Microsoft and OpenAI unveil a deal extending IP rights, adding independent AGI verification, and giving both sides more freedom while maintaining Azure ties.

In the new agreement, Microsoft gets a 27% stake in OpenAI's for-profit business, the OpenAI Group PBC, worth around $135 billion.

However, Microsoft revealed a major drop in profit due to what it termed was an “equity method investment” in OpenAI Group PBC, resulting in a 41-cents-per-share hit to its earnings and a $3.1 billion drop in its net income. Even so, the company’s bottom line was still healthy at $27.7 billion, up from $24.67 billion in the year-ago quarter.

Microsoft and OpenAI announced the long-awaited details of their new partnership agreement Tuesday morning — with concessions on both sides that keep the companies aligned but not in lockstep as they move into their next phases of AI development.

Microsoft made its first investment in Sam Altman's OpenAI in 2019. It now holds a 27% in OpenAI's for-profit business.

Microsoft's (MSFT) 27% stake in OpenAI (OPAI.PVT) is currently valued at $135 billion, according to the two companies' latest for-profit agreement. This all comes ahead of Microsoft's fiscal first quarter earnings results due out after the closing bell on Wednesday.

Microsoft lifted a funding restriction on OpenAI that became a point of conflict after ChatGPT took off required more computing power.