Tech Weekly: Musk’s OpenAI Bid Is a Trolling Masterclass

As widely expected, OpenAI's board of directors unanimously rejected Elon Musk's unsolicited $97 billion bid for the assets of its controlling nonprofit entity. But the rejection doesn't negate Musk's opening gambit. Musk's bid is best understood as a masterclass in strategic trolling, designed to expose the inherent conflicts of interest and valuation gymnastics at the heart of OpenAI's controversial transition to a for-profit model. It is "top-tier M&A trolling," says Matt Levine of Bloomberg.

To understand the brilliance (or audacity, depending on your perspective) of Musk's move, one must first grasp OpenAI's unusual structure. The organization was originally founded as a nonprofit, dedicated to building artificial general intelligence (AGI) that would "benefit all of humanity." However, recognizing the immense capital required for cutting-edge AI research, OpenAI created a "capped profit" subsidiary, attracting billions in investment from Microsoft and others. Now, OpenAI is seeking to further alter its structure into a more traditional for-profit corporation. This is where the problems begin.

The core issue is how to value the assets of the nonprofit entity, which essentially controls OpenAI's technology and intellectual property. The nonprofit can't simply give these assets away to a for-profit entity; it has a fiduciary duty to receive fair market value. This value would then remain dedicated to the nonprofit's charitable mission. In practice, as Levine explained:

The newly independent for-profit business could pay OpenAI-the-nonprofit the fair value of its current ownership, and then OpenAI-the-nonprofit’s assets (that payment) could remain dedicated to charitable purposes.

However, the valuation of an entity like OpenAI is highly speculative, as there is an enormous difference between its potential value, and its current value. And determining the value of the nonprofit's assets and thus how much ownership in the company the nonprofit should get in return has turned into a tricky negotiation, and has created an inherent conflict of interest: the lower the valuation, the more equity is left for outside investors, and vice versa. The rumored valuation of the non-profit was somewhere around $40 billion.

This is where Musk's $97 billion bid comes in. By offering a dramatically higher price, Musk has effectively highlighted the undervaluation inherent in OpenAI's internal negotiations. As Kelsey Piper of Vox succinctly put it:

Musk’s new takeover offer will substantially complicate any plans for the for-profit entity to purchase OpenAI’s assets from the nonprofit entity for $40 billion, or any price in that range. As I discussed above, it’s inherently speculative to come to an appropriate valuation of those assets, given how uncertain the future of AI is. But if I were a court of law considering whether the nonprofit board fulfilled their fiduciary duty, I’d find it hard to believe that the appropriate valuation of those assets was $40 billion when someone else offered to pay nearly $100 billion for them.

It's a classic "checkmate" move. If OpenAI accepts the bid, Musk either gets control of his rival or forces them to acknowledge a far higher valuation, significantly complicating their fundraising efforts.

If OpenAI rejects the bid, they must justify why a significantly lower valuation is in the best interests of the nonprofit's mission, opening themselves up to potential legal challenges and scrutiny from regulators. Musk's lawyers have already urged the attorneys-general of California and Delaware to scrutinize the deal, threatening a bidding war if the nonprofit doesn't receive fair market value.

Musk's motivations are, of course, multifaceted. He's a co-founder of OpenAI who left the organization and has since become a vocal critic of its direction, particularly its shift away from its original nonprofit, open-source ideals. He also owns a competing AI company, xAI, and slowing down OpenAI is clearly in his interest. As Sam Altman, OpenAI’s CEO, put it, when talking about Musk:

I think he’s just trying to slow us down. I feel for the guy. I don’t think he’s a happy person.

Regardless of Musk’s motives, the fact remains that his offer has highlighted fundamental tensions in OpenAI’s structure. The company’s stated objective of pursuing safe AGI that benefits humanity sits uneasily with the enormous pressure to deliver financial returns to its investors. Whether Musk is a troll, a white knight, or something in between, his $97 billion bid has forced a critical conversation on Altman's dual roles as both a board member of the selling nonprofit and CEO of the purchasing for-profit entity.

AI & Robotics

Meta Ventures into AI-Driven Humanoid Robots

Meta is diving into the world of robotics, establishing a new division within its Reality Labs unit focused on developing AI-powered humanoid robots, according to an internal memo viewed by Reuters. The initiative aims to leverage Meta’s Llama AI platform to create robots capable of assisting with physical tasks. This move places Meta alongside competitors like Nvidia and Tesla in the burgeoning field of humanoid robotics.

CTO Andrew Bosworth emphasized the strategic value of this investment, stating it will enhance Meta AI and its mixed and augmented reality programs. The division will be led by Marc Whitten, former CEO of Cruise. Meta also hired John Koryl as VP of retail. While major tech companies pour billions into developing AI-powered devices, progress has been slow due to the fact that language-related AI has not necessarily helped with understanding of the physical world.

Meta's approach involves developing both the robot hardware (initially for household chores) and the AI/software to power robots manufactured by other companies. Reuters reports that the company has begun preliminary discussions with robotics firms.

Quick Hits

• Dell-xAI Server Deal: Dell is nearing a $5 billion deal to supply AI servers to Elon Musk's xAI. The servers are reported to use Nvidia chips.
• xAI Eyes Major Funding: Elon Musk's AI company, xAI, is reportedly in talks to raise $10 billion.
• Apple-Alibaba AI Partnership: Alibaba confirmed a partnership with Apple to integrate AI features into iPhones in China.
• TikTok Returns to App Stores: TikTok returned to Apple and Google app stores in the U.S. after a temporary removal and a delayed ban.
• AI Chip Startup Funding: Positron, an AI chip startup has secured $23.5 million.