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Investing.com -- Microsoft (NASDAQ:MSFT) stock rose 4% Tuesday morning after the technology giant announced a new agreement with OpenAI that values Microsoft’s stake in the AI company at approximately $135 billion.
The new definitive agreement expands on the partnership that began in 2019, with Microsoft now holding roughly 27% ownership in OpenAI Group PBC on an as-converted diluted basis. This stake represents a significant position across all ownership groups including employees, investors, and the OpenAI Foundation.
Under the new terms, Microsoft maintains its position as OpenAI’s exclusive frontier model partner with extended intellectual property rights through 2032. These rights will now include models developed after Artificial General Intelligence (AGI) is achieved, with appropriate safety measures in place.
The agreement introduces several key changes, including verification of AGI declaration by an independent expert panel and the extension of Microsoft’s IP rights to post-AGI models. OpenAI has committed to purchasing an additional $250 billion in Azure services, though Microsoft will no longer have first refusal rights as OpenAI’s compute provider.
The partnership modifications give both companies greater flexibility. OpenAI can now jointly develop products with third parties and provide API access to U.S. government national security customers regardless of cloud provider. Microsoft gains the ability to independently pursue AGI development alone or with other partners.
Shares remained higher by 2.4% at 11 am.
Evercore ISI analyst Kirk Materne noted that OpenAI currently represents about a $0.60 per share drag on Microsoft’s earnings per share in their estimates. Materne suggested the conversion of OpenAI could trigger a reversal on the other income line if Microsoft recognizes the fair market value versus using the equity method.
"Under a fair value method, MSFT would recognize a large unrecognized gain from the OAI relationship," Materne said, adding that the EPS drag from OpenAI likely dissipates over the course of FY26 and provides some upside potential to estimates.
More details about how the change in this relationship could impact Microsoft’s accounting are expected during the company’s earnings call on Wednesday.