Musk and Altman take on battle from courtroom to Wall Street ahead of IPO

Elon Musk lost his lawsuit against OpenAI CEO Sam Altman on Monday, ending one round of the battle between his former friends and co-founders and setting the stage for even bigger battles as the billionaire gears up to lead a potentially record-setting initial public offering.

Musk’s SpaceX, valued at $1.25 trillion in February after merging with artificial intelligence startup xAI, plans to release a prospectus as soon as this week. Altman’s OpenAI, which Musk helped launch in 2015 before a controversial split that ultimately led to litigation, is valued at more than $850 billion and is eyeing a potential market debut later this year.

Only two technology companies — facebook and alibaba — As of its first day of trading on U.S. exchanges, its value has reached $100 billion.

“The big picture is that theaters are dead,” Gene Munster, managing partner at Deepwater Asset Management, told CNBC’s Kelly Evans on Monday. “Now we get to the nitty-gritty of seeing what these companies can do to actually build large-scale businesses around AI.”

SpaceX and OpenAI both have complex stories to tell, and investors need to have confidence in the leadership at the top to buy at such inflated prices. That’s especially true when it involves polarizing figures like Mr. Musk, the world’s richest man, and Mr. Altman, who was temporarily removed by his own board less than three years ago.

The past three weeks have been a dramatic distraction in a years-long race to develop the world’s leading AI models and tools, with Mr. Altman and Mr. Musk, two figures at the center of the AI ​​boom, facing each other in federal court in Oakland, California.

In 2024, Musk filed a lawsuit accusing OpenAI and Altman of abandoning their promise to keep the AI ​​lab nonprofit. The past two years have seen a public war of words between the two sides.

An advisory jury decided Monday that Musk waited too long to file his lawsuit, a decision that District Court Judge Yvonne Gonzalez Rogers adopted immediately. The court did not address whether Musk’s “charitable trust violation” claims were meritorious, instead saying they were not subject to the three-year statute of limitations.

Musk’s lawyers said their client would appeal the ruling to the U.S. 9th Circuit Court of Appeals, and Musk said in a post on X that the ruling was a “calendar technicality.”

“For those following this case closely, there is no question that Altman and Brockman did indeed steal from charities to line their own pockets. The only question is when they did it!” Musk wrote.

Ross Garber, a longtime supporter of Mr. Musk’s companies, said the planned appeal is unwelcome news for SpaceX investors, who have criticized Mr. Musk for spreading his time and attention between too many businesses.

“He doesn’t understand how the world sees him,” said Gerber, CEO of Gerber Kawasaki. “He’s seen as competitive. Another guy is successful and he’s jealous.”

Additionally, Garber said Musk is not fooling anyone by trying to claim he is concerned about the sanctity of nonprofits. Last year, The New York Times reported that, based on its tax returns, the Musk Foundation had failed to make legally required minimum donations, with most of its charitable donations going to organizations with close ties to Musk.

“The idea that Elon is somehow championing philanthropy across America is the funniest thing that could ever happen,” Gerber said. “He doesn’t realize how absurd he looks.”

Even without a lawsuit, Musk still has a big task to develop a long-term plan for SpaceX. The company’s core business involves launching giant reusable rockets into space under government contracts. This week, the company is targeting Starship’s 12th test flight, which includes a new rocket scheduled to launch from its Starbase, Texas, facility.

SpaceX also owns satellite internet service Starlink, recently acquired xAI, which includes social network X, and last month announced a deal giving it the rights to acquire AI coding startup Cursor for $60 billion.

Mr. Musk has great control over his sprawling business.

Last week, leaders of the public pension systems, which collectively manage more than $1 trillion in assets, sent a letter to SpaceX executives, spelling out concerns about the company’s “unconventional and extreme governance structure” and lack of recourse for shareholders.

They also highlighted “competing demands on Mr. Musk’s time and attention” and said SpaceX and tesla Both companies were placed in the “unusual position of essentially competing with each other for the attention of their common chief executive officer.”

Although the case was a decisive victory for OpenAI, the outcome brought more relief than celebration. Mr. Altman could turn his full attention back to the other side of the Bay Bridge, where his company is based, but only after Mr. Musk’s lawyers laid out a number of potential issues for prospective investors to consider.

Plaintiffs’ lawyers have repeatedly questioned Altman’s character, accusing him of being untrustworthy and routinely lying. During his testimony, Altman was asked about a number of people who have raised concerns about his actions over the years, including Anthropic co-founder and former OpenAI employee Dario Amodei.

Mr. Altman was also under pressure regarding some of the board members who temporarily removed him in 2023. The board said at the time that Altman “did not consistently communicate openly” with board members.

Altman testified that he was not trying to mislead the board.

Then there’s the issue of money. Altman and other OpenAI executives testified that the company needs extraordinary amounts of capital to secure the computing resources needed to train and run its cutting-edge AI models.

The company has already raised more than $180 billion from investors and continues to burn through cash at a historic pace. As Altman races towards an IPO, he is under pressure from investors to show that the numbers work, while competition from rivals, particularly Anthropic, which has won in the enterprise and AI coding markets, is increasing.

Since the trial began late last month, Anthropic has announced large-scale computing deals for a new enterprise AI services company, a financial services agency, and capacity at its xAI Colossus 1 data center in Memphis, Tennessee.

Meanwhile, Altman is dealing with turnover at the top. While the trial was pending, Greg Brockman, the company’s president and the other main defendant in the case, officially took over OpenAI’s product strategy. Brockman assumed additional responsibilities on an interim basis in April after Fiji Simo announced he would take extensive medical leave due to worsening neuroimmune disease.

Jake Dollarhide, CEO of Longbow Asset Management, said OpenAI also needs to consider the reality that SpaceX is likely to enter the public market first, with Anthropic looming soon after.

“Given that Mr. Musk, SpaceX, and by extension xAI will likely be the first to go public and receive a boost from investors in the form of a ‘first mover effect,’ Mr. Altman’s courtroom victory lap may not last long,” Dollarhide said in an email. “If Mr. Altman is not careful, Anthropic could do the same thing in its next IPO, in which case OpenAI would be left holding the bag for the benefit of investors who remained as the third IPO candidate for AI Royalties.”

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