AI: Microsoft's OpenAI Royal Flush

...Accelerating to next Chapter

OpenAI inadvertently became a public company this weekend, now investable by all directly via Microsoft (MSFT). A Royal Flush for Microsoft and its CEO Satya Nadella, who boldly bet big on OpenAI in 2019, and its unorthodox corporate structure. By Monday morning, Mr. Nadella had cannily hired OpenAI founder/CEO Sam Altman and founder/President Greg Brockman, including an open-ended number of OpenAI’s 700 employees. Oh, and its contractual access to all of OpenAI GPT and ChatGPT technologies and IP to date. A bargain at the $13 billion plus invested to date, mostly in credits to Microsoft’s Azure AI data center infrastructure worldwide. Re-potting it all in Microsoft’s ample gardens.

The leading AI company in the world became part of Microsoft by Monday, whether stuffed into the left pocket via OpenAI and what remains of that entity, or stuffed into the right pocket with OpenAI’s Sam Altman and team joining as Microsoft employees in a new AI part of the company. Now it’s an an execution hustle by Microsoft to keep it all intact and keep it going at AI scale in these early days of the AI Tech Wave. Let’s unpack it all.

Some day, we’ll learn of the true reasons why the dramatic events of the this past weekend at OpenAI happened (Exhibit One: Non-Profit Corporate Structure).

What were the real reasons for the company’s non-profit board to fire founder/CEO Sam Altman? What were the real issues between the two long-simmering OpenAI camps, the commercial accelerationists, and the cautionary superalignment believers? What was asked and offered at the Sunday night negotiations at OpenAI headquarters between the board and Sam Altman/Greg Brockman & team, where Sam Altman had to sign is as a Guest for the first and last time?

As I said over the weekend in ‘OpenAI’s Black Swan moment':

“It’s going to be a riveting movie some day, likely adapted from a best-selling book. THE leading AI company, OpenAI, barely a year into an epochal innovation, at the top of its game, sees management upheaval at its top ranks in the space of minutes on a Friday afternoon. A black swan event indeed, not on anyone’s probabilistic calculations.”

Remarkably, it had apparently caught even the company’s biggest believer, investor, partner, and cheerleader, Microsoft CEO Satya Nadella and his team, by utter surprise:

“The company’s biggest partner and investor, with over $13 billion dollars in, Microsoft, seemed to find out about the chain of events almost at the same time as the rest of us.”

By Monday, it was clear that Microsoft for now has essentially won OpenAI lock, stock and barrel.

Sam Altman, Greg Brockman and likely scores of OpenAI talent in the ‘commercial acceleration’ camp will now join Microsoft as part of their ‘independent’ ‘AI Advanced Research Team’. All while Microsoft will have full access to all of OpenAI’s GPT and ChatGPT technologies, weights, IP, and other material components to continue to build out its AI CoPilot strategies. Which Satya Nadella had just finished laying out in grand detail with the founder/CEO of Nvidia, Jensen Huang, the other mega-winner to date of this early chapter of the AI Tech Wave.

It’s as if IBM got to buy Microsoft in 1982 lock, stock and barrel, instead of just licensing MS-DOS, the operating system for its iconic IBM PC in a non-exclusive commercial license. That would have been an alternative universe indeed.

For now, we get this alternative universe, where OpenAI, THE iconic AI company that since 2015 that had been trying to bring AGI (Artificial General Intelligence, aka ‘SuperIntelligence’) to the world in a safe and reliable way, instead ends up being re-potted in the technology gardens of Microsoft.

The member of the ‘Magnificent Seven’, that is now in pole position for the next chapter in commercializing AI technologies. Of course Google, Amazon, Meta, Apple, Nvidia, Tesla (aka Elon/xAI/X et al), and dozens of private unicorns and aspiring unicorns are well in the mix, backed by public and private investors with hundreds of billions in the AI pot.

But for now Microsoft has stuffed its left and right pockets with the crown jewels of Foundation/Frontier LLM AI technologies as they stand in late 2023, barely a year after OpenAI’s ‘ChatGPT moment’. For $13 billion and Azure cloud data center change.

Yes, Satya and company have A LOT OF WOOD TO CHOP. To keep Sam Altman and team firmly enconced and happy within Microsoft. To keep investing the tens of billions more to get to GPT-5 and beyond. To keep deploying hundreds of thousands of AI GPU infrastructure, both by Nvidia and their own chip technologies. To make sure the AI products that get deployed at more reliable than 70% of the time. And of course safe enough to keep regulators worldwide at bay. And keep the AI extinction events firmly in the scifi domains.

And if they do all that and more, Microsoft and Satya get to keep Google dancing to their AI tune. Now at OpenAI and OpenAI 2.0 scale, all publicly investable via MSFT. The next Chapter in the AI Tech Wave begins. The AI world and chessboard has changed for participants large and small. It’s a new day. Stay tuned.

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)