Musk vs. Altman: Analyzing Day 3

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Elon Musk and Sam Altman are both in federal court

in Oakland for day three of the $130 billion trial

that could force opening AI back into non-profit status,

and also remove Sam Altman from the board.

Before that,

Stanford's 2026 AI index says transparent

to see on frontier models just collapsed

from 58 to 40 out of 100.

Runway CEO is positioning the company behind AI video

into world models at a $5.3 billion valuation,

X Twitter CEO, Prague, Argoal,

just tripled his agent infrastructure startups valuation

to $2 billion in five months,

and the White House is drafting an executive action

to quietly walk back its anthropic ban.

We're gonna get into all of that on the podcast today.

The first one I wanted to cover was the Stanford story.

So Stanford HAI just dropped its 2026 AI index,

and we're seeing something very interesting in the report.

One of the things that the foundation model

transparency intra index is tracking or showed

was that the average score dropped

from 58 to 40 out of 100 in the last year

for how transparent these AI model companies are.

The direct quote from the report is quote,

the most capable models are now the least transparent.

So we're talking about Google, Anthropic, Open AI.

All of them have stopped disclosing their data set sizes,

and also they stopped saying how long

their training duration was on the last models.

So we basically have China right now

that is narrowing the US capability.

They're at, you know, they're like 2.7% behind.

We also have generative AI hitting 53% in US adoption.

That's faster than the PC, you know, or the internet.

And at the same time, we have all of the labs

at the top publishing less than they did a year ago.

Stanford's Russell Wald said on X,

capability is going up and the ability to understand

the systems is going down at the same rate.

So if you're an enterprise buyer,

this is something I think that is fascinating.

When your procurement team asks for, you know,

model card data, the answer is increasingly going to be,

we just don't share that anymore.

And I think this is a very interesting new move.

Next up, we have the runway of CEO,

Cristobal Venzuela, who went on a podcast recently

with Rebecca Bayland, I believe it was the TechCrunch

Equity podcast, and basically said what a lot of people

have been, in fact, I think I said this

a couple days on my show, but basically,

the CEO of Runway, the biggest video AI company,

said that AI video is basically a feature

on a much bigger project or product.

And the bigger product is these world models.

So being able to, cause in order to make this AI generated

video, you have to basically have these physics models

to understand everything going on in the world,

using tools like blender, et cetera.

And, or, you know, that's one way

some people have done it in the past.

But this is a much bigger thing than just, you know,

the AI generated video would appear.

You have to actually understand so much

and that, that data set and kind of that model

being able to create these world models

is what they're calling, is incredibly valuable

for robotics.

So Runway right now is sitting at a $5.3 billion

valuation.

They have $860 million raised to date.

And I mean, if you line them up against

Sora and Vio in the video generation tier,

I think it's interesting.

The argument that they're making right now

is that the real product surface isn't just like

the videos that are generated.

It's kind of this non-linear media.

That's what they're calling it right now,

which is basically real time generated content

that responds to a viewer or player

instead of playing back a fixed sequence.

So I think the line that really stood out to me

is the, what they said, they said, quote,

the real constraint on filmmaking

has never been technology.

And what I think they're really getting at there

is that, you know, better tools alone

aren't going to unlock new creative categories.

If you just give any random person AI-generative video tools

aren't going to be able to go and make a blockbuster movie

per se, I mean, maybe there's some diamonds

and the rough hidden there, right?

But typically, the people that are making incredible filmmaking

are great storytellers.

The people that have been working in this

that have been honing their art.

And while some random people might have that hidden skill set

in them, it reminds me of at the Olympics,

when you had the random dude from Turkey

that went and he did the shooting Olympics

and he crushed it and, you know, he just kind of picked it up

on the side, maybe there's some people like that

with filmmaking out there, right?

But I think this isn't something that's incredibly common.

So there's definitely a huge human element to it.

And I think we talk about that a lot.

But the element we don't talk about a lot

is behind the technology, not just the plain video generation

model, but the actual physics behind all of it.

So this is something that Jan LeKun

is making with his new world model labs.

It's the same bet that FIFA Lee's world labs is making.

And the same one that opening eye just signaled by,

essentially when everyone's like,

oh my gosh, they're shutting down Sora.

The big story they didn't talk about

is that the Sora team's resources

are getting put into long-term world simulation research.

So if you're building anything in games,

robotics, interactive media, this is the thesis

that I think all of the smart companies,

all of the smart money is converging on right now.

Yes, like these AI-generated video models are kind of cool.

But the implications of them are much bigger

than just being able to generate clips for filmmakers.

These world models are going to go into robots

and the robots are an absolutely insane disruption

on every industry in the world.

OK, the next thing we want to talk about

is parallel web systems.

This is the agent infrastructure startup

that was founded by Parag Aguil.

It was the guy who was Twitter CEO and Elon Musk fired him

in October 2022.

He just closed a $100 million series

B at a $2 billion valuation.

The series A was five months ago at a $740 million valuation.

So it's basically tripled in five months,

which I think on its own tells you

what is happening at the agent infrastructure layer right now.

Sequoia led this round, one of the top VC firms,

Kleina Perkins, Index, Coach Leff first round, Spark,

terrain capital, all of them are in this.

The company right now runs web search

and also research APIs purposefully built for AI agents.

So basically the layer between the model and the live internet

and our goal says that they have over 100,000 developers

on their platform right now with Clay and Harvey

on the kind of the list of customers that they have named.

The reason why this round I think actually matters,

even though basically every infrastructure startup right now

is raising a lot of money is because agent traffic

is fundamentally different than human traffic.

Agents don't just browse, they hammer endpoints,

they batch reads, they need structured outputs.

So most search APIs were never actually designed for this.

And I think they've basically just built theirs

from scratch around this idea.

In andthropic news, which you know we love to cover,

over at Axios Marina Pitzowski has an interesting story

that the White House is drafting an executive action

to walk back the supply chain risk designation

on anthropic and clear federal agency access to Mythos.

That is anthropic cyber model.

I think this is a clear, you know, 180,

the defense secretary Pete Hegseth labeled anthropic

a supply chain risk in February,

Trump signed a directive ordering federal agencies

off of anthropic.

And now eight weeks later, the chief of staff Suzy Wiles

and the treasure secretaries got best net,

met with Dario Amadeo in what both of them are kind of

saying is like they're like, they all basically said,

this was a super productive meeting.

And now it feels like the administration is walking back

a lot of the, you know, the designations that we're given

and some of the beef that happened with anthropic

looks like it's water under the bridge

because we have bigger problems to solve.

So right now we know that the NSA is already using Mythos

under a separate exemption.

And the reason why they're kind of changing their mind

on this is definitely not like a shocker.

Mythos is the only frontier model

which is purpose built for offensive

and defensive cyber and the intel community

made the case internally that you can't run a cyber stack

without it.

Was this a giant 40 chess play by Dario Amadeo

to get anthropic, you know, used in the government again,

it seems like open AI was a little bit jealous

because they said like, hey, no, we have a cool cyber model

as well that's like too dangerous to release.

I'm not sure where we get with all of that.

But before we get into the next story

which is Elon Musk and Sam Altman's trial,

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Okay, the Sam Altman trial day three

just wrapped up today in the US district court

for the Northern District of California in Oakland.

Elon Musk is suing Sam Altman, Open AI

and Greg Brockman for $130 billion in damages

and he's asking the court to do two things.

Number one, force Open AI back into a nonprofit form

and number two, remove Sam Altman and Greg Brockman

from the board.

According to NBC's Rohan Goss Wami,

Elon Musk has been on the stand for two days now

and this whole thing is being like,

they're doing like a live blog of it.

But this is the second straight day

under cross examination by Open AI's lead attorney

which is William Savitt of Wechthel Lipton

who is kind of famously the guy that you hire

when you absolutely can't lose a corporate trial.

And basically the core fact pattern that we're seeing right now

is that Open AI was founded as a nonprofit in 2015

by Musk, Altman and Brockman, Ilia Suskiver

and a bunch of other people.

Elon Musk donated $38 million.

He basically left the board in 2018

after depending on whose story you believe on this.

He either kind of lost the power struggle inside

to make himself the CEO or he was kind of refusing

to bless the for-profit conversion.

But in 2019, the for-profit subsidy was created

and in 2023, Microsoft put in $10 billion.

Today, Open AI is reportedly worth somewhere around 500 billion.

Although if you look at the secondaries market,

it's trading like people are buying its shares

or selling stock options for $850 billion.

So I'm not sure where that 500 billion that CNBC is reporting on

but like people are paying close to a trillion dollars.

And by the way,

Anthropic is trading on the secondary market

for a trillion dollars, which is evaluation, which is crazy.

But either way, Elon Musk claims that the for-profit

conversation or conversion was a breach

of kind of the founding chart that they have

and that his donation got used

for unauthorized commercial purposes.

So I think the big movements from the cross-examiner,

Savit, he basically walked Elon Musk

through all of the internal exhibits

showing that Musk himself proposed a for-profit structure

in 2017 and 2018 with Musk holding a majority control

of the cap table in the board.

MPR's Bobby Allen flagged that as kind of

the most damaging exchange in this trial.

Elon's defense was that in that deal, you know,

he was eventually going to minimize his control

according to the cross-examination lawyer

that wasn't actually on the term sheet.

Something that, so that seems like kind of a loss for Elon,

what is interesting though,

Elon brought up the point that Microsoft was a bit

of a tipping point because the $10 billion donation was,

or investment was too large to be a traditional donation

and that Microsoft was clearly looking

for a financial return.

Savit, the, you know, over at OpenAI,

the counter-argument from him was to point out

that Elon Musk founded XAI eight months later

and that his lawsuit landed shortly after.

So OpenAI's narrative is basically what they're trying

to say is like, Elon Musk lost the for-profit fight,

so then he started a competitor

and now he's using the courts to try

and like stop his competitor.

Casey Newton over at platformer wrote this morning

that the case will turn less on the legal merit

and more on whether the jury believes Musk's harm

is real or strategic.

Sam, all men right now is expected to take the stand next week,

Brockman, Susquever, Miriam Maradi, and Satya Nadella

are all on the witness list,

which is gonna be just wild.

I think the strongest argument against my opinion

or my take that I've given here is basically

the corporate structure case, which is, you know,

I'm pretty important for an AI company.

It has to be able to do something like this

andthropic did the public benefit corporation.

OpenAI did the capped profit subsidy.

I think the simple reality is that you can't really

raise $50 billion as a nonprofit

and the original 501c3 charter was always going to be

revisited the moment that the compute bill became real.

So if you look at it from that standpoint,

then Elon's lawsuit is kind of like selectively enforcing

something that nobody in the industry,

including Elon Musk and XAI I might add,

actually believe anymore.

And I think that is a pretty fair point,

but why I still think the trial is pretty important

is more than what a lot of people are saying.

Basically, I think the legal question,

whether donations made under a nonprofit

can be retroactively used for for-profit subsidies

without donor consent, has a lot of implications

to go way beyond openAI, because if the jury sides

with Elon, then every AI lab that took foundation grants

or research donations under a charitable mission,

kind of has this new way that they have this legal exposure,

like they have more risks there.

And I think that's why anthropics lawyers are kind of

sitting in the gallery.

I think a lot of people are watching this case

because they want to see the precedent that comes out of it.

And I think that's not the way it's getting framed

in a lot of the news, but I think that's what's happening.

All right, that's the show for today.

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