OpenAI began decade ago as nonprofit lab. Musk and Altman now rivals

On December 11, 2015, OpenAI launched as a nonprofit research laboratory after Elon Musk and a group of leading technologists, including Peter Thiel and Reid Hoffman, pledged $1 billion to develop artificial intelligence for the benefit of humanity. The idea was that the project would be free from commercial pressures and the search for money.

Ten years later, this founding mission was completely forgotten.

Musk, now the richest person in the world, is long gone by creating rival startup xAI. He’s also in a heated legal and public relations fight with OpenAI CEO and co-founder Sam Altman.

Away from the nonprofit space, OpenAI has emerged as one of the fastest-growing commercial entities on the planet, approaching a $500 billion private market valuation; Nearly all of this value has accrued since the company launched ChatGPT three years ago. More than 800 million people now use chatbots every week.

Musk’s xAI, meanwhile, is expected to close a $15 billion round this month at an initial valuation of $230 billion, sources familiar with the matter told CNBC’s David Faber in late November.

OpenAI and xAI are two of the main companies. GoogleAnthropic and MetaThe market is pouring money into AI models as it rapidly evolves from text-based chatbots to AI-generated videos and more advanced compute-intensive content formats, as well as intermediary AI where large organizations customize tools to increase productivity.

The price tag for OpenAI is almost incomprehensible: $1.4 trillion and counting. This applies primarily to the massive data centers and high-power chips required to meet what the company sees as insatiable demand for its technology. For now, OpenAI is a cash-burning machine taking on tech giants and their chip suppliers; It draws comparisons to earlier waves of high-growth tech firms that spent years spending heavily to challenge giant incumbents, but with mixed results.

“OpenAI has a huge role in the history of the development of artificial intelligence and will have that role forever,” DA Davidson stock analyst Gil Luria said in an interview. “So will this role be Netscape or Google? We haven’t found out yet.”

This was a position that was difficult to imagine in 2016. Nvidia CEO Jensen Huang transported a black DGX-1 supercomputer to OpenAI’s offices in San Francisco’s Mission District. The $300,000 machine cost Nvidia “several billion dollars” to develop, and there were no other buyers, Huang recalled on Joe Rogan’s podcast recently.

The only person at OpenAI who wanted this was Musk.

When Musk told him it was for a “non-profit company,” Huang said all the blood drained from his face at the thought of parking such an expensive box inside an organization that had no purpose of making money.

But behind the scenes, the nonprofit ideal was already under intense pressure, and Musk didn’t like what he saw.

Musk said, “Guys, I’m fed up. This was the last straw.” wrote in an email he sent to his co-founders in 2017. He warned that he would “no longer fund OpenAI” if OpenAI became a technology startup rather than a nonprofit. “I remain excited about the nonprofit structure!” Altman wrote the next morning.

In February of the following year, Musk left the OpenAI board, saying at the time that the move was to avoid a potential conflict of interest as his own car company: Tesla’sdelved deeper into artificial intelligence.

OpenAI in October announced It had completed its recapitalization, strengthening its structure as a nonprofit organization with a majority stake in its nonprofit business, a public benefit company now called OpenAI Group PBC.

Musk isn’t the only early OpenAI team member who turned into a fierce rival. Siblings Dario and Daniela Amodei left OpenAI in late 2020 to found Anthropic, which last month said Microsoft and Nvidia would invest in the company. Valuation from the financing round could be as high as $350 billion.

Anthropic’s Claude family of large language models is one of the biggest competitors to OpenAI’s GPT models.

Altman is betting that he can win the race by leaving the competition behind. Anthropic has earned nearly $100 billion from recent computing commitments, spaced out at various intervals over the next few years, as the company lays out plans for more than a trillion dollars in AI infrastructure spending.

There is a big bet that demand for AI services will continue apace.

“We have a variety of AI vendors making these huge capital investments,” said David Menninger, managing director of software research at ISG. “There is a question about how long these capital investments will continue and whether they will yield results.”

Luria says Anthropic and others are making reasonable commitments based on their current growth trajectory and the funding they’ve already secured. But he said OpenAI’s approach was based on a “fantastic set of commitments” combined with “a faint belief that these numbers are possible.”

Altman told CNBC in an interview on Thursday that OpenAI is already seeing enough demand to justify its spending plans, which “gives us confidence that we can grow revenues significantly.”

“It’s certainly unusual to grow this quickly at this kind of scale, but that’s what we’re seeing in our current data,” Altman said, adding that “demand in the market is pretty extreme.”

Altman Last month, it said it expected annual revenue to reach $20 billion by the end of this year and hundreds of billions by 2030. The historic growth rate has been a huge boon for big tech companies.