Completing the "profitability restructuring," OpenAI paves the way for an IPO. Is the peak of AI about to arrive?

OpenAI and Microsoft have had a "friendly separation," completing a year-long corporate restructuring and officially transforming into a Public Benefit Corporation (PBC), paving the way for a future IPO.

As the largest shareholder of OpenAI, Microsoft holds a 27% stake valued at $135 billion after the restructuring, based on OpenAI's latest valuation of $500 billion. The two parties signed an agreement on Tuesday, allowing Microsoft to retain intellectual property usage rights for OpenAI's models and products until 2032, while both companies gained greater freedom to collaborate with competitors.

During a company-wide meeting on Tuesday, OpenAI CEO Sam Altman stated that an IPO may occur in the future but declined to disclose a specific timeline. He mentioned in a public livestream, "Given our capital needs," that an IPO is a possible option. OpenAI is expected to consume $115 billion by 2029, while this year's revenue is projected to be only $13 billion, resulting in a significant funding gap.

This restructuring diluted the equity of early investors, as the nonprofit arm OpenAI Foundation received a 26% stake valued at $130 billion. However, for investors, this opens the door to future liquidity exits, as SoftBank Group's board has approved its $22.5 billion investment plan, contingent on the completion of the restructuring.

Clear IPO Path, Urgent Capital Needs

Altman revealed in the livestream that OpenAI has incurred $1.4 trillion in "financial obligations" due to commitments to use or develop 30 gigawatts of data center capacity. However, the company's revenue this year is expected to be only $13 billion, creating a significant gap between that and the projected $115 billion consumption by 2029, as well as server expenditures.

An IPO would provide the company with crucial funding to address fierce competition from rivals like Google and xAI. This restructuring converts early investors' investments into common equity and removes the cap on financial returns for shareholders, clearing institutional barriers for a potential IPO and greatly enhancing its appeal to public market investors.

While the IPO may further dilute existing shareholders' equity, it is vital for the company's continued operation. The restructuring has already received tacit approval from the attorneys general of Delaware and California, who stated on Tuesday that they would not oppose the restructuring, citing OpenAI's commitment to its original mission of benefiting humanity as a nonprofit organization.

As part of its commitment to the attorneys general, OpenAI agreed to keep its Safety and Security Committee independent from the company's board of directors. This committee, led by Zico Kolter, head of the Machine Learning Department at Carnegie Mellon University, has the authority to block the release of dangerous AI. The new company charter signed by Altman on Tuesday includes a provision stating that the company's board can only consider the human benefit mission when addressing safety and security issues, rather than shareholder interests.

Core of the Restructuring: Transition to PBC, Lifting Return Restrictions

OpenAI's transition from a nonprofit organization to a Public Benefit Corporation represents a special corporate form under U.S. law that simultaneously pursues public benefit and profit objectives in its decision-making process. The most critical change in this restructuring is the conversion of investments from various investors into common equity and the removal of previous caps on potential financial returns The OpenAI Foundation currently holds 26% of the equity in the restructured company and maintains control over the board of the for-profit company through the power to appoint and remove directors. The foundation stated that it will use the initial $25 billion in funding to support health research and address social risks posed by AI, such as pandemics and job displacement caused by AI development.

If OpenAI's valuation exceeds $5 trillion within 15 years—at least 10 times its current valuation—the foundation will also receive warrants to acquire additional shares. According to individuals involved in the restructuring discussions, at a $5 trillion valuation, the foundation could obtain shares worth hundreds of billions of dollars. Currently, there are no companies globally with a market value of $5 trillion, although NVIDIA is nearing this level.

The End of a Century Partnership: A "Friendly Split" with Microsoft

The relationship between Microsoft and OpenAI underwent a significant transformation during this restructuring. Microsoft had previously invested approximately $13 billion in OpenAI and enjoyed preferential rights to profit distribution under the old structure, a benefit that no longer exists in the new agreement.

Under the new agreement, the relationship between the two parties has become more flexible:

• Intellectual Property and Collaboration: Microsoft will retain permanent rights to use OpenAI's intellectual property, applicable to all products developed by OpenAI before 2032, as well as non-public intellectual property developed internally before 2030. Even if OpenAI announces the achievement of Artificial General Intelligence (AGI) in the future, Microsoft can continue to use its models, but must comply with corresponding safety safeguards.
• Open Collaboration: OpenAI has gained the freedom to collaborate with other cloud service providers (such as Oracle) outside of Microsoft without needing Microsoft's permission. In return, Microsoft can also collaborate more closely with OpenAI's competitors. Microsoft CEO Satya Nadella explicitly stated in an interview that he is pleased to see AI models from Anthropic and even Google landing on its Azure cloud platform. According to informed sources, Microsoft engineers are pushing for the direct integration of Anthropic's Claude model into Office software.
• Exclusion of Hardware: The agreement between the two parties explicitly excludes the consumer hardware sector. This means that OpenAI does not need to share details with Microsoft when developing AI-driven consumer electronics, preserving space for independent exploration of new business.

Additionally, OpenAI has committed to paying $250 billion in leasing fees to Microsoft Azure cloud services over a period of time, securing long-term stable income for Microsoft.

Reassurance for Investors and Employees

This restructuring has relieved investors and current and former employees, as it opens the door for an IPO. The SoftBank Group board has approved its $22.5 billion investment, contingent on the completion of the restructuring. SoftBank's funding is part of a $41 billion financing round that allows investors, including Dragoneer Investment Group and Thrive Capital, to collectively hold 15% of the company, currently valued at $75 billion Investors such as Thrive Capital, which invested $6.6 billion in OpenAI last fall, hold a 4% stake valued at $20 billion. Current and former employees, along with investors who purchased shares from them, collectively hold about 26% of the equity. In recent years, employees have sold approximately $10 billion worth of shares to other investors, reflecting strong demand for these shares as the company's valuation skyrockets.

Jonathan Cofsky, a portfolio manager at Janus Henderson, manages two funds that hold over $800 million in Microsoft stock. He stated, "This announcement eliminates a lot of uncertainty for Microsoft and its shareholders." He believes that Microsoft's exclusive right to resell OpenAI models in the cloud is more important than having governance rights over the startup. "Getting customers into Azure because of the relationship with OpenAI will benefit Microsoft greatly even after 2032."