Microsoft Corp. ( MSFT ) is reportedly under scrutiny by the Federal Trade Commission (FTC) for a recent deal with Inflection AI.

The tech giant hired almost all of Inflection AI’s employees and agreed to pay the startup approximately $650 million as part of a licensing fee.

The FTC is examining the specifics of Microsoft’s agreement with Inflection AI to assess whether it should have been reported for antitrust review.

The FTC is looking into documents dating back two years, aiming to uncover if Microsoft ( MSFT ) deliberately designed the deal to bypass regulatory scrutiny, according to a report from the Wall Street Journal.

The FTC’s investigation is part of a broader effort to monitor AI investments by major tech companies, including Microsoft ( MSFT ) and Google’s parent company, Alphabet Inc. ( GOOG ) .

FTC Chair Lina Khan has raised concerns about large corporations potentially monopolizing the most promising AI technologies, which could affect competition and innovation in the industry.

If the FTC concludes that Microsoft ( MSFT ) should have reported its deal with Inflection AI, the company could face enforcement actions.

Also Read: Microsoft To Fund Startup That Enhances AI Deployment

Potential penalties include fines and suspension of the transaction while a comprehensive investigation is conducted. Tech firms, including Microsoft ( MSFT ), often acquire startups primarily to hire their specialized workforce, a strategy known as “acquihire.”

In this case, Microsoft ( MSFT ) acquired Inflection AI’s talented team without purchasing the company. Inflection AI, known for developing one of the largest language models and an AI chatbot named Pi, continues to operate independently.

Ted Shelton, Inflection AI’s new chief operating officer, stated that the company remains independent and is not under Microsoft’s ownership.

Inflection AI, backed by entrepreneur Reid Hoffman and Greylock Partners, has shifted its focus under new management from consumer products to services aimed at business clients.

Microsoft ( MSFT ) stock has gained more than 27% in the last 12 months. Investors can gain exposure to the stock via Technology Select Sector SPDR Fund ( XLK ) and IShares U.S. Technology ETF ( IYW ) .

Price Action: MSFT shares closed higher by 1.91% at $424.01 on Wednesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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