Microsoft Weighs Ending Negotiations Amid OpenAI's Allegations: Are the Stakes High for OpenAI?

TradingKey - In a potential shakeup of their multi-billion dollar partnership, Microsoft has expressed intentions to walk away from ongoing negotiations with OpenAI. 

The Financial Times reported on Wednesday (18th) that should the two parties remain at an impasse over crucial issues, such as the future size of Microsoft's stake in OpenAI, Microsoft might terminate discussions altogether.

Under the current agreement, Microsoft retains access to OpenAI's technology until 2030 unless OpenAI can propose a comparable or superior arrangement. 

This scenario appears favorable for Microsoft, which has stated satisfaction with the current contract and is prepared to uphold it through 2030.

Presently, Microsoft holds exclusive rights to sell OpenAI's models and enjoys a 20% revenue share up to a cap of $92 billion. 

The heart of the ongoing negotiations focuses on how much equity Microsoft should receive in return for its investment exceeding $13 billion, with ownership percentages ranging from 20% to 49% being considered. 

Microsoft is reportedly unwilling to compromise on its continued access to OpenAI’s technology and revenue share.

The Wall Street Journal previously reported that OpenAI is contemplating an accusation against Microsoft for anti-competitive behavior during their partnership, viewing it as a “nuclear option.” 

Sources suggest Microsoft's own “nuclear option” is to cease cooperation altogether, a strategy perceived as a means to make OpenAI uneasy.

For OpenAI, failing to reach an agreement with Microsoft could hinder its transition into a profit-driven entity and pose the risk of losing substantial investments from backers such as SoftBank. 

In recent months, Microsoft has begun diversifying from OpenAI models, with CEO Satya Nadella predicting leading models will become “commoditized.” In May, Microsoft introduced Grok, a model from xAI, to its cloud computing clientele. Industry insiders note, “OpenAI is not necessarily the frontrunner anymore.”

TradingView suggests that the escalating tensions between Microsoft and OpenAI “appear to be reaching a boiling point that may keep a cap on MSFT stock.”