Investment firm Evercore ISI stated that the revised agreement between Microsoft (MSFT.US) and OpenAI should reduce ambiguity surrounding Artificial General Intelligence (AGI) for the former while providing the latter with greater operational flexibility. According to a joint statement released by the companies on Monday, as part of ending their exclusive arrangement, Microsoft will no longer pay a revenue share on OpenAI products it resells through its cloud platform. This revised agreement aims to simplify the long-term, complex partnership between the two entities while offering increased flexibility to explore new commercial opportunities.
Evercore analyst Kirk Materne wrote in a report to clients, "At a high level, the new agreement simplifies the relationship, with Microsoft giving up some exclusivity in exchange for greater transparency, flexibility, and economic certainty. OpenAI gains more room to operate across the broader market, while Microsoft retains its preferred strategic role, long-term access to OpenAI technology, and continued participation in OpenAI's growth. We believe a key point is that the terminology linked to AGI appears to have been removed from the commercial framework. This clarifies intellectual property access rights through 2032 and establishes relevant cut-off dates for the revenue-sharing economic model through 2030, albeit now with a cap. The bottom line is we do not believe this revised agreement should surprise investors at this point, as Microsoft has increasingly shown interest in a broader multi-model strategy, and OpenAI clearly has incentives to expand its distribution channels more widely across the market."
Materne maintains an "Outperform" rating on Microsoft with a $580 price target. Artificial General Intelligence (AGI) has previously been described as a "singularity"—a moment when technology surpasses human capabilities and becomes irreversible. As part of the modified agreement, Microsoft will continue to serve as OpenAI's primary cloud partner, and OpenAI's products will be prioritized for release on Azure. However, a new provision allows OpenAI to seek other partners if Microsoft "cannot or chooses not to support necessary capabilities." Furthermore, OpenAI can offer all its products to customers through any cloud provider, such as Amazon.com's (AMZN) AWS.
Microsoft will retain a license to use OpenAI's intellectual property for its own models and products until 2032, though this license will now be non-exclusive. Microsoft will also cease making revenue share payments to OpenAI; however, until 2030, Microsoft will receive revenue share payments from OpenAI regardless of the latter's technological progress. Finally, the Windows manufacturer added that Microsoft remains a major shareholder in OpenAI. Microsoft is scheduled to report its fiscal third-quarter earnings after the market closes on April 29th.
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