OpenAI offers to acquire AI-powered coding assistant Windsurf for $3 billion

Agastya Jain
5 days ago
9 min read

By: Jack Kennedy, Micah Feller, Nima Kamali, Ramona Pyke, and Young Liu

5/19/2025

Deal Overview:

Acquirer: OpenAI

Target: Windsurf (formerly Codeium)

Sector: Technology, Media, and Telecommunications (TMT)

Subsector: Artificial Intelligence

Transaction Size: $3 Billion

Transaction Structure: 100% equity buyout

Closed Date: Advanced negotiations on April 16, 2025

Firm Overview:

OpenAI (Buyer): OpenAI was founded in 2015 by a group of prominent technology leaders, including Sam Altman, Elon Musk, Greg Brockman, Ilya Sutskever, John Schulman, and Wojciech Zaremba, with the mission of advancing artificial general intelligence (AGI) for the benefit of humanity. Originally established as a non-profit research lab, OpenAI has since evolved into a capped-profit organization and is expected to fully transition into a for-profit entity by the end of 2025. The company is behind globally recognized AI products including GPT (Generative Pre-trained Transformer) models and image generation model DALL-E. Its recent landmark $40BN funding round led by SoftBank valued OpenAI at $90BN, highlighting the company’s dominance in the rapidly growing AI space.

OpenAI’s approach has positioned it as a global leader in AI, with breakthrough models like GPT-4 and ChatGPT defining the generative AI space. It remains at the forefront of AI research and deployment, with plans to expand its product ecosystem and develop increasingly advanced models while preserving alignment with long-term safety and public interest.

Of OpenAI’s $13BN in top-line revenue in 2025, ChatGPT accounts for over $8BN, or 61.5% of total revenue, and the firm is making efforts to diversify revenue streams and achieve independent profitability before 2030. The company plans to extend its revenue by further targeting AI agents and enterprise AI applications. It has already made significant strides towards this goal through the development of a custom GPT marketplace, offering industry-specific models tailored for business functions across sectors like healthcare, software development, and others.

Windsurf (Target): Founded in 2021 by MIT alum Varun Mohan as a GPU infrastructure startup, Windsurf is an AI-driven IDE (Integrated Coding Environment) and coding assistant designed to streamline coding workflows, enhance developer productivity, and reduce error rates. Windsurf provides agentic functionality in its coding platform that allows developers to automate repetitive DevOps processes such as testing and documentation and increase productivity by providing real-time suggestions and a novel auto-complete feature to speed up coding processes.

From February to April 2025, Windsurf has experienced red-hot growth, increasing its ARR from $40 million to $100 million. This impressive rise positions the company as a strong competitor to Cursor, which reached $300 million ARR in March 2025, making Windsurf one of the leading independent AI-powered coding platforms in the market. As the second largest independent AI-powered coding platform, Windsurf is now positioned alongside enterprise-backed players such as Github Copilot. Initially the company gained traction by integrating its code autocomplete feature within other widely used IDEs such as VSCode, Eclipse, VIM, and Visual Studio. However, usage caps emerged with these integrations, Windsurf pivoted to offering a standalone IDE and coding assistant, which allowed for greater flexibility and functionality. This shift marked a significant turning point for the company, leading to the adoption of a sales-led go-to market strategy. A key factor in this transformation has been the rapid expansion of their enterprise sales team, growing from just 3 to over 80 professionals since 2024. This aggressive focus on sales has been credited with driving exponential growth in industry traction and ARR, establishing Windsurf as a prominent player in the AI-powered coding space.

With the company’s recent focus on expanding its customer base in the enterprise sector, particularly targeting large-scale software development teams, Windsurf plans to diversify its revenue by incorporating additional AI-powered features such as automated documentation generation and advanced version control systems. Looking ahead, the company is working on scaling its product ecosystem by integrating more advanced AI models, further optimizing its code suggestion algorithms, and broadening its global presence. This is evident in their partnership with Netlifty, which aims to enhance productivity gains within enterprise software development environments.

Why This Deal Matters (TLDR):

Rare profitable AI asset: Windsurf stands out as one of the few fast-growing, cash-flow-positive companies in a sea of early-stage, cash-burning AI startups. Its financial maturity makes it uniquely attractive to strategic acquirers and investors.
Enhanced OpenAI competitive positioning: Acquiring Windsurf would increase OpenAI's presence in the AI-driven IDE and coding assistant sector, which is currently controlled by GitHub Copilot and Google Gemini.
Strategic data access: Acquiring Windsurf gives OpenAI direct access to proprietary developer workflows and coding data, which are increasingly valuable as training costs and model performance demands continue to rise.
Premium valuation with justification: Windsurf’s 30x revenue multiple reflects strong investor appetite for scalable, defensible application-layer AI businesses that pair growth with capital efficiency.
AI-driven developer tool momentum: The deal highlights a broader trend of AI transforming vertical SaaS and developer tooling, where platforms like Windsurf are becoming central to how engineers build and ship software.
Positioned between application and infrastructure layers: Windsurf sits at the intersection of interaction and infrastructure, allowing it to capture value across the stack by serving both individual developers and enterprise buyers.

Sector & Deal-Relevant Trends:

Addition to AI to Legacy VSaaS Stacks: Historically, enterprise vertical SaaS offerings have tackled pain points by streamlining user access to data or accelerating routine data processing workflows. This was notably seen in the early 2010s boom of vertical CRMs designed to automate manual outreach and lead management processes. In the developer tooling space, however, vertical SaaS offerings have pivoted towards focusing on infrastructure value chains as seen in major funding rounds for DevOps software companies such as HashiCorp ($100M Series F), GitLab ($268M Series E), and CircleCI ($100M Series F). As a consequence of this shift, the corresponding increase in the volume of data-centric workflows in enterprise contexts, and the growing reliance on core systems of record, the value in vertical SaaS has moved beyond the application layer. and reliance on core systems of record value in vertical SaaS has shifted away from the application layer.

In his essay “Vertical AI: beware what you wrap”, Matt Brown describes the dual value proposition of industry-specific AI software: reducing the cost of software development and consolidating value at the interaction layer. For instance, business-data-enabled chatbots illustrate how vertical AI can unify both data access and task execution at the point of user interaction. As a result, AI applications have the potential to replicate the value capture previously seen in vertical SaaS, this time by merging industry-specific data into a unified system of record and system of engagement. Crucially, this integration spans the entire application stack, bridging the gap between the interaction and infrastructure layers.

In practice, this means that AI applications such as Windsurf can benefit from an industry-wide tailwind in capturing value both at the interaction layer and enterprise infrastructure layer. For instance, Windsurf is set to grow through demand from independent developers looking to streamline their everyday coding processes in addition to a push by business leaders such as CISOs looking to leverage their business data beyond workflow automation and BI to productivity gained in the form of more efficient coding. The influence of this tailwind can be seen in the increase in funding for dev tool software companies such as Poolside AI, Cognition AI, and Augment.

Strained Demand for Profitable, Data-Rich Application Layer AI Companies: Although Windsurf’s $3B valuation may appear steep relative to its $100 million ARR—implying a 30x revenue multiple—it’s important to contextualize this within the broader AI software landscape. Cash-flow-positive, fast-growing application-layer AI companies are exceedingly rare, which highlights the strength of Windsurf’s position and reinforces the premium reportedly offered by OpenAI. The vast majority of AI startups today are cash-burning and application layer startups that on average expect a 24-month long GTM motion to achieve profitability. Looking to capture the exponential value of vertical AI offerings as discussed previously while maintaining strong financial fundamentals, in line with the growing investor thesis of Emergent Capital Efficient models when analysing software startups, places an upward pressure on multiples for companies like Windsurf. The 25-50x revenue multiple range is typically exclusively for profitable AI startups, dwarfing the vertical SaaS average of 8-12x.

This market asymmetry is further exacerbated by the growing cost of foundation models. OpenAI’s latest o3 model costs about 30x per million tokens compared to o1 (conservative estimate of $2,000/$60 for output and $500/$15 for input). As a result, it is becoming increasingly competitive to create in-house foundation models and access to compute and data are becoming more pressing needs for businesses like OpenAI, Anthropic, and Mistral. Amol Kapoor describes that this need for OpenAI to shore up its access to data, in addition to the shaky relationship between the firm and Microsoft regarding access to Github data, could lead to further pressure to acquire Windsurf as a long-term data distribution wedge

Projections, Opportunities, and Risks:

A High Acquisition Price for a Relatively Weak Economic Moat Poses as the Primary Deal Risk: While Windsurf is clearly a leader in the IDE and coding assistant space many would argue it lacks a differentiating factor. This isn’t necessarily a knock on Windsurf, but rather the coding assistant and agentic AI industry as a whole. On the surface, Cursor, Windsurf, Copilot, and Claude appear as different tools. For example, Copilot is the leader in autocomplete tasks while Cursor leads the industry with their agentic AI services. However, from developer perspectives, all of these tools are only slightly different from one another. While each of these companies market themselves differently, none offer a distinct enough value proposition to truly outcompete the rest. As a result, while Windsurf may provide a highly useful tool for developers, it’s likely just one of many tools in their stack. At this point, all that matters is what becomes the most comfortable with developers over the long term. However, all it might take is a rebrand from a competitor or a new entrant offering similar features free of cost to seriously erode Windsurf’s position. We saw a sneak peek of this a few months ago with ChatGPT and Deepseek.

However, this lack of economic moat might not be a bad thing. We may be entering an era where all of these coding tools and AI gadgets are meant to be used in tandem, rather than a one size fits all solution. Nonetheless, this is obviously all speculative, and right now, it seems like OpenAI only purchased Windsurf when their negotiations with Cursor failed. In that sense, this deal feels less like a strategic bet and more like OpenAI just trying to get in on the fun. Coding assistants are obviously super hot in AI right now, and with competitors like Anthropic, Google, and even smaller players like Cursor gaining traction, OpenAI likely didn’t want to be left behind. Windsurf wasn’t necessarily their first choice – but it was available, growing fast, and had brand recognition among developers., Windsurf has many challenges in its way, but with the experience, talent, and capital that OpenAI provides, it definitely has the potential to win big.

Product Distribution & Enterprise Footprint: Windsurf’s platform is broadly adopted by both individual developers and enterprises. It integrates into popular IDEs (supporting 70+ languages) and even legacy enterprise systems, providing OpenAI a ready-made channel into everyday coding workflows. This reach—reflected in Windsurf’s ~$100 million ARR—lets OpenAI embed its models in coding activities and tap into proprietary enterprise code data to improve its models. The deal also brings Windsurf’s expert team under OpenAI, adding valuable know-how in applying AI to complex software projects.

Strategic Acceleration with OpenAI Resources: OpenAI is seizing a high-growth asset in a booming market. Windsurf is the fastest-growing coding assistant after Cursor, which was unattainable (valued around $10 BN). By acquiring Windsurf for ~$3BN, OpenAI secures a prominent player with strong momentum and substantial ARR in a market that’s projected to $2.7 B in 2024 to over $10 B by 2030. Windsurf’s aggressive go-to-market tactics—like undercutting rival pricing—can now be supercharged by OpenAI’s resources and brand. With tighter integration into OpenAI’s ecosystem of models and distribution channels, Windsurf is now able to scale faster, outcompete competitors, while helping OpenAI deepen its foothold into the developer tools market.

Alignment with OpenAI’s Strategy: Buying Windsurf aligns with OpenAI’s broader ambitions. Advanced code generation is a crucial domain—an AI that can write and refine software is a stepping stone toward AGI. Windsurf was already pushing into “agentic” coding capabilities for non-programmers, dovetailing with OpenAI’s vision of AI handling complex tasks. The deal also addresses a competitive gap: OpenAI’s models have been outperformed on coding benchmarks by new offerings from Anthropic and Google. Integrating Windsurf (reflecting an “urgency to stay competitive”) helps keep developers within OpenAI’s ecosystem. OpenAI can now tightly pair its latest models with Windsurf’s interface, offering a best-in-class coding assistant that blunts the appeal of rival platforms.

A Strategic Shift in Build vs. Buy Models: This acquisition marks a shift from OpenAI’s historical preference for partnerships and internal R&D to owning key applications outright. The rapid rise of tools like Cursor and Windsurf showed that having the user-facing product brings major advantages in distribution and data. As one VC noted, OpenAI will be “acquisitive at the app layer” because controlling applications is “existential”. OpenAI is also keen to avoid past missteps – for example, its in-house image model (DALL-E) ceded ground to a startup’s model (Black Forest Labs’ Flux) that captured ~40% of image-generation usage. By contrast, acquiring Windsurf ensures OpenAI gains a leading product in coding AI rather than playing catch-up. It accelerates time-to-market and gives OpenAI full ownership from the model to the user interface, solidifying its position.

The bottom line...

OpenAI’s $3BN purchase of Windsurf is a significant bet on the AI coding tools landscape. It secures OpenAI a leading position in this fast-expanding domain, giving it direct access to the developer community and enterprise clients. By absorbing Windsurf, OpenAI gains a high-growth product (with its user base and data) and specialized talent to bolster its own AI capabilities. Crucially, the move helps OpenAI counter intensifying competition – plugging a gap where rivals were gaining ground in coding AI. The deal signals OpenAI’s willingness to invest aggressively to maintain its edge, integrating a domain-focused application to complement its general-purpose platforms. In summary, acquiring Windsurf accelerates OpenAI’s expansion into developer tools, fortifies its competitive moat against peers like Google and Anthropic, and aligns with its broader mission to advance AI capabilities. It exemplifies OpenAI’s evolution into an end-to-end AI leader, pairing world-class models with ownership of critical application channels to drive future growth and innovation.