As a Result of the OpenAI Drama, Microsoft Scores Its Own 'Coup'

Microsoft Corp. swiftly turned a negative situation into a positive one, earning applause from Wall Street on Monday.

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When news emerged late on Friday that Sam Altman had been removed as the chief executive of OpenAI, Microsoft's shares (MSFT, 1.38%) initially declined, as analysts expressed concerns about the future of OpenAI, a company in which Microsoft is a significant investor and partner. Altman played a prominent role in OpenAI and was a key figure in the recent artificial-intelligence surge.

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However, over the weekend, Microsoft managed to transform the narrative. Analysts now suggest that Microsoft is in an even stronger position than before, having appointed Altman to lead a new advanced AI research team. This team includes former OpenAI president Greg Brockman and other former OpenAI staff.

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Oppenheimer analyst Timothy Horan expressed optimism in a note to clients, stating that while the story may not be over, Microsoft's move is a major win. He emphasized that Microsoft now has access to the best large-language models (LLMs) and a team capable of potentially creating the next groundbreaking LLM, along with some of the world's top AI minds to implement AI.

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Frederick Havemeyer, an analyst at Macquarie, echoed similar sentiments, suggesting that Microsoft CEO Satya Nadella may have achieved a significant feat. If many OpenAI employees join Microsoft, the tech giant would essentially be acquiring OpenAI's core differentiator—its skilled technical talent—while retaining licensing rights to OpenAI's intellectual property.

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In premarket trading on Monday, Microsoft shares rose by 0.8%.

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Kirk Materne from Evercore ISI also regarded these developments as a clear win for Microsoft. He mentioned that the inclusion of Altman and his team should alleviate concerns about uncertainty at OpenAI. While there may be some uncertainty about potential talent loss at OpenAI, Materne believes the fundamental risk to Microsoft is mostly contained with Altman and his team on board. He emphasized that, from a long-term perspective, hiring Altman and his team might prove to be a better outcome compared to the previous situation.

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Materne did acknowledge a potential risk to Microsoft's Azure platform if OpenAI's growth significantly slows. However, he believes that the long-term opportunity around General AI (GenAI) for Microsoft outweighs any short-term risks associated with the disruption at OpenAI.

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