On December 11, 2015, OpenAI was established as a nonprofit research organization after Elon Musk along with several notable technology leaders, including Peter Thiel and Reid Hoffman, committed $1 billion to advance artificial intelligence for the sake of humanity. The intention was for the initiative to operate without the influences of commercial interests or the drive for profit.
Ten years on, that original goal seems largely overlooked.
Musk, who has since become the richest individual globally, has departed, launching a competing enterprise named xAI. He has also been embroiled in a contentious legal and public relations clash with OpenAI’s CEO and co-founder Sam Altman.
Transitioning away from its nonprofit origins, OpenAI has evolved into one of the fastest expanding commercial firms worldwide, propelling to a $500 billion private market valuation, with most of that increase occurring after the introduction of ChatGPT three years prior. Weekly, more than 800 million individuals utilize the chatbot.
In contrast, Musk’s xAI is projected to conclude a $15 billion funding round this month at a $230 billion pre-money valuation, as confirmed by sources acquainted with the situation to CNBC’s David Faber in late November.
OpenAI and xAI represent two leading players, alongside Google, Anthropic, and Meta, heavily investing in AI models, as the industry swiftly transitions from text-focused chatbots to AI-generated videos and more intricate computational forms of content, along with agentic AI, wherein large corporations tailor tools to boost productivity.
For OpenAI, the expense is nearly unbelievable: $1.4 trillion and rising. This is mainly for the vast data centers and powerful microchips necessary to cater to what the company sees as relentless demand for its technology. Currently, OpenAI serves as a cash-consuming entity competing against the tech giants and their chip suppliers, drawing parallels with earlier waves of high-growth tech companies that heavily invested for years to take on colossal incumbents, albeit with varied outcomes.
“OpenAI has a substantial role in the historical trajectory of artificial intelligence advancement and will perpetually hold that role,” remarked Gil Luria, an equity analyst at D.A. Davidson, in an interview. “Now, will it be remembered like Netscape, or will it parallel Google? That remains to be seen.”
The present situation would have been difficult to foresee in 2016, when Nvidia CEO Jensen Huang transported a black DGX-1 supercomputer to OpenAI’s facility in San Francisco’s Mission area. The $300,000 machine had cost Nvidia “a few billion dollars” to create, and there were no other prospective buyers, Huang recounted recently on Joe Rogan’s podcast.
At OpenAI, Musk was the sole individual interested.
When Musk revealed it was intended for “a nonprofit organization,” Huang said he felt a surge of concern at the thought of housing such an expensive device within an organization not designed for profit.
However, behind the scenes, the nonprofit vision was already under significant pressure, and Musk was displeased with the direction.
“Guys, I’ve had enough. This is the last straw,” Musk noted in an email to his co-founders in 2017. He cautioned that he would “cease financial support for OpenAI” if it transitioned into a tech startup rather than remaining a nonprofit. Altman responded the following morning: “I remain optimistic about the non-profit framework!”
Altman vs. Musk
The next February, Musk resigned from the OpenAI board, stating that the decision aimed to prevent a potential conflict of interest as his automotive company, Tesla, delved deeper into AI.
The situation was far more intricate.
Musk initiated a lawsuit against OpenAI and Altman in early 2024, claiming they had abandoned the organization’s founding goal to develop AI “for the broad benefit of humanity,” and he has continuously criticized OpenAI’s close relationship with Microsoft, its main investor. He also sought legal recourse to prevent OpenAI from changing into a for-profit organization and, earlier this year, even attempted to acquire the AI lab for $97.4 billion.
In October, OpenAI announced it had completed a recapitalization that reinforced its nonprofit structure while retaining a controlling interest in its for-profit branch, which is now designated as a public benefit corporation named OpenAI Group PBC.
Musk is not the sole initial member of OpenAI who has become a fierce competitor. Siblings Dario and Daniela Amodei departed OpenAI in late 2020 to establish Anthropic, which disclosed last month that Microsoft and Nvidia would provide investments for the company. The valuation from this funding round could escalate to as much as $350 billion.
Anthropic’s Claude series of large language models stands as one of the primary competitors to OpenAI’s GPT models.
Altman is betting that he can outspend the rivals to secure victory in this competition. While his organization has outlined plans for a trillion-dollar-plus AI infrastructure investment, Anthropic has committed around $100 billion in recent computing investments, spread across various timeframes over the upcoming years.
This represents a significant wager on the continuation of strong demand for AI services.
“We observe all the various AI providers making these substantial capital expenditures,” noted David Menninger, executive director of software research at ISG. “There’s uncertainty regarding how long these capital allocations will persist and whether they will ultimately yield positive results.”
Luria believes that Anthropic and others are making sensible commitments based on their existing growth trajectory and the funds they have already acquired. However, he expressed that OpenAI’s strategy appears to be founded on a “fantastical set of commitments” with a “faint belief that achieving those figures is even feasible.”
‘Pretty extreme’
Altman informed CNBC in a Thursday interview that OpenAI is currently experiencing sufficient demand to validate its expenditure strategy, which “gives us confidence that we will be able to significantly increase revenue.”
“It’s certainly atypical to grow this rapidly at such a scale, but it’s what the current data indicates,” Altman stated, adding that “the market demand is quite extraordinary.”
Altman mentioned last month that he anticipates annualized revenue to reach $20 billion by year-end and possibly hundreds of billions by 2030. The historic growth rate has proven beneficial for significant technology firms.
Oracle sealed a roughly $500 billion contract to provide infrastructure services to OpenAI over a span of five years. Chip manufacturers Advanced Micro Devices and Broadcom have integrated OpenAI-driven demand into multi-year forecasts.
However, Oracle’s shares dipped 11% on Thursday following the software provider’s report of lower-than-expected revenue, resulting in a decline that affected Nvidia, CoreWeave, and other AI-related securities. Despite a surge in long-term contractual obligations from companies, including OpenAI, Meta, and Nvidia, investor concerns persist regarding Oracle’s debt that is fueling its expansion.
Nevertheless, venture capitalist Matt Murphy of Menlo Ventures remarked that in his 25 years in the venture capital field, “this is the biggest wave we’ve ever experienced.”
Murphy, an early supporter of Anthropic, noted that the amalgamation of AI models, bespoke chips, and large-scale data centers creates the possibility for trillion-dollar results. This accounts for the staggering level of capital investments and the remarkable valuations, he explained.
Altman recently issued a “code red” within his firm, reallocating resources to enhance ChatGPT’s speed, reliability, and personalization, while postponing developments on advertisements, health applications, shopping agents, and a personal assistant named Pulse. His declaration followed Google’s release of its Gemini 3 model last month, further accelerating the search giant’s progress in the marketplace.
On Thursday, OpenAI revealed ChatGPT-5.2, a quicker, more proficient reasoning model that the organization claims is its finest system yet designed for general professional utilization. Additionally, it formed a three-year, $1 billion content and equity partnership with Disney regarding the Sora AI video generator.
Altman minimized the potential threat posed by Google, conveying to CNBC that the Gemini model’s influence on the company’s metrics was less significant than initially anticipated by OpenAI.
“I believe that when facing a competitive challenge, it is essential to address it swiftly,” Altman commented.
He anticipates that the organization will emerge from the code red status by January.
— CNBC’s Kif Leswing contributed to this article.
