Microsoft's stock rises as new OpenAI partnership comes as a relief to investors

By Christine Ji

The new agreement values Microsoft's 27% stake at $135 billion and extends its IP rights through 2032, giving Microsoft investors 'upside optionality'

Shares of Microsoft rose 2% on Tuesday morning on the news of the company's new agreement with OpenAI.

Microsoft Corp.'s stock climbed Tuesday after the company and its key partner, OpenAI, unveiled a fresh agreement that established a new trajectory for their partnership.

In OpenAI's final steps toward becoming a for-profit business, Microsoft (MSFT) solidified its holding in the artificial-intelligence giant and extended its crucial intellectual-property rights. Under the new agreement, Microsoft will have a 27% stake in OpenAI valued at around $135 billion. Microsoft will also retain access to OpenAI's technology until 2032, including models that achieve artificial general intelligence.

The agreement alleviates a key concern for Microsoft, as it "importantly provides [Microsoft] shareholders with upside optionality related to [OpenAI]'s future growth," Evercore ISI analyst Kirk Materne wrote in a note Tuesday.

Shares of Microsoft rose 2% on Tuesday.

Read: Microsoft could beat out Apple and join Nvidia in an elite club

Prior to the announcement, Microsoft had an investment of over $13 billion in OpenAI and a capped-profit agreement that put a ceiling on investor returns.

The agreement provides more flexibility for both OpenAI and Microsoft. OpenAI can now partner with third parties to jointly develop some products and can use any cloud provider for non-API products. Microsoft no longer has "right of first refusal" to be its computing-power provider, meaning that OpenAI does not have to ask Microsoft first before going to other vendors such as Oracle Corp. (ORCL). However, OpenAI committed an additional $250 billion to purchase Microsoft Azure services.

The deal also stipulates that once OpenAI achieves AGI as verified by an independent panel, Microsoft will no longer receive a share of OpenAI's revenue.

Read on: Could Microsoft buy OpenAI? A new arrangement makes that possible - one day.

For OpenAI, the transition means the company can now receive the remainder of a $30 billion investment promised by SoftBank Corp. (JP:9434), which was contingent on OpenAI becoming a for-profit company. The Information reported last week that SoftBank had greenlit the investment. Representatives from SoftBank and OpenAI did not immediately respond to requests for comment.

Bloomberg reported in May that Microsoft was one of the biggest holdouts in the process of OpenAI's restructuring, as the Big Tech company wanted to ensure that changes to OpenAI would protect its business investment.

Materne is expecting more details on Microsoft's earnings call on Wednesday. He's optimistic that the new structure will result in a boost to Microsoft's earnings, as Materne estimates that OpenAI is currently creating a 60-cent drag on Microsoft's earnings per share under the old nonprofit business model.

See more: Microsoft's stock is in need of a jolt. Here's how earnings could fuel a breakout.

-Christine Ji

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10-28-25 1844ET