How Microsoft’s $1 billion bet on ChatGPT-maker OpenAI in 2019 may be best investment in tech history

OpenAI recently announced plans to restructure into a for-profit public benefit corporation, a move that will allow it to issue traditional stock to investors. With this change, according to analysts, Microsoft is set to receive a new equity stake in OpenAI that could be worth at least $150 billion.

This would be a remarkable return on Microsoft’s total investment of approximately $13 billion – suggesting that bet is shaping up to be one of the most successful investments in the history of technology.According to a report by Business Insider, the potential return rivals some of the most famous technology acquisitions. Google's purchase of YouTube for $1.65 billion in 2006 and Facebook's acquisition of Instagram for $1 billion in 2012 are both now worth hundreds of billions. However, there is a huge difference. Google’s and Meta’s investments took more than a decade to mature, while Microsoft's return on its OpenAI investments has grown at a much faster pace.

ChatGPT became the deciding factor

The original partnership between Microsoft CEO Satya Nadella, CTO Kevin Scott, and OpenAI CEO Sam Altman was unusual, involving profit-sharing units in what was then a charity. As part of the deal, OpenAI received credits to use Microsoft's Azure cloud service to train and operate the large AI models that power ChatGPT.

Following the launch of ChatGPT and its growth, OpenAI required more money to support its operations. The startup’s unusual corporate structure presented challenges in raising capital from new investors who sought traditional equity stakes. This pressure led to a renegotiation of the partnership with Microsoft, a process that has been described as acrimonious but is now nearing a resolution.The outcome appears to be a win-win: Microsoft stands to gain a massive equity stake, and OpenAI can now issue traditional stock to raise more funding.Given OpenAI’s current valuation of $500 billion from a new funding round, a 30% stake would be worth $150 billion, and a 33% stake would be worth even more.