Altman vs. Musk: From Courtroom to Wall Street IPO Battle

After Sam Altman and OpenAI's recent victory in a drawn-out legal battle with billionaire Elon Musk, the bitter rivalry between the former friends is now set to move from the courtroom to Wall Street.

Altman, the co-founder and chief executive of OpenAI, was once so close to the world's richest man that they would regularly meet for dinner and reportedly discuss how they would handle an impending apocalypse.

These days, the pair spend their days trading barbs on social media and in lengthy interviews.

"I don't think he's, like, a happy person. I do feel for him," Altman told Bloomberg TV last year.

Musk has taken to calling his competitor "Scam Altman".

"I have mixed feelings about Sam," Musk said during an appearance at a New York Times event last November.

"The ring of power can corrupt," he added referencing the all-consuming artifact from the Lord of the Rings, "and he has the ring of power."

On Monday morning, the tension between two of Silicon Valley's biggest names was on full display when a jury in California rejected Musk's suit against Altman and OpenAI.

The dispute centred on the billionaire's claim that his former friend had betrayed their shared vision for OpenAI as a nonprofit and altruistic steward of a revolutionary technology.

Musk donated $US38 million ($AUD53 million) to OpenAI after co-founding it with Altman in 2015 but years into the arrangement, cracks emerged in the partnership as they competed for influence, prompting the pair to part ways in 2018.

The former went on to pursue projects like acquiring X, formerly Twitter, while the latter transformed Open AI from a nonprofit into a capitalistic venture now valued at $US852 billion.

As the company climbed further into the black, Musk saw red.

Because after pledging to build AI for the benefit of all humanity, his former partner ended up building one of the most valuable companies on earth.

And in pursuing the court battle against OpenAI, analysts say Musk may have been playing a strategic game familiar to the corporate world.

"It is difficult to know the precise strategic calculation, but there are at least two plausible interpretations," said professor Sarah Kreps, director of the Tech Policy Institute at Cornell University.

"One is ideological: Musk genuinely believes OpenAI drifted away from its founding principles and wanted to challenge the concentration of AI power.

"The second is competitive positioning. By publicly framing OpenAI as insufficiently transparent or overly commercialised, Musk also differentiates [his own AI startup] xAI as an alternative vision for frontier AI development."

Musk is set to take his company Space X, which includes Starlink and xAi to public market, and US media is reporting Altman's OpenAI is preparing to file for an initial public offering soon.

Whoever takes their AI company public first is expected to make Wall Street debut history with an eye-watering sum.

The courtroom showdown

In 2015, Sam Altman was a rising star in tech, running startup incubator Y Combinator after the sale of Loopt, a location-based social networking mobile app, which he co-founded.

He had big ambitions, and among them was a dream to create a rival to AI leader DeepMind, which had been acquired by Google in 2014.

He raised the "Manhattan Project for AI" with a man he had admired for some time, the real-life Tony Stark: Elon Musk.

"It's probably worth a conversation," the world's richest man replied, per CNBC.

And so began an ambitious idea. Over dinner, the pair discussed how they wanted to ensure Google, which had a huge lead in developing AI, did not end up deciding what it would mean for the human race.

OpenAI, launched in December, 2015, was their answer. Along with Musk and Altman, the founding group included AI scientist Ilya Sutskever and former Stripe chief technology officer Greg Brockman.

Musk, at least initially, was all in on the endeavour, pouring millions of dollars into it.

"I really trust him, which is obviously important to everyone involved," Altman told Vanity Fair in 2015.

But three years later, Musk was out. Another three years lapsed before he lodged a lawsuit against OpenAI and his former workmate.

Musk made two key claims as part of his legal battle. He accused Altman of breaching a non-profit contract by shifting the ChatGPT-maker to a for-profit company.

And the billionaire also claimed Altman had deceived him by accepting his early funding and then going back on OpenAI's original non-profit mission.

The statute of limitations for Musk's two claims against OpenAI was two and three years, but Musk's lawyer made the case he was not initially aware of the change in structure for OpenAI from a non-profit to a for profit business.

The case went forward based on the timeline of when Musk was made aware of OpenAI's profitable business, according to lawyer and professor of law at Columbia Law School Dorothy Lund.

While Musk argued his case was about OpenAI's business model, the verdict ultimately came down to timing, with the jury ruling against the world's richest man earlier this week.

"I was really a little bit disappointed [by] the fact that the jury decided to … not look at the substantive questions, but rather decided on the procedural merits [of the case]," said Alexandra Andhoff, professor and chair in law and technology at the University of Auckland.

Toby Walsh, chief scientist at UNSW's AI institute, agreed the outcome was "a little disappointing".

"We didn't get into any juicy bits; we didn't get to hear who the jury thought was lying," he said.

"Was it Elon Musk? Was he just a bad loser? Or is it that Sam Altman is a liar who is trying to steal a charity?"

Altman eyes Wall Street

Just days after a verdict was delivered in the case, which Musk said he would appeal, reports emerged that OpenAI was preparing to be the first artificial intelligence firm to go public.

The process, referred to as an initial public offering (IPO), allows a company to raise equity capital by offering shares to the public.

A successful IPO can be hugely beneficial in raising significant capital to fund growth opportunities and in lifting a company's profile.

But a disappointing one can impact its finances, reputation and potentially have huge ramifications for the broader industry.

In many ways, a messy, publicised trial had been a hindrance to OpenAI launching their IPO, partly because it had the potential to undermine public confidence in its top leadership.

"The stakes were high because a ruling against OpenAI could have disrupted not only OpenAI's structure, but potentially the broader financing and governance model of the frontier AI industry," Professor Kreps said.

In his suit, Musk wanted OpenAI to revert to a non-profit organisation, as well as for Altman and Greg Brockman to be removed. He also sought $US150 billion in damages from OpenAI and its biggest investor Microsoft — money he pledged to put into OpenAI's charitable arm if he won.

Professor Kreps said "investors and major partners were watching closely".

"The case raised questions about everything from nonprofit-to-profit AI structures to the legitimacy of commercialisation pathways to the future financing model for frontier labs more broadly," she said.

But now that the legal battle delivered Altman a victory, his next project can begin, according to Mr Walsh.

A battle of the IPOs

This week, Musk's company SpaceX filed the paperwork needed to undergo an initial public offering.

A third competitor in the AI space, Anthropic, is also reportedly in talks with investors to raise money at a $US900 billion valuation.

The launch of several companies at once can sometimes help those involved by pushing up the price even more than if just a single one went up, according to analysts.

But the sheer amount of money in the potential AI IPOs is adding another layer of complexity to the race, with Mr Walsh warning "it's not clear that the market will be able to support both [or three] of them".

Two companies, Facebook and Alibaba, have been valued at $US100 billion after their first day of trading on US exchanges. And the debut record of $US25.6 billion was last set by Saudi oil company Aramco in 2019.

Already, OpenAI's IPO is expected to be evaluated at more than $US800 billion, and the Wall Street Journal has reported that Musk is looking to raise between $US40 billion and $US80 billion from the Space X sale.

"These would potentially be the largest IPOs ever," Mr Walsh said.

"It's not clear the market will be able to support even one of them," Mr Walsh added.

He explained that for investors to buy in at such elevated prices, they "will have to be taking money out of stocks and other investments", including potentially liquidating other tech shares like Microsoft and Google parent company Alphabet.

"Even if [the average person] thinks this has nothing to do with me, your pension fund, which will be invested in Nvidia and Alphabet and Microsoft and everything else, will be impacted by how this impacts the market."

Whichever company launches an IPO first in this space will have an edge over competitors because other companies will likely have to wait months before investors are ready to invest similar sums again.

"[And if] it turns out to be a bit of a failure or not perceived to be as successful as it was hoped to be, that will add a real dampener to the next IPO," Mr Walsh warned

Any business that follows a disappointing result will have to manage greater investor uncertainty.

"It will change the market sentiment very much," he added.

Industry 'depends heavily' on handful of individuals

With an IPO battle on the horizon, OpenAI and Space X will be required to disclose a large number of documents and Professor Andhoff hopes it would provide an opportunity to learn more about how the two are run.

"Hopefully the IPO will be even more revealing [than the court case] and we can connect the dots as to what was revealed during the trial," she said.

"I think that it needs a diligent group of people who will review [these documents] and ask critical questions."

In the meantime, the legal case has revealed something "uncomfortable", according to Professor Kreps.

"Despite years of discussion about 'AI governance,' the industry still depends heavily on a handful of powerful individuals, personal rivalries, and opaque organisational structures," she said.

Texts and internal emails, which were read out in court, painted an image of Musk wanting power and control over OpenAI as it was beginning to grow.

As for Altman, Mr Walsh observed from the trial testimonies that "many people who come into [his] orbit quickly realised that he's someone not to be trusted".

No-one who appeared in the trial "came out looking good," he added.

"The evidence that came out in the trial has only added to one's concerns that these are rather flawed individuals.

"I think one of the things you take away from this is that billionaires can have petty grudges with each other, just like us normal people."

Professor Kreps believed the case "reinforced pre-existing perceptions more than it fundamentally changed them".

"For Musk, supporters likely saw him as someone trying to challenge what they view as the concentration of AI power inside OpenAI and Microsoft. Critics, meanwhile, viewed the case as part ideological dispute and part competitive manoeuvre given his ownership of xAI," she said.

"For Altman, the outcome strengthens his position institutionally because OpenAI survived a major legal threat intact.

"But the trial also highlighted how much influence over the AI ecosystem remains concentrated in a very small group of individuals and informal networks. That is not necessarily reassuring for critics of the industry."

Mr Walsh agreed, noting that "we entrusted these sorts of people with making the right decisions on social media, and it's very clear that they didn't always make the right decisions".