The AI industry’s most consequential partnership is unravelling before our eyes.
After nine months of increasingly tense negotiations, OpenAI and Microsoft are locked in what can only be described as a corporate divorce that could reshape the entire AI landscape.
While breakups are rarely pretty, this one might actually benefit investors willing to look beyond the drama.
The fight is about money and control. Microsoft gets a cut of OpenAI’s profits until they hit US$120 billion. After that, OpenAI keeps everything.
That US$120 billion cap once seemed far away. Not anymore.
With AI’s explosive growth, that market cap is looking increasingly achievable. OpenAI wants to change the deal now.
They’re offering Microsoft a 33% stake in their company. But there’s a catch: Microsoft would have to give up future profit rights.
Microsoft isn’t happy — you can understand why. They invested billions. They provided the servers. They built their whole AI strategy around OpenAI.
Now, OpenAI wants new terms just when things are getting good.
Negotiations have turned nasty. OpenAI executives have talked about filing antitrust complaints against Microsoft.
That’s not typical business manoeuvring — that’s a relationship breakdown of epic proportions.
And the stakes are huge. About half (US$20 billion) of OpenAI’s recent funding depends on fixing this mess by December.
But the two can’t even agree on what Artificial General Intelligence (AGI) means.
In some ways, that’s fair. AGI is a loose term that broadly means an AI that can do any intellectual task that a human can do.
But what human? Some AI skills are beyond PHD level. Others are below young kids.
But this definition is essential for the pair. When OpenAI achieves AGI, Microsoft loses its profit share.
So, OpenAI says AGI is coming soon. Microsoft says it’s years away. Neither side will budge.
Creating Rival Products
It’s not just definitions that are at stake — OpenAI is shopping for options.
OpenAI just bought Windsurf for US$3 billion. Windsurf makes coding tools. So does Microsoft’s Copilot.
OpenAI is now competing directly with its biggest partner.
But here’s the kicker: OpenAI wants to keep Windsurf out of their Microsoft deal. They’re using their partnership to build competing products. Microsoft is furious.
This shows OpenAI’s real plan. They don’t want to just make AI models anymore. They want to build everything. Apps. Tools. Platforms. The whole ecosystem.
Right now, Microsoft has exclusive rights to sell OpenAI’s technology.
Want to use GPT-4 in your business? You have to go through Microsoft Azure. Every single customer.
OpenAI hates this setup. They’re trapped with one distributor. One channel. One partner who controls everything. They want out.
Deals Behind Their Back
This week, OpenAI’s chief economist was on a charm offensive in Canberra.
A similar story has played out in other major economies around the world. OpenAI is demanding steep tax breaks while promising keys to the AI castle.
But it’s not the only deal it’s doing behind Microsoft’s back.
Oracle just entered the game. OpenAI signed a massive deal with them this week. US$30 billion per year. 4.5 gigawatts of computing power.
Oracle is building data centres everywhere. Texas. Michigan. Wisconsin. Wyoming. They’re going all-in on AI infrastructure.
Their stock is also reaching new heights — climbing nearly 100% since its April lows.
But for OpenAI, this isn’t just about finding a new cloud provider.
They’re showing they don’t need Microsoft. They’re also working with Google Cloud. They’re testing Google’s AI chips. They’re spreading their bets.
The message is clear: Microsoft’s monopoly is over.
Why This Benefits AI Investors
This breakup creates opportunities everywhere.
First, it ends Microsoft’s control over enterprise AI.
If OpenAI breaks free, suddenly everyone can play. Google Cloud can offer GPT-4. So can Amazon. Companies get choices.
Competition drives innovation.
Second, smaller AI companies can finally compete. While the giants fight, startups can grab market share. They can offer specialised solutions. No complex partnerships. No corporate drama. Just good products.
Investors should watch smaller AI players closely. They’re nimble. They’re focused. They don’t have legacy deals holding them back.
Third, infrastructure is the new gold rush.
Oracle’s massive investment proves it. But they’re not alone. Every company building AI data centres is now a potential winner.
Cooling systems. Power grids. Networking equipment. The picks and shovels of the AI boom. Multiple buyers mean better prices. More innovation. Faster deployment.
Vertiv Holdings [NYSE:VRT] is a great example here of an AI enabler that’s firing on all cylinders.
Fourth, this fight reveals AI’s true value. If OpenAI are willing to destroy partnerships over it, they are seeing value in the trillions.
But if this messy divorce actually happens, the pie is big enough for everyone.
Smart investors should diversify. Don’t just buy the obvious names. Look for companies that benefit from competition. Find the infrastructure plays. Back the innovators, not the incumbents.
The death of the OpenAI-Microsoft partnership might hurt both companies short-term. But it’s great for everyone else. Competition beats monopoly every time.
For investors, the message is simple. The AI wars are just beginning. Pick your battles wisely.
And remember: in messy divorces, the lawyers aren’t the only ones who profit.
For us, the timing couldn’t be better. We’ve enlisted US entrepreneur James Altucher here at Fat Tail.
He’s working with Callum Newman to find the biggest opportunities in AI with Altucher’s Investment Network Australia.
The results are great so far. Click here to find out more.
Regards,
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Charlie Ormond,
Editor, Alpha Tech Trader and Altucher’s Early-Stage Crypto Investor
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