Microsoft-OpenAI partnership crumbles over charge that AGI can’t be reached

Microsoft CEO Satya Nadella no longer believes OpenAI can achieve artificial general intelligence (AGI), creating a major rift between the two companies whose partnership launched the current AI boom. The disagreement centers on OpenAI’s potential declaration of AGI, which would terminate Microsoft’s exclusive access to OpenAI’s technology under their current contract—a prospect that has Microsoft demanding new terms while OpenAI considers antitrust action.

The big picture: What started as a lucrative partnership that defined the AI era has devolved into a high-stakes contract dispute worth billions, with both companies’ futures hanging in the balance.

What you should know: The current Microsoft-OpenAI contract contains a clause that automatically ends their partnership once OpenAI achieves AGI, cutting off Microsoft’s access to future OpenAI products.
• OpenAI defines AGI as “highly autonomous systems that outperform humans at most economically valuable work.”
• Microsoft has invested over $13 billion in OpenAI and provided the hardware infrastructure for training and running AI models.
• The contract restricts Microsoft from developing AGI independently until 2030.

Why this matters: The dispute reveals fundamental disagreements about AI progress and could reshape the competitive landscape if their partnership dissolves.
• Microsoft risks losing its AI advantage if cut off from OpenAI’s technology.
• OpenAI faces potential loss of $20 billion in funding if it can’t complete its restructuring into a for-profit company.
• The outcome could determine which companies control the most advanced AI systems.

What they’re saying: Nadella’s skepticism about AGI has stunned OpenAI officials who once considered him a believer.
• “Us self-claiming some AGI milestone, that’s just nonsensical benchmark hacking,” Nadella said on a tech podcast in February.
• Some Microsoft executives reportedly viewed the AGI clause as “arbitrary and unenforceable” from the beginning.
• OpenAI executives have discussed declaring AGI by releasing an AI coding agent that exceeds advanced human programmer capabilities.

Key contract disputes: Beyond AGI, several other major issues are driving the wedge between the companies.
• Microsoft wants a bigger stake in OpenAI’s restructured company, potentially accepting 35% ownership.
• OpenAI doesn’t want Microsoft gaining rights to its newly acquired coding startup Windsurf, which competes with Microsoft’s products.
• Microsoft workers overwhelmingly prefer ChatGPT over Microsoft’s own Copilot product, creating internal tensions.

OpenAI’s escape routes: The company has been quietly reducing its dependence on Microsoft through new partnerships.
• Secured a $40 billion deal with Oracle, a cloud computing company, to buy Nvidia AI chips for a new US data center.
• Negotiated access to Google’s computing capacity for additional infrastructure.
• Currently restricted to selling products only through Microsoft’s Azure cloud services.

The nuclear option: OpenAI could trigger the AGI clause through “sufficient AGI”—meaning its models are deemed capable of generating $92 billion in future profits for Microsoft, regardless of whether they actually do.
• This would terminate Microsoft’s exclusive rights and allow OpenAI to sell through other cloud providers.
• Microsoft could sue, but lengthy legal battles would benefit neither company.
• OpenAI is reportedly considering antitrust action against Microsoft if negotiations fail.