Deepa Seetharaman, Berber Jin and Keach Hagey

Sam Altman once said OpenAI and Microsoft had the "best partnership in tech." Now, their Silicon Valley marriage is on the rocks.

Microsoft turbocharged the AI startup's growth over the past six years with billions of dollars in funding, helping OpenAI's ChatGPT accumulate more than 500 million weekly users. OpenAI powered cutting-edge generative AI tools for the technology giant, helping its share price triple.

That relationship has become strained. The CEOs are increasingly at odds over the computing power Microsoft provides to OpenAI, the access the startup gives the technology giant to its models and whether the Altman-led company's AI systems will soon achieve humanlike intelligence, according to people familiar with their relationship. Microsoft CEO Satya Nadella has also made it a priority to beef up sales and usage of ChatGPT rival Copilot, and last year hired a rival of Altman's who launched a secret effort to build models for Microsoft that would reduce its dependence on OpenAI.

While they are preparing their companies for independent futures, both still wield tremendous power over one another at a critical moment in the global AI race.

Microsoft can effectively block OpenAI's effort to restructure into an independent for-profit company, according to people familiar with the matter. OpenAI could lose tens of billions of dollars if the conversion doesn't happen by the end of this year. Microsoft hasn't to date threatened to do so, a person familiar with the matter said.

OpenAI's board, meanwhile, can trigger a clause in its contract that prevents Microsoft from accessing its most cutting-edge technology, people familiar with the matter said. OpenAI officials have raised the possibility of doing so over the past year, some of the people said.

A chance encounter

Nadella and Altman's partnership grew after a chance meeting in the summer of 2018 in a stairwell at investment bank Allen & Co.'s annual conference in Sun Valley, Idaho. Altman had co-founded OpenAI as a nonprofit research lab three years earlier with the aim of creating artificial general intelligence, or AGI -- AI that outperforms humans.

In a five-minute conversation, Altman told Nadella that his startup, OpenAI, then still a nonprofit, was "going to raise a bunch of money," Altman told the Journal in 2023. They agreed to keep in touch.

A year after that encounter, Microsoft invested $1 billion in OpenAI.

The investment granted Microsoft exclusive access to OpenAI's technology, while Microsoft became OpenAI's exclusive cloud provider. But it was OpenAI that built the first smash-hit product of the generative AI boom with ChatGPT in November 2022.

ChatGPT, with its powerful ability to generate new sentences and answer questions, forced Silicon Valley titans like Alphabet and Meta to overhaul their product plans. The OpenAI partnership transformed Microsoft from an aging tech company into one of the leaders of the modern AI boom and, briefly, the world's most valuable company.

In the closest moments of their relationship, it wasn't unusual for Nadella to text Altman five or six times in a row and for Altman to reply back in kind.

When employees on either side reached an impasse, Altman would often speed matters along by posting screenshots of his conversation with Nadella directly to OpenAI's Slack, people familiar with the matter said.

Microsoft invested another $10 billion in early 2023 -- a deal that gave OpenAI the firepower to rent data centers from Microsoft for training its new models. Later that year, when Altman was briefly pushed out of OpenAI by board members, Nadella offered to hire him.

Within OpenAI, the episode became known as "the blip." For Nadella, it was a sign that the company needed an insurance policy against Altman and OpenAI.

Controversial hire

Unbeknown to Altman, Nadella set his sights on hiring Mustafa Suleyman, one of the three co-founders of Google's DeepMind. The Microsoft CEO wooed him over a series of meetings, including in Davos, Switzerland, in early 2024, where Nadella also spoke on a panel with Altman.

Microsoft paid $650 million to hire Suleyman and his colleagues at startup Inflection. Suleyman began work building a large language model that aimed to rival what was then OpenAI's most advanced publicly released technology, GPT-4, people familiar with the work said.

The project got off to a rough start. An early training run showed that building a model comparable to OpenAI's would be more difficult than expected, leading Microsoft to extend its reliance on OpenAI, people familiar with the matter said.

In one meeting about sharing intellectual property, Suleyman yelled at OpenAI's lawyers in front of senior OpenAI executives, including then-CTO Mira Murati, people familiar with the incident said.

Suleyman didn't respond to requests for comment.

One key area of tension: OpenAI's development of models with humanlike intelligence. The companies' agreement gives OpenAI's board the power to change its relationship with Microsoft once the startup successfully builds models with humanlike intelligence. Altman has said he is confident his team can build that functionality soon.

In closed-door negotiations, Microsoft negotiators have told OpenAI that the present technology is nowhere near that threshold, the people said. Nadella dismissed the idea of declaring such a milestone on a popular podcast in February, calling it "nonsensical benchmark hacking."

Executives at OpenAI were taken aback, according to people familiar with the matter.

OpenAI, meanwhile, wants more computing power from Microsoft and access to top-of-the-line chips. Microsoft has told OpenAI that it is giving everything it can and has loosened its exclusivity restrictions.

Microsoft was frustrated last summer, when OpenAI was unusually slow to hand over the code for its powerful new reasoning model, then code-named Strawberry, people familiar with the negotiations said. OpenAI needed extra time to understand the model's capabilities, said people familiar with the company's thinking.

These days, Altman and Nadella text less and primarily speak to each other on scheduled weekly calls.

Microsoft and OpenAI were in negotiations for an ambitious data-center project, but Microsoft put it on hold after Altman was briefly ousted, people familiar with the matter said.

In January, Altman stood at a White House lectern with President Trump, SoftBank CEO Masayoshi Son, and Oracle co-founder Larry Ellison announcing that the Japanese conglomerate and Oracle would anchor an up to $500 billion investment in Stargate. The project closely resembled what Altman had hoped to accomplish with Nadella, who was thousands of miles away at the World Economic Forum in Davos at the time.

Write to Deepa Seetharaman at deepa.seetharaman@wsj.com, Berber Jin at berber.jin@wsj.com and Keach Hagey at Keach.Hagey@wsj.com

(END) Dow Jones Newswires

April 28, 2025 21:00 ET (01:00 GMT)

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