Elon Musk lost his attempt to neutralize OpenAI. That’s probably a good thing for the entire artificial intelligence complex, including Mr. Musk’s own SpaceX.
On Monday, the jury in the trial Musk started against Open AI in 2024 found that he started the legal action past the legal deadline. The judge in the case agreed with the finding, and Musk said he intended to appeal.
Musk had claimed that OpenAI co-founder Sam Altman and president Greg Brockman “stole charity” when they reorganized OpenAI into a for-profit organization last year. Mr. Musk had sought damages of up to $150 billion ($210 billion), demanded that OpenAI be reinstated as a nonprofit organization, and called for Mr. Altman and Mr. Brockman to be fired.
Had he succeeded, OpenAI would have been dismantled, cutting it off from the massive funding streams needed to gain access to chips and data centers to stay in the frenzied scramble to train models and develop more sophisticated AI tools.
This would also have significant and threatening implications for other sectors, as OpenAI is at the center of the complex contracts and financial transactions that the AI ecosystem has developed to raise the ever-increasing capital needed to remain competitive.
If OpenAI had lost the lawsuit and been removed from pursuing artificial general intelligence, or human-level artificial intelligence, it would have sent shockwaves through the field and resulted in huge losses.
If OpenAI had lost the lawsuit and been removed from pursuing artificial general intelligence, the entire field would have been shocked and the losses would have been enormous.
It also could have hurt OpenAI’s ability to raise future funding. OpenAI, which raised $122 billion in March at a valuation of $852 billion, has tentative plans to raise more than $60 billion later this year with an initial public offering (IPO) at a stock price that would value the business at more than $1 trillion.
Coincidentally or not, Musk’s SpaceX this week issued a public prospectus for its own fundraising, aiming to sell $75 billion to $80 billion worth of stock to investors in an IPO that would value the company between $1.75 trillion and $2 trillion. The service would have benefited if OpenAI had been removed from the AI development race and withdrawn from the funding race.
In what will be a big year for AI, given its insatiable appetite for capital, Anthropic is also considering an IPO of its own.
The company, which is at the cutting edge of AI development, is reportedly aiming to raise $30 billion from investors at a current valuation of $900 billion, with an IPO likely later this year at an even higher valuation. The company raised $15 billion from Google and Amazon in February, with an additional $50 billion pledged with performance conditions, giving it a valuation of $350 billion.
The rate of increase in AI company valuations reflects the pace of industry development and the level of enthusiasm for all things AI-related.
Anthropic, which was generating annual revenues of $9 billion at the end of last year, recently announced that it now generates annual revenues of $30 billion. This shows how quickly commercialization of AI is progressing, even though Anthropic, like SpaceX and OpenAI, remains unprofitable.
The potential IPOs of the three largest companies this year, with combined valuations in the range of $3.5 trillion to $4 trillion, will be a massive test of confidence in the stock market’s ability and ultimately the sector’s ability to generate the huge returns on capital needed to justify these valuations and the hype surrounding the sector.
Currently, AI companies are guzzling capital faster than revenue growth. AI may exist as software, but it is proving to be a highly capital-intensive field.
The fate of a company’s funding matters not only for AI development and the companies that develop it, but also for the broader stock market.
The half-dozen big U.S. tech companies, which are estimated to have invested more than $700 billion this year and more than $1 trillion next year, account for more than a third of the total value of the U.S. stock market.
They have been the driving force behind an 87% market rally since OpenAI’s ChatGPT was announced in November 2022 and ignited the AI frenzy.
If any of the planned IPOs fail to live up to expectations, it would send tremors across not just their industry but the entire market, which is increasingly vulnerable to even the slightest setbacks in AI.
The market is also vulnerable to the external economic environment, with President Donald Trump’s tariffs and war against Iran causing inflation rates in the United States and other countries to soar and growth rates to slow.
Inflationary pressures, especially from the oil crisis, will continue to rise as rising gasoline and diesel prices deeply impact the economy, product costs, and ultimately prices.
Rising interest rates and the cost of trading bonds, which are already rising, could create a hole in the booming stock market.
AI companies are increasingly testing the limits of the stock market’s ability to provide capital at the scale they need, and are turning to the debt market to fund their insatiable need for new capital.
Rising interest costs and decreasing appetite for lending could not only undermine the economics of AI, but also inhibit development at a time when the sector relies on continued rapid progress to justify its valuation and maintain access to capital.
There are a series of dependencies in this field that, if reversed, would have hugely disruptive effects beyond the AI industry.
While there are potential threats to the persistent large-scale funding that AI companies need to maintain momentum, investor enthusiasm and optimism about their future also continues.
Last week, a relatively small AI chip maker, Cerebra Systems, went public in the United States. The IPO price was increased from the original $115 per share to $185 per share. The stock opened at $350 per share, closed at $311 per share, and was still trading at just under $300 per share on Monday.
This tends to emphasize that the enthusiasm surrounding AI stocks and all things related to them (Cerebras makes advanced computer chips used to train AI models) continues unabated, at least for now, unaffected by the economic and geopolitical risks created by President Trump.
For SpaceX, OpenAI, and Anthropic, the critical question as they pursue IPOs this year is whether the hype and investor enthusiasm for AI in general will be sustained until they have access to the more permanent and continuous capital that a stock market listing provides.
Mr. Musk, who co-founded OpenAI and left after a power struggle with Mr. Altman and Mr. Brockman, has lost the opportunity to harm SpaceX’s competitors and take revenge, at least for now.
For OpenAI, the AI ecosystem, and the stock market as a whole, this is at least one less threat.
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Stephen Bartholomews is one of Australia’s most respected business journalists. He was most recently co-founder and deputy editor of the Business Spectator website and deputy editor and senior columnist for The Australian.Connect via email.
