The escalating dispute centers on claims of anti-competitive behavior, disagreements over intellectual property rights, equity stakes, and future commercialization structures.
Sources familiar with the negotiations say OpenAI is increasingly dissatisfied with the extent of control Microsoft seeks to exert—particularly as OpenAI plans a partial conversion to a for-profit model. Approval from Microsoft is essential for this transition; without it, OpenAI stands to lose up to $20 billion in potential valuation. The standoff jeopardizes one of the tech sector’s most high-profile partnerships, which began in 2019 with a $1 billion investment from Microsoft.
The conflict intensified following OpenAI's recent acquisition of Windsurf, a $3 billion AI startup. Microsoft, which holds access to all OpenAI intellectual property, is pressing for similar rights over the new asset. At the same time, the two firms are deadlocked over the size of Microsoft’s future stake in the restructured entity. Insiders report that Microsoft’s demands exceed what OpenAI is willing to concede.
OpenAI is also seeking to diversify its cloud partnerships, hoping to market its technologies via other cloud providers. However, Microsoft’s current agreements grant it exclusive distribution rights through Azure, putting OpenAI’s ambitions for “cloud independence” on hold.
Another flashpoint is the debate over AGI (artificial general intelligence) thresholds. Microsoft is insistent on continued access to OpenAI technology even if human-level AGI is achieved, while OpenAI’s leadership argues that such a breakthrough should trigger a renegotiation of partnership terms.
The growing rift comes as both companies increasingly compete in the expanding AI market. Microsoft is ramping up its own suite of AI products, while OpenAI seeks to assert greater autonomy and flexibility in commercializing its technology stack.
Industry observers point out that the current friction could lead to a formal breakup—an event with significant ramifications for the global AI landscape. Ben Wood, a senior analyst at CCS Insight, has predicted that declining enthusiasm for generative AI could accelerate the acquisition of companies like OpenAI or Anthropic by technology giants such as Microsoft or Amazon. Notably, Microsoft recently announced a $3 billion investment to advance its AI operations in India, further highlighting its aggressive expansion in the sector.