Why are Elon Musk and Sam Altman of OpenAI fighting—and how might it help Google? They were once friends and business partners, and now they have become adversaries. Elon Musk and Sam Altman are facing off in a federal courtroom in California, where their personal rivalry could impact the trajectory of generative AI models and the companies backing them. Tech giants appear to be watching this dispute closely to see what will emerge from this fiercely competitive field.
OpenAI began a unique journey, launching as a non-profit organization aimed at curbing Google’s progress in artificial intelligence research. In 2015, Altman wrote an email to Musk stating: “I’ve been thinking a lot about whether it’s possible to prevent humanity from doing AI. I think the answer is pretty close to a definite no. If it’s going to happen anyway, maybe it’d be better if someone other than Google did it first.”
Specifically, they feared that Google would be the first to develop artificial general intelligence, or AGI, which the OpenAI charter defines as “highly autonomous systems that outperform humans at most economically valuable work.” It stated: “We commit to using 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 bring harm to humanity or unduly concentrate power.”
However, the reality of the exorbitant cost of training AI models quickly emerged as an obstacle. After a series of disagreements over OpenAI’s direction, funding, and Altman’s leadership, Musk withdrew from OpenAI and stopped funding it in 2018.
Specifically, they feared that Google would be the first to develop artificial general intelligence, or AGI, “highly autonomous systems that outperform humans at most economically valuable work,” according to the definition in the OpenAI charter. It stated: “We commit to using 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 bring harm to humanity or unduly concentrate power.” But the reality of the immense cost of training the models quickly surfaced. Following cumulative disagreements over the organization’s direction and funding, Musk left the foundation in 2018.
Because OpenAI needed a lot of capital to achieve its goals, it devised a special structure in 2019. Although control remained with a non-profit board of directors, a for-profit entity was created under its umbrella. Investors’ profits were conditioned not to exceed ten times their original investments. Microsoft was the first to inject investments, providing $1 billion, followed by another $10 billion in 2023 after the launch of ChatGPT in November 2022. Most of these investments were in the form of credits to use Microsoft’s Azure cloud computing.
In August, Musk and his AI company xAI sued OpenAI and Altman for allegedly violating the foundation’s charter by creating this for-profit entity. The lawsuit stated: “Altman, along with the rest of the defendants, lured and deceived Musk, exploiting Musk’s humanitarian motivations regarding the potential existential dangers of AI.” Musk’s lawyers added: “The deception is almost a Shakespearean tragedy.”
AI research is expensive, as is running ChatGPT. Therefore, OpenAI quickly consumed Microsoft’s investment and returned for a $6.6 billion funding round in October. Here, the conflict of the tech giants continues amidst massive funding atmospheres.
But even this funding is not enough. Last Friday, OpenAI announced that it needs more capital and that a more traditional for-profit structure is the only way to achieve that. An unsigned post on the OpenAI blog stated: “The hundreds of billions of dollars that major companies are now investing in AI development show the scale of the requirements needed for OpenAI to continue pursuing its mission. We find ourselves once again needing to raise money beyond what we ever imagined. Investors want to support us, but at this level of capital, they need traditional ownership and a less detailed structure.”
Musk rushed to respond by filing a request for a preliminary injunction preventing OpenAI from changing its structure and raising more funding. He claimed in his filing that OpenAI is first obligated to obtain regulatory approval to change its structure from the authorities in California, where it is headquartered, and in Delaware, where it is incorporated. Furthermore, the lawsuit claims that OpenAI told investors they have no right to invest in any competitors, that Altman is making arrangements that serve his personal interests, and that there is an illegal management entanglement between OpenAI and Microsoft.
All of this may be true, but Musk and his team still face a major hurdle in proving that OpenAI’s actions are causing them irreparable harm. Of particular concern is the “no funding for competitors” claim, which is based solely on anonymous news reports and “general knowledge” among venture capital investors, according to the exhibits supporting the motion. The filing indicates that this makes it harder for OpenAI’s competitors to raise money, specifically harming xAI.
Aside from the weak evidence presented by Musk, the allegations of severe harm are contradicted by the fact that xAI raised $17 billion in funding in 2024, most recently just one week ago, according to FactSet data. The list of investors includes well-known names such as Nvidia, Advanced Micro Devices, and venture capital firm Sequoia Capital. Meanwhile, OpenAI raised $18 billion, mostly from Microsoft, along with Nvidia and Sequoia in its October funding round.
OpenAI has secured a major head start in the arena and still leads AI services through ChatGPT. According to an August study by researchers from Vanderbilt University, the Federal Reserve Bank of St. Louis, and Harvard University, 29% of American adults have used ChatGPT, while Google Gemini ranked next at 16%. However, ChatGPT’s share was about 100% in 2022, and dominance in this field appears difficult to maintain. Musk and xAI seek to restrict OpenAI from raising the capital it deems necessary to compete in the tech giants’ arena.
The results of this trial will reverberate throughout the AI space. If OpenAI wins, it will be able to raise more funding and maintain its leading position. If Musk and xAI win, OpenAI’s competitors may find an opportunity to surpass it, and ironically, Google could end up leading the scene.
For now, investors are left with no choice but to watch.
