Microsoft pulled off a huge win hiring Sam Altman, analysts say

Microsoft CEO Satya Nadella “just pulled off a coup of his own,” Fred Havemeyer, Macquarie senior enterprise software analyst, said in a note to investors on Monday.

Early Monday, Nadella announced that Altman — whose leadership at OpenAI turned the company into a Silicon Valley force — had joined Microsoft, along with Greg Brockman, the former president of OpenAI, who quit in solidarity with Altman. It was the latest twist in a weekend-long drama that began Friday with an announcement from OpenAI’s board that Altman had been pushed out, surprising observers and rocking the industry.

Microsoft has worked closely with OpenAI, using its ChatGPT technology to power a chatbot featured on its Bing search engine. In January, Microsoft confirmed that it had invested $10 billion in OpenAI, which was founded as a nonprofit but evolved to a developer of consumer products.

On Monday, OpenAI’s fate remained uncertain as hundreds of employees signed a letter threatening to quit and join Microsoft unless Altman was reappointed and the current board resigns. The board said in a blog post that it had pushed out Altman because he was not “consistently candid” with some of its members.

Working with Altman and those loyal to him without the oversight of a nonprofit board of directors may be an even more promising development for Microsoft than its initial OpenAI investment, said Adam Struck, managing partner of venture capital firm Struck Capital.

“Microsoft is in the driver’s seat, because they’ve essentially acquired all of OpenAI’s value for essentially zero. … Now, they’ve got Sam and now they’re not beholden to a 501c3,” said Struck, referencing a nonprofit organization. “What’s scary now, though, is Sam was obviously removed for a reason. He’s now going to have no limitations at Microsoft.”

Analysts widely predicted that many OpenAI employees loyal to Altman would follow him to Microsoft, and that a brain dump of OpenAI talent into Altman’s new Microsoft venture comes with less antitrust baggage than a more official acquisition.

“There’s never going to be an antitrust issue here because Sam was literally fired by the board,” Struck said.

If OpenAI employees migrate to Microsoft, the company would not only gain some of OpenAI’s most advance intellectual property, “ but Microsoft would also be effectively acquiring OpenAI’s core differentiation — its ambitious and experienced technical talent,” Havemeyer said.

The shake-up comes as Silicon Valley’s largest tech companies vie to dominate the emerging AI market. Altman could have gone to any number of large tech companies, including Amazon, Google or Apple, wrote Dan Ives, a Wedbush analyst, in a Monday note. “Instead he is safely in Microsoft’s HQ now leading the company key AI efforts which we expect many key scientists and developers to leave OpenAI and head directly to Microsoft.”

Ives compared Microsoft’s hiring of Altman to a “World Series of Poker move for the ages,” and said the company’s already strong AI position is now stronger.

The reshuffling in the industry will not happen instantly, Deb Raji, an AI researcher and fellow at Mozilla, said in a Monday post on X, formerly known as Twitter. Altman’s jumping to Microsoft could effectively result in the six-month development pause that some AI leaders sought this spring.

“Whatever happens at Microsoft, it will take at least 6 months for onboarding and ramp up — and on the Open AI side, it will take at least that long or more to rehire and recover,” Raji wrote.

But OpenAI may never recover, at least as an organization that can compete with the tech’s most powerful companies, said Sarah Kreps, director Cornell University’s Tech Policy Institute.

As more than 700 OpenAI employees have threatened to leave for Microsoft, “OpenAI is now looking like it might end up as a shadow of its former self,” Kreps added.

And it may be that OpenAI reemerges as a much smaller research organization, one that more closely follows its founding mission, said Havemeyer, the Macquarie analyst. He added that if OpenAI loses most of its talent, a huge question remains: What happens to ChatGPT, which attracts more than 100 million weekly users?

Havemeyer said it’s possible the chatbot would be kept running on a “skeleton crew,” with resources still available through its long-term partnership with Microsoft.

“However, if ChatGPT performance degrades, we think an exodus of ChatGPT users to alternatives … or a product shipped by Mr. Altman’s new team would be likely,” he said.