Unchained - How Microsoft Won in Its Revised Deal With OpenAI

Starting point is 00:00:00 I want to unpack a little bit what's going on with OpenAI. This news just recently broke. So Microsoft is going to remain Open AI's primary cloud partner. And Open AI is going to ship products will ship first on Azure. Microsoft is going to continue to have a license to OpenAI IP for models and products through 2032. But Microsoft's license is no longer going to be non-exclusive. Microsoft will no longer pay a revenue share to OpenAI. and the revenue share payments from OpenII and Microsoft will continue to 2030,

Starting point is 00:00:33 independent of Open IIIs a technical progress. So this seems like, you know, what's your take on all this? Is this friendly, like, hey, we're both, like, we agree to disagree, we're, you know, how do you think about it? Let's do a win or whatever they call it. Yeah. Yeah, let's do winners and losers on this. Like, overall, Microsoft's a winner here.

Starting point is 00:00:55 As you know, when a startup cuts a deal with the big corporate, the corporates bring their M&A and Corp-Dev team and they ink a paper-tight contract that protects them many ways to Sunday. And Microsoft was the purse funding OpenAI for such a long time, and they had wins because the Microsoft Cloud would benefit from all of OpenAI's development. Now, here's a couple things. So one is Microsoft doesn't have to spend money. and do a rest of it back to Open AI. So their expenses linked to Open AIA are going to drop.

Starting point is 00:01:30 Number two, they're going to enjoy revenue from Open AI through 2030. So they have the upside on that. And third, they have rights to the Open AI IP through then as well. But R&D for these LLMs is significant. You're going to spend tens and tens of billions of dollars to do model training runs. Microsoft gets a free call option on all of that. So, you know, the context was, we talked about, I think maybe a month ago, Open AI could a deal with Amazon, and Amazon invested in Open AI, OpenA didn't the capital to keep up with

Starting point is 00:02:06 Claude. Open AI is saying, hey, we are growth constrained because we don't have to compute. Amazon as a result got OpenNet to do a deal. Those are a report in the Wall Street Journal that Open AI violated their agreement with Microsoft. We all wanted to see how this would play out. It looks like Sam cut a deal that was illegal under contract law and was going to play figured out later, well, the later just happened and they reworked terms of Microsoft.

Starting point is 00:02:29 But if you're in breach in a contract, if you're the breaching party, you don't have the negotiating leverage because the party that claims breach can allege damages. So Microsoft, it seems to me, ironed out a great deal and get more revenue, less expense, and a call option in the IP. So I think it's a big win from Microsoft. It's one of my top three positions right now, too. I think it's mispriced. It's mispriced.

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Unchained - How Microsoft Won in Its Revised Deal With OpenAI

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