Microsoft-Inflection deal: Microsoft has reportedly reached an agreement with AI startup Inflection for approximately $650 million in cash that will allow the tech major to access majority of its resources, according to a source familiar with the matter who spoke to Reuters on Thursday.

As part of the deal, Microsoft will gain access to Inflection's advanced AI models and is set to onboard the majority of Inflection's staff, including co-founders Mustafa Suleyman and Karen Simonyan. The move signals Microsoft's strategic interest in boosting its AI capabilities, particularly within its consumer products division.

The transaction also involves Inflection's models becoming accessible on Microsoft's Azure cloud service. To finance the deal, Inflection plans to use the licensing fee to reimburse investors such as Greylock and Dragoneer, promising a return of 1.5 times their initial investment.

Suleyman is slated to lead the newly formed consumer AI unit at Microsoft as CEO, while Simonyan will serve as chief scientist. Notably, several key personnel from Inflection, including the vice president of engineering, have also transitioned to Microsoft, as evidenced by their updated LinkedIn profiles.

While Microsoft declined to provide a comment on the matter, Inflection AI has yet to respond to Reuters' request for comment.

Inflection AI had previously attracted attention in the generative AI industry, securing investments from industry giants like Microsoft and Nvidia, valuing the company at $4 billion. With this acquisition, Inflection's focus is expected to shift towards catering to enterprise clients, a move announced alongside the appointment of a new CEO.

However, the deal may attract regulatory scrutiny, particularly amid ongoing inquiries by the US Federal Trade Commission into Microsoft's AI investments. According to Steven Weber, a professor at the UC Berkeley School of Information, this acquisition could be interpreted as an attempt to minimise competition in the foundation model markets, potentially raising antitrust concerns.

(With Reuters inputs)