Microsoft spreads its AI bet

The Windows-maker has taken a minority stake in French startup Mistral AI, diversifying its AI playbook

Microsoft announced a deal this week with the not-quite-one-year-old startup Mistral AI, a French company that just debuted an extremely French-sounding ChatGPT rival called ‘Le Chat,’ alongside a large language model intended to improve on those of its competitors including OpenAI’s GPT-4 in some key, specific ways.

The Microsoft deal spans multiple years, and is worth peanuts on paper compared to other investments made by the Redmond software giant; it totals only around $16 million thus far — dwarfed by Microsoft’s tie-up with OpenAI, which exceeds $13 billion to date. It’s still notable though since Mistral is a direct competitor to OpenAI, and this is the first significant stake Microsoft has taken in another company chasing the LLM AI dream since the legacy software giant hitched its wagon to Sam Altman’s generative horses.

Mistral may be young, but it’s well-moneyed, thanks to early raising that includes a massive $415 million round led by Andreesen Horwitz — all before it was officially one years old.

Microsoft’s minority stake will convert to equity as of the next funding round closed by Mistral, which means that if it can maintain its current valuation the actual ownership of Mistral by Microsoft will amount to less than 1% of the company. Even still, the European Union’s competition regulators have said they’ll be looking into the arrangement, just as they’re looking into Microsoft’s much deeper tie-up with OpenAI.

Mistral has some early heat coming into the game despite having just released its first public models. The company was also very vocal about espousing an open source approach to its models prior to the Microsoft deal, though it appears to have weakened some of this language since. The deal will also see Mistral models available to Azure clients via Microsoft’s cloud services arm, something Redmond is clearly keen on doing more of given its existing offerings with OpenAI and Meta’s Llama models.

Microsoft’s partnership with OpenAI was one of the best business decisions by a large legacy technology giant in recent memory — even considering hiccups like the embarrassing near-coup attempted by the OpenAI board to depose founder Sam Altman, in which Microsoft and its CEO Satya Nadella necessarily got embroiled. Going with OpenAI rather than attempting to build internally meant that Microsoft was able to leapfrog even Google into LLM-powered search. Yes, the results were mixed in more ways than one with bizarre answers from Microsoft’s OpenAI-powered Bing grabbing headlines, but it gave the decidedly staid and stodgy company a patina of bleeding edge innovation appetite that remains even now.

Cozying up to Mistral early in the Paris-based startup’s trajectory, and becoming possibly the default route for deployment of its products at scale for enterprise customers, starts to decouple Microsoft’s AI reputation from that of OpenAI. It’s a desrisking move that Nadella and his company should consider more of, because while they skipped the line by tying their fortunes to Altman’s rocket ship, they also risk looking like a one-trick pony as rivals like Google mature their in-house models.

Microsoft survived missing the turn to mobile by effectively becoming a service layer instead of a platform operator, but it’s clear the company wants more from the ongoing AI revolution. Building on its OpenAI-powered head start, the company should look to partner with and potentially buy smaller players like Mistral to ensure it continues to have a seat at the table long-term.