 trillion   market-cap club as the second U.S.-listed firm to reach the milestone after the   software giant   finalized   a long-awaited deal with OpenAI. The deal   seemed to reassure investors   regarding future   partnership   as   it solidified Microsoft   as   a major holder of OpenAI ’ s for-profit   and   clarified   its   crucial intellectual-property ( IP )   rights.

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Microsoft and OpenAI   on Tuesday announced   a new definitive agreement to allow   the ChatGPT maker to complete its for-profit   restructuring.   Under   the deal, Microsoft supports the OpenAI board moving forward with formation of a public benefit corporation ( PBC ) and recapitalization.  

OpenAI ’ s for-profit LLC, which has been under the nonprofit parent since 2019, has   transitioned   to a   PBC – a purpose-driven company structure that has to consider the interests of both shareholders and the mission. The nonprofit, now called the OpenAI Foundation, remains   control   of the new   OpenAI   Group   PBC   and holds equity in it   valued at   about   $130 billion, making it "one of the best resourced philanthropic organizations ever", according to OpenAI.

OpenAI   said the recapitalization also grants the OpenAI Foundation additional ownership as its   for-profit reaches a valuation milestone. Microsoft said it currently holds an investment in OpenAI Group PBC valued at approximately $135 billion, representing roughly 27%   on an as-converted diluted basis, inclusive of all owners – employees, investors, and the OpenAI Foundation.

The agreement preserves key elements that Microsoft   believed   have fueled this   partnership.   That means   OpenAI remains Microsoft ’ s frontier model partner and Microsoft continues to have exclusive IP rights and Azure API exclusivity until Artificial General Intelligence ( AGI ) .   The deal   requires an independent expert panel   to verify OpenAI ’ s declaration of   AGI   it achieves.

The deal extends Microsoft ’ s   IP rights for both models and products through 2032 and now include models post-AGI, with appropriate safety guardrails.   It retains   Microsoft ’ s IP rights to research, defined as the confidential methods used in the development of models and systems, until either the expert panel verifies AGI or through 2030.

The agreement   allows OpenAI   to   co-develop   some   products   with   third   parties   while API products   developed with third parties will be exclusive to Microsoft ’ s Azure. It also   lets Microsoft   to independently pursue   AGI alone or in partnership   with third parties.

As of October 2024, Microsoft has invested $13.75 billion in OpenAI since 2019, including its share of the startup ’ s $6.6 billion fundraising in October. Such massive investment entitles Microsoft to a percentage of OpenAI ’ s profits. It was reported that Microsoft will continue   to be entitled to receive   20% of   OpenAI ’ s revenue.   The revenue share agreement remains until the expert panel verifies AGI, though payments will be made over a longer period of time, Microsoft said in   its statement.  

OpenAI said its non-profit will initially focus on a $25   billion   commitment across two areas:   health and curing diseases   and technical solutions to AI resilience.   "The OpenAI mission — ensuring that AGI benefits all of humanity — will be advanced through both the business and the Foundation. The more OpenAI succeeds as a company, the more the non-profit ’ s equity stake will be worth, which the non-profit will use to fund its philanthropic work,"   OpenAI said in a statement.

The agreement alleviates a key concern for Microsoft, as it "importantly provides [ Microsoft ] shareholders with upside optionality related to [ OpenAI ] 's future growth," Evercore ISI analyst Kirk Materne wrote in a note Tuesday.

Technology analyst Zeus Kerravala   called   Microsoft ’ s dropping   its   cloud   exclusivity with OpenAI   a   "major concession on its part."   But he noted   the company had secured several critical, structural concessions from OpenAI that   "ensure the longevity and value of Microsoft ’ s investment."   "Essentially, Microsoft traded   cloud compute exclusivity, something   it was struggling to meet anyway, for   technological certainty   and   long-term IP access,"   he told Fortune.