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The big winner if OpenAI becomes a for-profit business? Microsoft.

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The big winner if OpenAI becomes a for-profit business? Microsoft.


OpenAI is considering transitioning from a nonprofit into a for-profit company, and its deep-pocketed benefactor, Microsoft (MSFT), has a lot to gain if the ChatGPT developer gets the green light to act more like a startup.

“Anything that frees up OpenAI to focus on profit is likely to benefit Microsoft’s investment in the company,” said Sarah Kreps, director of the Tech Policy Institute in the Brooks School of Public Policy at Cornell University.

A reconfigured business structure would give Microsoft an opportunity to renegotiate its already generous profit cap, as well as discard a provision that denies Microsoft an interest in OpenAI-created general artificial intelligence (GAI), according to another observer.

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“[OpenAI] is clearly saying that the nonprofit will no longer be in control, so presumably that means Microsoft and other investors will have more say about what OpenAI does,” said Rose Chan Loui, founding executive director of the University of California Los Angeles’s Lowell Milken Center for Philanthropy and Nonprofits.

SAN FRANCISCO, CALIFORNIA - NOVEMBER 06: Microsoft CEO Satya Nadella (R) speaks as OpenAI CEO Sam Altman (L) looks on during the OpenAI DevDay event on November 06, 2023 in San Francisco, California. Altman delivered the keynote address at the first ever Open AI DevDay conference. (Photo by Justin Sullivan/Getty Images)

Microsoft CEO Satya Nadella, right, speaks as OpenAI CEO Sam Altman looks on during the OpenAI DevDay event last November in San Francisco. (Justin Sullivan/Getty Images) (Justin Sullivan via Getty Images)

But there are potential snags for Microsoft as OpenAI attempts to shed its charitable cloak.

OpenAI’s huge valuation, labyrinth of for-profit subsidiaries, and potentially risky technology make a for-profit switch legally and publicly complicated — and could invite pushback from regulators.

Still, OpenAI’s investors see plenty of upside. On Wednesday, the company announced it raised some $6.6 billion in its latest funding round, valuing the Sam Altman-helped firm at $157 billion. However, that valuation is largely contingent on OpenAI becoming a for-profit entity.

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OpenAI is in the midst of a whirlwind of change.

It is experiencing an extended executive exodus including, most recently, the departure of chief technology officer Mira Murati. It also faces increased competition from rivals including Google (GOOG, GOOGL) and Amazon-backed (AMZN) Anthropic.

The reclassification to a for-profit structure would be yet another seismic shift for OpenAI, upending the way it was established nearly a decade ago.

It began in 2015 as a nonprofit under the name OpenAI Inc., a nod to its mission of advancing humanity instead of pursuing profits.

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“The corporation is not organized for the private gain of any person,” OpenAI’s certificate of incorporation stated in its organizing documents, along with a promise to keep its technology as open source for public benefit.

Things evolved in 2019 when OpenAI CEO Sam Altman and his team created a for-profit subsidiary to raise outside venture capital — including billions from Microsoft.

It was structured in such a way that the for-profit subsidiary, technically owned by a holding company owned by OpenAI employees and investors, remained under the control of the nonprofit and its board of directors while giving its biggest backer (Microsoft) no board seats and no voting power.

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The inherent tension between these two parts of the enterprise is what contributed to a dramatic boardroom clash in 2023, when Altman was ousted by the board and then brought back five days later.

In the aftermath, Microsoft took a non-voting observer position on OpenAI’s board, only to relinquish that seat this year as both OpenAI and Microsoft came under more regulatory scrutiny.

The idea of upending the current structure has already attracted interest from US and European regulators and exacerbated an ideological divide between scientific and business leaders who warn that machine learning technologies like those developed by OpenAI should remain accessible to the public.

The technology, they argue, poses an existential threat to humankind and, therefore, should be operated in a way that’s subject to public scrutiny.

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WASHINGTON - MAY 16: Sam Altman, CEO of OpenAI, reacts to the cameras as he takes his seat before the start of the Senate Judiciary Subcommittee on Privacy, Technology, and the Law Subcommittee hearing on

Sam Altman, CEO of OpenAI, at a Senate Judiciary Subcommittee on Privacy, Technology, and the Law Subcommittee hearing in 2023. (Bill Clark/CQ-Roll Call, Inc via Getty Images) (Bill Clark via Getty Images)

OpenAI and Microsoft are also part of an ongoing inquiry by the US Federal Trade Commission over concerns that AI market consolidation is “distorting innovation and undermining fair competition.”

And multiple calls have been made for California’s attorney general to probe the legality of OpenAI’s business structure. One came from Elon Musk, who co-founded OpenAI with Altman. He sued OpenAI, Altman and 21 named OpenAI subsidiaries.

Musk said the defendants fraudulently promised that his $100 million in OpenAI investments would be used for public benefit.

A transition by OpenAI to for-profit status could also attract the attention of the Internal Revenue Service, given that OpenAI was granted tax-exempt status as a charitable organization.

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One unknown question is to what extent Microsoft will be able to directly extract profits from its investments.

By law, a nonprofit must use its assets only for its stated charitable purposes. And OpenAI’s assets, which include all of OpenAI’s subsidiaries, may not be sold for anything less than fair market value.

The question regulators will want to confirm is, “Did they get fair market value for the asset at the time?” said Gene Takagi, a principal at NEO Law Group.

Chan Loui added that regulators would require OpenAI to realistically value its assets, including residual interest. And she suspects that figure may be in excess of OpenAI’s latest valuation.

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“I think the greatest sensitivity probably is with how they remove the nonprofit’s control,” she said. “And I think their best shot of avoiding conflict relating to restructuring is to compensate the nonprofit enough,” Chan Loui said.

“I think that’s the best way for them to get the public on their side, the states on their side, and the IRS on their side.”

FILE PHOTO: Elon Musk, Chief Executive Officer of SpaceX and Tesla and owner of X looks on during the Milken Conference 2024 Global Conference Sessions at The Beverly Hilton in Beverly Hills, California, U.S., May 6, 2024.  REUTERS/David Swanson/File Photo

Elon Musk looks on during the Milken Conference in May. REUTERS/David Swanson/File Photo (Reuters / Reuters)

What OpenAI is expected to do as part of its transition is register as a public benefit corporation.

Such entities are like traditional corporations but with more freedom to spend on civically minded initiatives, according to Rick Alexander, a veteran corporate structuring lawyer and founder of the Shareholder Commons,

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“It’s a permission structure,” Alexander said.

Other public benefit corporations include Elon Musk’s xAI, Warby Parker (WRBY), Allbirds (BIRD), Lemonade (LMND), and Etsy (ETSY).

And based on the success of Musk’s xAI, OpenAI could benefit handsomely from the change. In May, xAI raised $6 billion.

“This type of transition can generate considerable investor interest quickly,” Kreps said. “This is such a capital-intensive industry, so anything OpenAI can do to attract investment will act as a positive feedback loop and accelerate its advantages.”

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Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on X @alexiskweed.

Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter at @DanielHowley.

For the latest earnings reports and analysis, earnings whispers and expectations, and company earnings news, click here

Read the latest financial and business news from Yahoo Finance.

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Curve Finance launches 'Savings crvUSD' yield-bearing stablecoin

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Curve Finance launches 'Savings crvUSD' yield-bearing stablecoin


Ensuring that decentralized finance platforms and networks do not remain siloed is a key hurdle for DeFi applications to overcome.



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Price analysis 11/13: BTC, ETH, SOL, BNB, DOGE, XRP, ADA, SHIB, TON, AVAX

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Price analysis 11/13: BTC, ETH, SOL, BNB, DOGE, XRP, ADA, SHIB, TON, AVAX


Bitcoin is showing no signs of stopping its advance toward $100,000, and several altcoins look poised to follow.



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S. Korean influencer allegedly led $232M crypto scam, 215 arrested

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S. Korean influencer allegedly led $232M crypto scam, 215 arrested


South Korea has been taking steps to suppress crypto scams. This latest one is the biggest ever though.



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XRP 'god candle imminent' with $2 end of the year target — Analyst

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XRP 'god candle imminent' with $2 end of the year target — Analyst


XRP price could imitate and “pull like Dogecoin” if a bullish chart pattern is confirmed.



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Warren Buffett Breaks 6-Year Streak Of Berkshire Hathaway Stock Buybacks, Say ‘It’s Too Expensive’

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Warren Buffett Breaks 6-Year Streak Of Berkshire Hathaway Stock Buybacks, Say 'It's Too Expensive'


Warren Buffett Breaks 6-Year Streak Of Berkshire Hathaway Stock Buybacks, Say 'It's Too Expensive'
Warren Buffett Breaks 6-Year Streak Of Berkshire Hathaway Stock Buybacks, Say ‘It’s Too Expensive’

Berkshire Hathaway CEO Warren Buffett recently ended a six-year streak of stock buybacks for the company. While the company regularly participates in stock buybacks, it did not do so during the third quarter, according to Securities and Exchange Commission filings.

Despite having over $325 billion in cash reserves, Buffett opted not to use that cash to buy back shares, suggesting that he believes the stock is too expensive.

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Buffett’s approach to stock buybacks is straightforward: he only buys back shares when he considers them a “bargain.” According to Berkshire Hathaway’s regulatory filings, he looks for a stock price below the company’s intrinsic value – a conservative measure considering the long-term worth of Berkshire’s assets. Analysts believe the absence of buybacks sends a clear message to the market: Berkshire’s stock is overvalued at its current price.

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Berkshire Hathaway‘s Class A shares are trading around 1.6 times their book value, representing the company’s assets once debts are subtracted. In the past, Berkshire has avoided buybacks when the stock traded above 1.2 times its book value, but that guideline was dropped in 2018.

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Buffett’s conservative investment philosophy remains firm even with a more flexible policy. Robert Korajczyk, a finance professor at Northwestern’s Kellogg School of Management, explained to CNN, “He’s been very clear that they would never buy back shares if they thought that the firm was overvalued.”

In addition to ending its buyback streak, Berkshire increased its already significant cash holdings by selling stocks in the third quarter. Some analysts took this as a cautionary move due to concerns about the current market environment.

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NYU Stern School of Business professor Aswath Damodaran told CNN that Buffett’s decision to hold cash suggests Berkshire is taking a conservative stance, likely due to high stock prices. “It’s a signal that they feel cautious about where the market is,” Damodaran said. “They’ve become cautious because they think the market is richly priced.”



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Dow, S&P 500, Nasdaq trade mixed as inflation print keeps Fed rate cut on track

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Dow, S&P 500, Nasdaq poised to drop as inflation worries rise


US stocks traded mixed in early trading on Wednesday as investors weighed fresh consumer inflation data that looked to keep the Federal Reserve on pace for another rate cut next month.

The Dow Jones Industrial Average (^DJI) rose just around 0.1%, coming off a steep slide as stocks closed lower across the board. Both the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) fell into the red after initially rising earlier in the session, down about 0.1% and 0.3%, respectively.

Consumer prices rose largely as forecast in October, with the Consumer Price Index rising 2.6% year over year and 0.2% on a month-over-month basis, both meeting forecasts. Rises in “core” inflation — of 3.3% year over year and 0.3% month over month — also met estimates.

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Inflation has taken center stage again after the post-election rip higher hit a wall. The FOMO market lost some mojo Tuesday as it ponders whether President-elect Donald Trump’s policies could boost inflation as well as the economy. That has helped push Treasury yields higher, promising higher borrowing costs all around.

The report appears to keep the Federal Reserve on track for a December rate cut. Minneapolis Fed president Neel Kashkari told Yahoo Finance that inflation data was the key focus for the central bank in the weeks ahead, saying at Yahoo Finance’s Invest conference that any surprise to the upside “might give us pause.”

According to the CME FedWatch tool, 80% of traders expect a rate cut in December.

Meanwhile, Trump has named Tesla (TSLA) CEO Elon Musk to co-lead a new Department of Government Efficiency — another challenge for analysts trying to assess the EV maker’s prospects. The incoming president’s picks for his cabinet are also being closely watched for impact on his policies and the economy, though DOGE is not an government agency.

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Tesla’s stock erased earlier gains as shares attempt a comeback from a 6% fall on Tuesday. Meanwhile, shares of Rivian (RIVN) jumped double digits after Volkswagen raised its investment in the rival electric carmaker to $5.8 billion.

Read more: What the Fed rate cut means for bank accounts, CDs, loans, and credit cards

LIVE 4 updates
  • Alexandra Canal

    Inflation progress ‘a slow grind’ as outlook remains uncertain

    New inflation data out Wednesday showed consumer prices rose as forecast in October, keeping the Federal Reserve on track to lower interest rates again in December.

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    “There is progress on inflation,” Claudia Sahm, chief economist at New Century Advisors told Yahoo Finance following the data’s release. “We are pointed in the right direction, but it has been a slow grind. And this is another month that fits in that slow grind.”

    The outlook remains uncertain as economists warn of another potential inflation resurgence following the election of Donald Trump as the nation’s next president.

    Trump and his proposed policies have been viewed as potentially more inflationary due to the president-elect’s campaign promises of high tariffs on imported goods, tax cuts for corporations, and curbs on immigration.

    Immediately following Wednesday’s release, markets continued to price in another 25 basis point rate cut in December after the central bank cut rates by that amount last week. Traders currently see a more than 80% chance the Fed cuts rates by 0.25% next month, up from just under 60% on Tuesday, according to data from CME’s FedWatch Tool.

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    “It is clear that the Federal Reserve’s job is still unfinished and that markets are correct in repricing federal funds rate expectations going forward,” Raymond James’ chief economist Eugenio Aleman said in a note to clients following the report.

    “Under this environment, it is only oil and gasoline prices that are keeping inflation contained. That is, any surge in oil and gas prices could severely compromise the Fed’s inflation target. The Fed should be particularly concerned about the services less energy component of CPI.”

    Read more here.

  • Alexandra Canal

    Stocks open higher after inflation data

    US stocks moved to the upside in early trading on Wednesday as investors weighed fresh consumer inflation data that met economist forecasts as the central bank debates another rate cut next month.

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    The Dow Jones Industrial Average (^DJI) opened about 0.2% higher, coming off a steep slide as stocks closed lower across the board. Both the S&P 500 (^GSPC) and Nasdaq Composite (^IXIC) each rose roughly 0.1%.

  • Inflation holds steady in October

    A closely watched report on US inflation showed consumer price increases remained consistent during the month of October, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.

    The Consumer Price Index (CPI) increased 2.6% over the prior year in October, a slight uptick from September’s 2.4% annual gain in prices. The yearly increase matched economist expectations.

    The index rose 0.2% over the previous month, matching the increase seen in September and also on par with economist estimates.

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    On a “core” basis, which strips out the more volatile costs of food and gas, prices in October climbed 0.3% over the prior month, matching September, and 3.3% over last year for the third consecutive month.

  • Jenny McCall

    Good morning. Here’s what’s happening today.

    Here’s a look at today’s key economic and market themes: Wall Street awaits fresh consumer inflation data, while Spirit Airlines (SAVE) plummets 70% amid looming bankruptcy concerns. US mortgage rates continue their post-election climb following Donald Trump’s victory. Meanwhile, SoftBank Group (SFTBY) plans to build a supercomputer using Nvidia’s (NVDA) new Blackwell chips, underscoring its ambitions in AI.

    Economic data: MBA Mortgage Applications, (week ending Nov. 8); Consumer Price Index, October; Real average hourly earnings, October

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    Earnings: Cisco (CSCO)

    Here are some of the biggest stories you may have missed overnight and early this morning:

    Kashkari: Inflation surprise could prompt Fed ‘pause’

    Stocks have ‘room to run’ but that doesn’t mean buy: Bridgewater CIO

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    Inflation ‘unlikely to show much progress’ in October

    Spotify forecasts profit above estimates, stock jumps

    US mortgage rates rose again in week after Trump’s victory

    Spirit plunges 70% amid looming bankruptcy threat

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    SoftBank first to get new Nvidia chips for supercomputer



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