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Last Friday, the tech sector was taken by storm after news surfaced of the ouster of the founder and CEO of OpenAI Sam Altman. Over the last year, Altman has led OpenAI to be among the big boys of the tech industry following the release of the popular ChatGPT chatbot. OpenAI was at the center of the AI boom and Altman had become one of the most influential people in tech. That’s why Altman’s ouster is reminiscent of when Steve Jobs was forced out of Apple in 1985.
OpenAI’s meteoric rise over the past year has raised tensions within the company due to an everlasting philosophical conflict between 2 camps in the AI industry. One camp believes that AI is the greatest opportunity in a generation, while the second camp sees that moving too fast with AI development could be dangerous.
Altman’s ouster is the epitome of this conflict since he was forced out by co-founder Ilya Sutskever along with 3 other board members who saw Altman’s strides in AI technology neglected the possible risks of the technology.
But that news isn’t only affecting OpenAI. OpenAI’s advancements in AI technology raised investors’ interest in it. And one of its biggest benefactors is tech giant Microsoft Corporation (Nasdaq: MSFT).
So as the behemoth it is, Microsoft decided to turn all of this saga to its advantage by appointing Altman and former OpenAI Greg Brockman to lead a new AI research team. That should’ve been the end of the whole saga. However, OpenAI’s board recently decided to reinstate Altman along with partly restructuring the board. This could be a big win for Microsoft due to several reasons.
MSFT Stock Performance
In this article, we’re taking a deep dive into Sam Altman’s ouster from OpenAI, eventual reinstatement, and how Microsoft can benefit from all of this ordeal.
But first, let’s take a look into how MSFT stock is impacted by news regarding OpenAI.
Microsoft and OpenAI’s relationship goes back to 2019 when Microsoft invested $1 billion in the AI startup. Back then, we were in the startup boom and it was normal for large companies to invest in startups. So, Microsoft’s $1 billion investment didn’t grab much attention.
However, everything changed 3 years later. The launch of ChatGPT can be described as a game changer thanks to its immediate success. And that event made investors realize that Microsoft is at the forefront of the generative AI revolution.
That’s why it’s no wonder MSFT stock climbed nearly 7% upon the launch of ChatGPT on November 30, 2022. But that wasn’t the only event that led to Microsoft runs.
Fast forward 2 months to February 7, 2023, Microsoft announced the launch of the all-new Bing browser backed by the one and only ChatGPT. And similarly, Microsoft went on to surge as much as 8% in the following 2 days. Then on March 14, GPT4 was launched, and once again, MSFT stock ran 14% over the course of that week.
Overall, MSFT stock is up more than 55% since the launch of ChatGPT, reaching a new all-time high of $376.35 in the process. But that streak of gains came to a halt after Altman’s ouster as Microsoft dropped 2% on the news. However, that was a short-lived dip as Microsoft recovered after appointing Altman and Brockman to lead an AI research team. It even reached a new all-time high of more than $377 on the news in pre-market trading.
So now that we see the strong correlation between OpenAI developments and MSFT stock, let’s dive deeper into the reasons behind Altman’s ouster and how Microsoft leveraged the whole situation to its advantage by appointing him.
Why Was Altman Ousted?
Let’s begin by stating OpenAI’s board’s reasoning behind ousting Altman.
“Mr. Altman’s departure follows a deliberative review process by the board, which concluded that he was not consistently candid in his communications with the board, hindering its ability to exercise its responsibilities. The board no longer has confidence in his ability to continue leading OpenAI.”
The board’s decision wasn’t exclusive to Altman though as Greg Brockman, another founder and President, was also removed from his Chairman position and will report to the CEO, before quitting in a tweet.
So this brings the question, was the board’s decision really due to a breakdown of communications? Or was it for another reason?
Well, it’s very likely to be the latter. Sutskever, as mentioned earlier, is of the camp that AI technology is dangerous and that Altman’s attempts to grow fast were reckless.
Before Altman was ousted, he was seeking billions from Middle Eastern sovereign funds to develop an AI chip to compete with Nvidia. Altman even courted SoftBank chairman Masayoshi Son to develop AI hardware with former Apple designer Jony Ive. But these attempts weren’t to Sutskever and his allies’ liking as they viewed them as Altman using the OpenAI name.
This opposition to Altman’s profit-driven strategy reached a bottleneck after OpenAI’s DevDay conference. Altman revealed major advancements that could change the landscape for AI at that conference, including OpenAI’s most powerful AI model GPT-4 Turbo.
But Altman’s aggressive strategy wasn’t the only reason why Sutskever led this rebellion against him. In fact, looking at the bigger picture, there might have been a personal factor to this coup.
Sources within OpenAI revealed that Sutskever objected to what he saw as his role inside the company being diminished. Sutskever’s opinion is very likely to have resulted from the promotion of Jakub Pachocki to director of research.
Pachocki was in a position below Sutskever before being promoted, but after becoming director of research, he became on par with Sutskever. Not only that but Pachoki was also in Altman’s camp as he also quit on the heels of Altman’s ouster.
Think about it, if you co-founded a business, and someone who was in a position below you suddenly became at the same level as you. I bet you’ll feel jealous, even if a little. After all, these are natural human feelings.
Blessing In Disguise
But unfortunately for Sutskever, his actions might be signaling the beginning of the end for OpenAI. Sutskever’s coup has undoubtedly alienated its investors, including Microsoft who has $13 billion invested in the startup. But that’s not it. OpenAI depends on Microsoft for the vast amounts of computing power that its AI products require to run. As a result, Microsoft holds significant power over OpenAI.
It’s widely known that Microsoft’s decision to invest in OpenAI was largely due to Altman’s vision. This is why once the news of his ouster became public Microsoft, along with other OpenAI investors, started a pressure campaign on OpenAI’s board to reinstate Altman and Brockman.
However, these efforts failed as Altman allegedly wanted the board to resign among other demands to agree to return to OpenAI which the board dismissed.
All of this saga has been nothing short of a blessing in disguise for Microsoft. Right after the news of Altman’s failed return to OpenAI broke out, Microsoft’s CEO Satya Nadella shocked the whole tech world. In a tweet, Nadella announced that Altman and Brockman were joining Microsoft to lead a new advanced AI research team.
This basically means that Microsoft is now competing with its investee OpenAI. But that’s not it. This could be the end of OpenAI.
You see, OpenAI employees were in an uproar after Altman’s termination and many researchers threatened to quit the company unless Altman returned. So now that Altman is at Microsoft, it’s very likely these disgruntled employees may join Altman’s and Brockman’s team at Microsoft.
So with Altman, Brockman, and OpenAI employees at its disposal, Microsoft can easily create an in-house ChatGPT rival. Microsoft can even use OpenAI’s dataset since those are on Microsoft’s servers. What’s even more is that Microsoft has exclusive access to OpenAI’s models thanks to its $13 billion investment in the startup.
This means that Microsoft could build upon OpenAI’s models, and considering its financial muscle, it could accelerate AI developments at a very rapid pace. At the same time, as OpenAI’s team continues to improve ChatGPT, Microsoft will continue realizing 75% of OpenAI’s profits.
What’s more, is that Microsoft is building its own AI chips with an eye on vertically integrating its services and solutions. So by making both the AI models and the AI chips Microsoft would have superior price performance while making it quicker, cheaper, and less energy-intensive to train and run generative AI models.
So this whole saga couldn’t have turned out any better for Microsoft which shows the savviness and brilliance of Nadella as CEO for turning this situation into his advantage all within the weekend. In fact, Microsoft will emerge from this whole ordeal as the undisputed leader in the generative AI race.
What’s Next for OpenAI?
Well, OpenAI will likely struggle in the near term after alienating its investors. After all, OpenAI’s planned sale of employee shares that would’ve valued the startup at a staggering $86 billion is now in jeopardy.
The tender offer was led by Thrive Capital, one of OpenAI’s largest investors, and has been in its final stages and was expected to be completed by next month. However, the sudden management shakeup has cast doubt on the completion of the sale, raising concerns among stakeholders.
But that’s not it. OpenAI may struggle to receive funding from investors in the future since the board’s decision to oust Altman caught them by surprise. This could signal OpenAI’s end since it costs approximately 36 cents per query or $700 thousand a day to keep ChatGPT up and running. This is without even considering the rest of its expenses from salaries to research and development.
As such, Microsoft could eventually acquire OpenAI and turn it into one of its departments. Or simply cut off compute power to OpenAI if it successfully creates superior AI models under the guidance of Altman or Brockman to cut off its losses. So all in all, Microsoft always wins.
*Updated November 23rd, 2023
The Saga Continues
In a shocking turn of events, OpenAI’s board reinstated Altman less than a week after ousting him. They did so on Altman’s terms as the board decided to partly reconstitute the board that initially ousted Altman. The new board will be chaired by former Salesforce co-CEO Bret Taylor and will also include former Treasury Secretary Larry Summers along with Quora CEO and current director Adam D’Angelo.
From the backgrounds of the new board members, it is easy to find that all of them are very likely to be more aligned with Altman’s aggressive approach to developing AI as they can be considered “profit-driven”. This would be a total change from the previous board which cared more about the ethical aspect of AI. This is why Microsoft stands to benefit the most from this whole saga.
Of course, Microsoft wants OpenAI to develop AI as soon as possible to recoup its $13 billion investment. As is, Microsoft is entitled to 75% of OpenAI’s profits until it recoups its full investment, upon which, Microsoft will own 49% of OpenAI.
Now that the new board appears to be more aligned with Altman’s, and in turn Microsoft’s, vision for AI, there’s a strong possibility that Microsoft will get a seat on OpenAI’s new board. This would allow Microsoft to be in the know of all that’s going on inside OpenAI.
As a result, Microsoft can easily prevent any future mutinies from happening as last week’s coup attempt has definitely put its $13 billion investment in jeopardy. So with Altman at the helm, a new board that is likely aligned with its vision, as well as a potential board seat, Microsoft would be basically running OpenAI.
But that’s not the biggest benefit to Microsoft. When Microsoft appointed Altman to lead an in-house AI research team, it would’ve been responsible for all the costs associated with developing its own AI. From the hefty wages of the migrating OpenAI employees to R&D costs, Microsoft would’ve incurred a lot of costs. As a result, its profitability would’ve been impacted which may not have sounded well to its shareholders.
One of Microsoft’s main attraction points as an investment is its dividend payout. Since it started paying a dividend in 2003, the payout increased from $0.08 to $0.75. However, by incurring all the costs associated with developing AI in-house, Microsoft might’ve had to decrease its payout since its AI division would be operating at a loss in its early stages since developing AI models consumes a lot of resources.
All in all, this whole saga couldn’t have turned out any better for Microsoft. Altman is leading OpenAI with a board that’s very likely to allow his aggressive approach to developing AI. Microsoft potentially getting a board seat at OpenAI. And most importantly, Microsoft will still get all the benefits of OpenAI’s work without incurring any additional costs.
All of this shows the savviness and brilliance of Microsoft’s CEO Satya Nadella. He turned a very tough situation into his advantage all within less than a week. In fact, it’s very probable that Microsoft will emerge from this whole ordeal as the undisputed leader in the generative AI race.
@TicTocTick is bullish on MSFT stock’s prospects with Nadella at the helm.
@BradoCapital believes Nadella is the best tech CEO thanks to his handling of the whole Altman saga.
MSFT Stock Forecast
In conclusion, Microsoft couldn’t have predicted any better way for how the whole saga developed over this past week. While initial uncertainty from Altman’s ouster caused MSFT stock to drop, his appointment and subsequent return to OpenAI may allow Microsoft to dominate the generative AI market. As is, Altman is very likely to have more power with the new board in place which would allow OpenAI to aggressively develop AI based on Altman’s vision. In this way, Microsoft will benefit from having the most advanced AI models without incurring any additional costs. When combined with its financial muscle and in-house manufactured AI chips, Microsoft is shaping up to be the king of generative AI.
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