By Adam Levine
Once friends and business partners, and now rivals, Elon Musk and Sam Altman are dueling it out in a California federal courtroom. Their personal animus may impact the course of generative AI model development, and the companies behind them.
OpenAI has been on a unique journey, beginning as a nonprofit organization with the purpose of blunting Google's lead in AI research. "Been thinking a lot about whether it's possible to stop humanity from developing AI," Altman wrote in a 2015 email to Tesla CEO Musk. "I think the answer is almost definitely not. If it's going to happen anyway, it seems like it would be good for someone other than Google to do it first."
In particular, they feared that Google, now a unit of Alphabet, would be the first to develop artificial general intelligence, or AGI, which OpenAI's charter defined as "highly autonomous systems that outperform humans at most economically valuable work." The charter added: "We commit to use any influence we obtain over AGI's deployment to ensure it is used for the benefit of all, and to avoid enabling uses of AI or AGI that harm humanity or unduly concentrate power."
But the high cost of training AI models quickly became an issue. After a series of disagreements over OpenAI's path, funding, and his leadership role, Musk left OpenAI and stopped donating to the company in 2018.
Needing a lot of capital to meet its goals, OpenAI created a bespoke structure in 2019. The company would still be controlled by a nonprofit board, but it created a for-profit entity under that umbrella. Investors' profit would be capped at 100 times their original investment. Microsoft was the first in, providing a billion dollars, and then another $10 billion in 2023 after ChatGPT's release in November 2022. Most of these investments were credits for the use of Microsoft's cloud computing platform called Azure.
In August, Musk and his more recently formed AI company, xAI, sued OpenAI and Altman for violating its charter by creating the for-profit entity. "Altman, in concert with other Defendants, intentionally courted and deceived Musk, preying on Musk's humanitarian concern about the existential dangers posed by artificial intelligence," Musk's lawyers wrote in the original complaint. "The perfidy and deceit are of Shakespearean proportions."
AI research is expensive, as is running ChatGPT, so OpenAI blew through Microsoft's investment quickly, coming back for a $6.6 billion funding round in October.
But even that isn't enough. Late last month, OpenAI revealed that more capital was needed, and that only a more traditional for-profit structure could accomplish that. "The hundreds of billions of dollars that major companies are now investing into AI development show what it will really take for OpenAI to continue pursuing the mission," it said in an unsigned blog post. "We once again need to raise more capital than we'd imagined. Investors want to back us but, at this scale of capital, need conventional equity and less structural bespokeness."
Musk was quick to fire back with an amended motion seeking to stop OpenAI from becoming a for-profit company and raising more capital. The motion argued OpenAI must first seek regulatory approval for the new structure from both California, where OpenAI is domiciled, and Delaware, where it is incorporated. Musk & Co. made three other claims: that OpenAI has told investors they can't invest in the company's competitors; that Altman is self-dealing; and that OpenAI and Microsoft have illegal interlocking directorates.
OpenAI has denied the allegations in its own filings
Musk has a high hurdle to jump, even if the allegations are proven true. He has to show irreparable harm from the actions. The "fund no competitors" claim is backed by anonymously sourced news reports and "common knowledge" among the deep-pocketed investor community, according to the motion's supporting exhibits. The motion said the investment restrictions makes it harder for OpenAI competitors to raise capital, harming xAI in particular.
Musk's claim of irreparable injury is complicated by xAI's 2024 fund-raising, totaling over $17 billion, with the latest round coming last month, according to FactSet. Investors include household names like Nvidia, Advanced Micro Devices and venture-capital firm Sequoia Capital. OpenAI has raised $18 billion, most of it from Microsoft, but Nvidia and Sequoia were also part of its October round.
OpenAI had a big head start, and remains the leader in AI services with ChatGPT. According to an August survey by researchers from Vanderbilt University, the Federal Reserve Bank of St. Louis, and Harvard University, 29% of American adults have used ChatGPT, with the next closest being Google's Gemini at 16%. But ChatGPT's share was near 100% in 2022, and moats in this business may be hard to come by.
The results of the Musk-Altman battle will echo through the AI landscape. The trial itself may be months or years away. But a hearing around Musk's injunction request is scheduled for Jan. 14. If OpenAI wins, it will be able to continue raising capital, giving it an edge as it tries to keep its pre-eminent position.
Should Musk and xAI win, OpenAI would be financially hamstrung and could find competitors passing it by. Ironically, it could be Google that takes the lead.
For now, investors can only watch.
Write to Adam Levine at adam.levine@barrons.com
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(END) Dow Jones Newswires
January 03, 2025 21:30 ET (02:30 GMT)
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