It has been reported that Microsoft (MSFT.US) and OpenAI have renegotiated the details of their revenue-sharing agreement. The new terms are expected to help OpenAI reduce its anticipated payments by up to $97 billion, while also allowing Microsoft to receive payments earlier. Under the revised agreement, OpenAI has agreed to cap its total revenue-sharing payments to Microsoft at $38 billion through 2030. This payment cap forms part of the deal renegotiated last month. The original agreement stipulated that OpenAI would pay Microsoft 20% of its revenue through 2030. This percentage arrangement remains in place, but the cap is now expected to be reached by 2028. Previous projections indicated that payments from OpenAI to Microsoft could have reached $135 billion before the implementation of a cap. The new agreement also removes the clause requiring OpenAI to continue sharing revenue with Microsoft until achieving Artificial General Intelligence (AGI). The updated terms further allow Microsoft to reduce its reliance on OpenAI's models and diversify its AI strategy more broadly. Under the new arrangement, OpenAI can sell its model products through other cloud service providers, and Microsoft no longer holds exclusive partnership rights. Microsoft has invested $13 billion in OpenAI to date. Regarding the latest agreement between the two parties, analysts at Wedbush stated in a report on Wednesday morning: "Importantly, while OpenAI saves significant long-term expenditure, the renegotiated structure also removes OpenAI's previous option to defer a portion of payments until 2032. This means OpenAI is now expected to pay Microsoft approximately $6 billion from its projected $30 billion in revenue this year, compared to a previous estimate of around $4 billion." Wedbush reiterated its "Outperform" rating on Microsoft and maintained a $575 price target, representing a potential upside of approximately 41% from Microsoft's Tuesday closing price of $407.77. Wedbush noted: "We view this revised structure as a net positive for Microsoft and its AI strategy overall. Microsoft has traded off some optionality for later-stage revenue in exchange for several key structural wins and has secured intellectual property rights to use OpenAI's models and products through 2032, regardless of when AGI is achieved, thereby removing a prior open-ended risk." Wedbush added: "Microsoft retains its primary cloud partnership with OpenAI and its significant equity stake, allowing it to continue benefiting from OpenAI's growth on its path to a potential future IPO. Concurrently, Microsoft will no longer need to share revenue from Azure's sales of OpenAI models to cloud customers with OpenAI, which removes a significant overhang from the Azure AI commercialization economic model."
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