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The OpenAI Saga: What It Means for Microsoft and Nadella’s Legacy

Microsoft (NASDAQ:MSFT) Vice Chairman and President Brad Smith recently told the BBC the chaos at OpenAI had very little to do with a “dangerous” AI discovery. That’s good news for Microsoft stock, but potentially damaging to CEO Satya Nadella’s legacy. OpenAI CEO Sam Altman’s firing and subsequent rehiring embarrassed the company, even if it didn’t hurt Microsoft stock. 

Fortune published an article on Nov. 20, estimating Microsoft added $63 billion in market capitalization from Nadella’s handling of the entire affair. If that’s how history records the OpenAI meltdown, there is no question his legacy remains intact. Reflect on the entire matter before hastily declaring Nadella the biggest winner if you own Microsoft stock. The stain on his legacy could be bigger than you realize.

The Open AI Kerffufle and Microsoft Stock

Fortune reported comments from Wedbush Securities analyst Dan Ives in its article about the $63 billion market cap gains. Ives seems to think Nadella secured the outright loyalty of both Sam Altman and co-founder, Greg Brockman, who is OpenAI’s President. 

“If Microsoft lost Altman he could have gone to Amazon, Google, Apple, or a host of other tech companies craving to get the face of AI globally in their doors,’’ Ives said. Fortune reported Ives’ comments.

However, these comments were before Open AI rehired Altman and Brockman on Nov. 29.

“I am returning to OpenAI as CEO. Mira will return to her role as CTO. The new initial board will consist of Bret Taylor (Chair), Larry Summers, and Adam D’Angelo,” Altman wrote in his Nov. 29 to employees of the company. 

Mira is Mira Murati, OpenAI’s Chief Technology Officer, was former interim CEO after Altman was relieved of his duties by the three-person non-profit board. Bret Taylor is the former co-CEO of Salesforce (NYSE:CRM), Larry Summers served as Treasury Secretary under President Obama, and Adam D’Angelo, the one returning OpenAI board member, is the co-founder of Quora.   

Nadella and Microsoft get a board that more genuinely reflects a for-profit business. All three of the board members have significant business experience. With potentially more than $13 billion to be invested in OpenAI, Nadella could not afford to have a board in place that didn’t understand the financial implications of everything it did. 

Further down in Altman’s memo to employees, he reiterates what Microsoft means to OpenAI.

“Satya, Kevin, Amy, and Brad have been incredible partners throughout this, with exactly the right priorities all the way through,” Altman said. “They’ve had our backs and were ready to welcome all of us if we couldn’t achieve our primary goal. We clearly made the right choice to partner with Microsoft.”

There’s that loyalty pledge.

What Did Nadella Lose?

It’s not so much what Nadella lost as it is what he didn’t get. For starters, MSFT didn’t get an official voting seat on the board, but a non-voting observer role (whatever that is). Questions about Altman’s firing will continue to haunt Nadella, as will concerns about how Microsoft was left in the dark until the very last minute.

The level of disrespect paid to Microsoft by the former board is mind-boggling. In what world do you invest as much as $13 billion in a company, and not get a heads up? This, more than anything, doesn’t look good on the Microsoft CEO.

The other thing Microsoft and Nadella lose is the element of surprise. The entire world from now on will scrutinize everything OpenAI does behind closed doors. Microsoft lost the advantage that it held as a de facto insider.

Ultimately, given Microsoft stock has gained 916% since Nadella was named CEO on Feb. 4, 2014, the board and shareholders will give him a free pass. They’d be crazy not to.  

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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