How OpenAI and Microsoft turned into frenemies
The relationship between the companies has gone from bad to worse
How far away those days seem, when Satya Nadella and Sam Altman posed together to formalize the strengthening of the alliance between Microsoft and OpenAI. Or when the head of the Redmond giant rushed to the rescue of the ChatGPT creator's CEO, freshly ousted by his board of directors.
Relations between the two groups have only continued to sour in recent months. The once “win-win” partnership has given way to resentment and threats. On one side, OpenAI is reportedly considering filing a complaint with antitrust authorities over the commercial clauses signed with its main shareholder, according to the Wall Street Journal. On the other, Microsoft could block the startup’s legal status change, a shift that is essential for its development, reports the Financial Times.
The relationship between the two companies began in 2019. At the time, OpenAI was still just a research lab funded by a few Silicon Valley heavyweights, with a mission to design artificial intelligence that benefits humanity, free from profit-driven motives. But it needed significant funding.
To raise money without betraying its mission, OpenAI created a “capped-profit” subsidiary controlled by a nonprofit board. It then brought Microsoft on as an investor. The company initially injected $1 billion, in cash and cloud credits — allowing OpenAI to use Azure cloud services for free to train and run its models. Then, in 2023, it invested another $12 billion, a few months after ChatGPT's blockbuster debut.
On paper, everyone appeared to win. OpenAI gained access to liquidity and computing power without having to resort to traditional fundraising — which would have forced it to abandon its nonprofit goals. In exchange, Microsoft receives 20% of the startup’s revenue — which just crossed the $10 billion annualized mark. It will then collect 75% of the profits until its investment is paid back, and 49% of the profits after that, up to an undisclosed amount.
The deal includes several other highly favorable terms. Microsoft can use OpenAI technologies in its products. It also holds exclusive distribution rights to OpenAI’s APIs (which allow AI models to be integrated into apps) in the cloud, a major commercial advantage for its Azure offering.
OpenAI must renegotiate with Microsoft
The turning point came in November 2023, when OpenAI’s board abruptly fired Sam Altman, accusing him of recklessly racing toward artificial general intelligence — AI capable of learning on its own — while neglecting the risks. Behind the scenes, Satya Nadella sprang into action, fearing a change of direction could severely impact his company.
Though he managed to reinstate Sam Altman, the episode was a wake-up call for Microsoft, which realized how dangerously dependent it was on the startup. In March 2024, the group poached the staff of Inflection AI, including its founder Mustafa Suleyman, who was put in charge of a new AI division. Since then, it has been developing its own models — direct competitors to OpenAI’s.
Meanwhile, OpenAI continues to burn through cash, with losses soaring to $5 billion last year and profitability not expected before 2029. At the end of 2023, Sam Altman asked Satya Nadella for additional funds, but was turned down. He turned to other investors. By the end of 2024, he raised $6.6 billion — with “only” $750 million coming from Microsoft.
In April 2025, he secured a deal worth up to $40 billion, including $30 billion from Japan’s SoftBank. But both of these deals came with a condition: OpenAI had to change its legal status so it would no longer distribute profits to Microsoft or its nonprofit. This change is essential for a future IPO, which would provide returns to the new investors.
OpenAI now seeks to abandon its “capped-profit” corporate structure. Initially, it also wanted to end the control held by its nonprofit structure, but walked back under pressure from regulators. To proceed, it must renegotiate its agreement with Microsoft. And more specifically, convincing the company to relinquish its claim to future profits.
According to The Information, OpenAI has proposed offering Microsoft a 33% stake in exchange — now valued at $100 billion. But Microsoft is not satisfied. The company is reportedly ready to walk away from negotiations and rely solely on the existing commercial agreement, which runs until 2030, by which time it should be free of its dependence on OpenAI.
From partners to competitors
To make matters worse, negotiations are unfolding in an already tense climate. OpenAI has long complained that its partner failed to provide sufficient computing resources, slowing its development. On this front, OpenAI recently won a key concession: it is no longer obligated to use Azure for its models. Since then, it has signed deals with CoreWeave and Oracle. According to Reuters, it reached an agreement with Google. The company also aims to build massive data centers in the US — a $500 billion project over four years.
Microsoft, for its part, resents not getting timely access to OpenAI’s latest breakthroughs. It also took issue with OpenAI’s partnership with Apple to integrate ChatGPT into Siri.
More importantly, the two companies are no longer just partners. They have become competitors. Both sell access to OpenAI’s APIs, and both offer rival products for businesses: ChatGPT Plus and Microsoft Copilot. While the first one has become a major commercial success with over 20 million users, the second one is struggling.
The rivalry extends to coding assistants too. While Microsoft has a paid offering on GitHub, OpenAI provides similar features within ChatGPT. And it is about to acquire Windsurf, a coding startup, for $3 billion. However, the deal is currently stalled because OpenAI is refusing to share Windsurf’s technology with Microsoft, as required under their agreement.
Microsoft holds one significant bargaining chip: time. OpenAI must change its legal status before the end of the year, or it will forfeit $20 billion promised by SoftBank. If it fails to do so by the end of 2026, it must also repay the $6.6 billion raised in late 2024. Eventually, it could even have to return the $20 billion already received in its latest funding round.
But Microsoft is also playing with fire. Hindering its partner’s growth could benefit competitors, reducing profits and, consequently, the share it will receive. Moreover, OpenAI also holds a trump card: a clause that allows it to cut off Microsoft’s access to its technology once AGI is achieved. It may be willing to waive that right to get Microsoft on board.