Microsoft explores AI startup deals as OpenAI partnership changes

• Microsoft reviews AI startup deals as it builds in-house AI models.
• The internal AI moves come as OpenAI agreement changes.

Microsoft is assessing potential acquisitions of artificial intelligence startups, according to Reutersciting five people familiar with the matter.

Three of the people said Microsoft has reviewed targets with AI research talent and technical abilities. They said the effort is linked to Microsoft’s goal of developing an advanced AI model by next year.

Cursor deal faced regulatory concerns

One company Microsoft examined earlier this year was Cursor, a code-generation startup. Four people said Microsoft considered acquiring the company, but later stepped back. It was said the decision was influenced by internal concerns over whether regulators would approve a deal.

Reuters separately reported that SpaceX secured an option to acquire Cursor for US$60 billion later in 2026. If the acquisition does not proceed, SpaceX would pay US$10 billion for a partnership instead. Microsoft had earlier ended its review of a possible Cursor acquisition.

Inception talks remain active

Microsoft has also been in talks with Inception, a startup founded in mid-2024 by a team from Stanford University that’s developing diffusion-based language models. Microsoft’s venture fund, M12, invested in Inception’s US$50 million seed round in late 2025. People familiar with the discussions said talks are continuing.

SpaceX has also approached Inception, according to three people familiar with the matter. The company did not immediately respond to a request for comment.

Inception focuses on diffusion models

Inception’s work is focused on diffusion-based language models. Diffusion is more used in AI image and video generation, where a system progressively refines output. Applied to text, diffusion models can generate and revise multiple tokens at the same time. Standard large language models typically produce text one token after another.

Researchers say the approach can improve inference speed, although diffusion is less predictable for text generation, and it is not yet clear whether the method can scale to the largest model sizes.

Any acquisition would add to Microsoft’s internal AI teams, under the leadership of Mustafa Suleyman, the DeepMind co-founder who joined Microsoft to lead its consumer AI unit.

OpenAI agreement changes

Microsoft and OpenAI began working together in 2019, when Microsoft invested US$1 billion in the research lab. The majority of Microsoft’s AI income stems from OpenAI.

Michael Wetter, who leads Microsoft’s corporate development work, testified in court on Wednesday about the company’s AI-related spending. He said Microsoft has spent more than US$100 billion on OpenAI investments, infrastructure build-out, and hosting costs.

The original agreement gave Microsoft exclusive access to OpenAI’s technology and gave OpenAI access to Microsoft’s computing resources. The companies later revised the agreement.

In late April, Microsoft and OpenAI reached another agreement that allowed OpenAI to build some products with Microsoft rivals, including Amazon.

Reuters reported this week, citing The Informationthat OpenAI and Microsoft agreed to cap revenue-sharing payments at US$38 billion. Payments would continue through 2030 under the reported agreement.

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