Oct 28 (Reuters) - Microsoft ( MSFT ) and OpenAI on

Tuesday said they had reached a deal to allow the ChatGPT maker

to restructure itself into a public benefit corporation, valuing

OpenAI at $500 billion and clearing the way for it to become a

publicly traded company.

Microsoft ( MSFT ) would hold a stake of about $135 billion - or 27% -

in OpenAI Group PBC, which will be controlled by the OpenAI

Foundation, a nonprofit. The deal removes a major constraint on

raising capital for OpenAI, which was founded as a nonprofit AI

safety group and which signed a deal in 2019 with Microsoft ( MSFT ) that

gave the Redmond, Washington-based firm rights over much of

OpenAI's work in exchange for providing the costly cloud

computing services neede2d to carry it out.

Microsoft ( MSFT ) shares jumped 4% on the deal, which could clear

the way for OpenAI to become publicly traded in the future.

The deal keeps the two firms intertwined until at least 2032

with a massive cloud computing contract and with Microsoft ( MSFT )

retaining some rights to OpenAI products and AI models until

then even if OpenAI reaches artificial general intelligence

(AGI), the point at which AI systems can match a well-educated

human adult. Microsoft's ( MSFT ) previous 2019 agreement had many

provisions that rested on when OpenAI reached that point, and

the new deal requires an independent panel to verify OpenAI's

claims it has reached AGI.

"OpenAI has completed its recapitalization, simplifying its

corporate structure," Bret Taylor, the OpenAI Foundation's board

chair, said in a blog post. "The nonprofit remains in control of

the for-profit, and now has a direct path to major resources

before AGI arrives."

Microsoft ( MSFT ) has invested $13.8 billion in OpenAI, with the

deal on Tuesday implying that Microsoft ( MSFT ) had generated a return

of nearly ten times its investment.

Gil Luria, head of technology research at DA Davidson, said

the deal "resolves the longstanding issue of OpenAI being

organized as a not-for-profit (organization) and settles the

ownership rights of the technology vis-à-vis Microsoft ( MSFT ). The new

structure should provide more clarity on OpenAI's

investment path, thus facilitating further fundraising."

Microsoft ( MSFT ) also said that it has secured a deal with OpenAI

where the ChatGPT maker will purchase $250 billion of Azure

cloud computing services. In exchange, Microsoft ( MSFT ) will no longer

have a right of first refusal to provide computing services to

OpenAI.

Microsoft ( MSFT ) also said that it will not have any rights to

hardware produced by OpenAI. In March, OpenAI bought longtime

Apple design chief Jony Ive's startup io Products in a $6.5

billion deal.