Microsoft & Open AI Deal Details – Executive Summary

Kakashii (Profile / X i.e. https://x.com/kakashiii111) has a really good write up and the key points are ->

1. Microsoft gets 27% equity stake in Open AI
   • Which is absolutely massive
   • Microsoft’s stake in Open AI is, in theory, worth $127 Billion
   • Its value can go higher as OpenAI valuation keeps getting boosted by the AI Bubble
2. Secured Exclusive IP rights and Azure API usage until ‘AGI’
   • Please Note: Many top AI researchers like Yann LeCun think LLMs cannot lead to Artificial General Intelligence (we agree)
   • Now that definition of AGI will be specified by an independent 3rd party panel, this means that Microsoft has Open AI locked up for a very long time (Open AI can’t just hand wave and claim AGI has been achieved)
   • We really don’t see OpenAI achieving AGI using LLMs and its current approach
3. Microsoft’s IP rights to research will remain in effect until AGI, or through 2030
   • This is a bigger win for Microsoft than people realize
4. Any OpenAI API based products developed with 3rd parties must remain exclusive to Azure
5. Microsoft can collaborate with any other AI lab
6. The 20/80 revenue share arrangement remains in place until AGI
7. Open AI agreed to $250 billion worth of Azure service commitments
8. Microsoft does not have the right of first refusal
   • At the same time -> API products must run exclusively on Azure

It really does seem Microsoft was in a very strong position as this deal is heavily tilted in favor of Microsoft.

Microsoft & Open AI History I – Learning from its Mistake with investing in Facebook

When Microsoft invested $240 million in Facebook at a $15 billion valuation, they took a measly 1.9% equity.

This was a massive mistake. Taking a sizeable amount of equity would have been priceless. Satya Nadella obviously learned from that mistake.

For those who are older, Microsoft made the same mistake with Apple. IYKYK.

Microsoft & Open AI History II – The Right Approach with Investing in AI

The original Microsoft and Open AI deal is quite marvelous (for Microsoft)

1. It made Microsoft one of the frontrunners in AI Cloud (arguably #1)
2. It gave Microsoft a significant equity share in OpenAI
3. It gave Microsoft revenue share
4. If OpenAI fails, then Microsoft gets the IP
   • Please Note: We have to verify the accuracy of this
5. It was done very early and multiple times i.e. in both Series A and Series B
   • So Microsoft kept its share intact

This was a masterful deal and Microsoft and Mr. Satya Nadella should get a lot of credit for this.

Microsoft & Open AI Deal – Series A & Series B

Series A on July 22nd, 2019 -> $1 Billion invested by Microsoft and Matthew Brown Companies at an Unknown Valuation

Series B on Jan 23rd, 2023 -> $10 Billion invested by Microsoft and other investors at a $27 Billion Valuation.

These two investments meant that even after Series B Microsoft had 32.5% equity. More importantly, it means that even now, in Nov 2025, Microsoft still has 27% equity in Open AI and Open AI is wedded to Azure.

Microsoft & Open AI Deal – Current Deal Setup

Please see the first section of this post for more details. The key points are

1. Microsoft has 27% Equity in Open AI
2. Open AI has $250 billion in commitments to Azure
3. Open AI has committed that all API based products will use Azure

It’s one heck of a deal for Microsoft.

From OpenAI’s perspective you could argue that Microsoft’s investments in 2019 and 2013 were key to Open AI becoming what it is.