How OpenAI's $300B Valuation Poses a Challenge for Microsoft

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SoftBank Group has agreed to head a financing round worth as much as $40 billion for OpenAI. This agreement is expected to increase the valuation of Microsoft's share in the creator of ChatGPT, though it also sets a higher standard for turning OpenAI into a profitable business.

The Japanese technology-and-telecoms company said On Tuesday, it announced plans to invest between $20 billion and $30 billion in OpenAI’s profit-oriented spin-off company and distribute an additional $10 billion among participating investors. This agreement assesses OpenAI's worth at approximately $300 billion, which marks a significant increase from the $157 billion valuation recorded in a previous financing round towards the end of last year.

Artificial-intelligence company OpenAI is currently structured As a nonprofit organization governed by a board that manages its for-profit operations, it aims to transform into a for-profit public-benefit corporation, according to The Wall Street Journal, which referenced insiders aware of its strategies.

OpenAI must finish this shift by year-end, otherwise SoftBank could cut the funding round down to $20 billion, as reported by The Wall Street Journal.

This increases the urgency in meeting deadlines for the intricate discussions regarding the portion of the company that initial investors like Microsoft will get.

Microsoft has invested $13 billion in OpenAI since 2019. Nevertheless, Microsoft continues to lessened its dependence By establishing an internal AI division, the company has taken a different approach, whereas OpenAI has formed agreements with other firms like Oracle for computational resources.

"The deteriorating relationship between Microsoft and OpenAI implies that should disputes arise, there is now a significant and irate stakeholder with the potential to cause substantial problems," noted independent analyst Richard Windsor, author of Radio Free Mobile.

In an announcement regarding the funding round, OpenAI stated that 500 million individuals utilize ChatGPT weekly. According to a social media post by OpenAI’s CEO Sam Altman on X last Monday, the chatbot platform gained one million users within just one hour due to the extensive adoption of their enhanced image-creation feature.

In January, SoftBank along with OpenAI took action. announced a plan To invest as much as $500 billion in artificial intelligence infrastructure within the U.S., alongside collaborators such as Oracle. This collaborative effort, named Stargate, aims to construct data facilities for OpenAI.

Since September, SoftBank has put $2.2 billion into OpenAI via the SoftBank Vision Fund 2. According to the company, the initial $10 billion from the most recent funding round will be disbursed around mid-April, followed by additional funds in December.

The owner of Barron’s, News Corp, has entered into a content licensing agreement with OpenAI.

Send your message to Adam Clark at adam.clark@barrons.com

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