OpenAI, the company behind the viral AI tool ChatGPT that can generate realistic and engaging text conversations, has received a $10 billion investment from Microsoft Corp., which is already a major partner and cloud provider for the AI developer.
Microsoft, which first invested $1 billion in OpenAI in 2019 and followed up with another round in 2021, is looking to gain an advantage in the rapidly growing and competitive field of artificial intelligence, where it faces rivals like Alphabet Inc., Amazon.com Inc. and Meta Platforms Inc.
OpenAI relies on Microsoft’s cloud service Azure to handle the huge amounts of data and computation required to train and run its advanced AI models, such as DALL-E, which can create lifelike images from text descriptions, and ChatGPT, which can produce human-like text responses based on prompts or queries.
“Our partnership with OpenAI is based on a shared vision to responsibly advance state-of-the-art AI research and make AI a new technology platform for everyone,” said Satya Nadella, chairman and chief executive officer of Microsoft, in a statement that announced the investment but did not reveal the amount. A source familiar with the deal, who asked not to be named because the information is not public, said it amounts to $10 billion over several years.
Microsoft’s stock rose 0.5% to $241.52 at 9:56 a.m. in New York.
ChatGPT has attracted millions of users since its launch in November 2023, for its ability to mimic the way real people talk and write. However, it has also raised ethical concerns about its potential to replace professional writers and help students cheat on their homework. The tool has also been seen as a possible challenge to Google’s core search business.
OpenAI said on Monday that it uses Azure to train all of its models and that Microsoft’s investment will help it speed up its independent research. Azure will remain the exclusive cloud provider for OpenAI, the company said.
The deal has a complex structure because OpenAI is a capped-for profit company, which means that its investors have a limited return on their investment and that most of its profits go back to OpenAI, which is governed by the OpenAI non-profit organization.
Microsoft will get almost half of OpenAI’s financial returns until its investment is paid back up to a certain cap, one of the sources said.
Microsoft recently said it plans to add ChatGPT to Azure and announced the general availability of its Azure OpenAI Service, which has been an option for a select group of customers since it was introduced in 2021. The service gives Microsoft’s cloud customers access to various OpenAI tools like the GPT-3.5 language system that ChatGPT is based on, as well as the Dall-E model for generating images from text prompts. This allows Azure customers to use the OpenAI products in their own applications running in the cloud.
Microsoft itself is using OpenAI’s language AI to add automation to its Copilot programming tool, and wants to use such technology in its Bing search engine, Office productivity applications, Teams chat program and security software. The company is also integrating Dall-E into design software and offering it to Azure cloud customers.
Nadella is strengthening Microsoft’s relationship with OpenAI as Google, which has long dominated search, seems more vulnerable. Google’s traditional model of keyword queries uses search engines to find specific terms on the web, and then lets users decide what information is useful.
ChatGPT is different from a typical Google search, which gives users a list of links to web pages that contain the keywords they entered. ChatGPT can answer questions about various topics, such as political science and computer programming, with detailed explanations in a natural and human-like way. ChatGPT can also continue the conversation and answer follow-up questions, unlike the simple blue links that Google provides.
Microsoft announced the investment less than a week after it said it will cut 10,000 jobs due to the economic slowdown that affects software demand. Microsoft said in that announcement that it will still invest and hire in key areas of priority. The company will report its earnings for the second quarter of the fiscal year on Tuesday.