Why Microsoft is investing billions in S.F.’s OpenAI just after mass layoffs

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Microsoft is pouring billions into San Francisco artificial intelligence startup OpenAI in a multiyear partnership, the tech giant confirmed on Monday.



Microsoft says it is making a “multiyear, multibillion dollar investment” in the artificial intelligence startup OpenAI, maker of ChatGPT and other tools that can generate readable text, images and computer code.


© Swayne B. Hall, STF / Associated Press

Microsoft says it is making a “multiyear, multibillion dollar investment” in the artificial intelligence startup OpenAI, maker of ChatGPT and other tools that can generate readable text, images and computer code.


The massive investment, which the New York Times reported would total $10 billion, is a sign of a potential new era for a tech industry reeling from hundreds of thousands of global layoffs, including 10,000 at Microsoft just last week.

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It’s a huge bet that AI will be a transformative force for the tech industry and society, on par or perhaps surpassing the mobile phone and desktop revolutions. Microsoft said its partnership would help OpenAI scale globally and integrate the startup’s technology into Microsoft services like Azure.

“We formed our partnership with OpenAI around a shared ambition to responsibly advance cutting-edge AI research and democratize AI as a new technology platform,” said Microsoft CEO Satya Nadella in statement. Microsoft previously invested $3 billion in OpenAI.

Last week, Nadella wrote in a memo to staff. that Microsoft’s cuts were meant to shift staff and money to its priority areas, which includes AI.

“(T)he next major wave of computing is being born with advances in AI, as we’re turning the world’s most advanced models into a new computing platform,” he wrote.

OpenAI created the wildly popular ChatGPT chatbot, which was released to the public late last year and gained over 1 million registrations in five days, according to the company. It also developed DALL-E, a program that creates artwork from written prompts.

Users have marveled at ChatGPT’s sophisticated responses to queries as varied as answering questions, writing poems, songs, short fictional stories and even code. Such chatbot technology could help augment Microsoft’s Bing search engine as it competes with Google.

The ethical questions over ChatGPT and DALL-E and other AI programs are also vast. Educators are concerned that the chatbot could fuel plagiarism, with students using it to write papers. Artists have been alarmed by DALL-E displacing them and scrapping data from public databases without compensating human creators. There are also concerns over misinformation and racial and sexual bias when both text and artwork is generated.

Microsoft and OpenAI have released standards in an effort to make AI systems “that are trustworthy and safe,” the companies said.

OpenAI is led by CEO Sam Altman, the former president of tech incubator Y Combinator, and was founded in 2015, with backing from prominent tech figures including Elon Musk, now CEO of Twitter, Tesla and SpaceX; and venture capitalist Peter Thiel, a co-founder of PayPal and Palantir.

“Microsoft shares our values and we are excited to continue our independent research and work toward creating advanced AI that benefits everyone,” Altman said in a statement.

OpenAI’s rise to prominence has come with a hefty increase in valuation. The Wall Street Journal reported this month that investors are in talks to buy stakes that value the company at $29 billion, more than double its $14 billion valuation in 2021.

Roland Li is a San Francisco Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

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