OpenAI's Break from Microsoft: A Game-Changer

Opening I just stripped Microsoft's exclusive license and they uncapped their enterprise business and Microsoft's stock is paying for a head of Wednesday's earning call.

But before that, the AlphaGo guy raised $1.1 billion to skip LLMs entirely.

Elon Musk and Sam Altman have both walked into a courtroom in Oakland together and a German robotic startup has convinced BMW and PepsiCo that robots should think before they act.

All right, first up, we have a Suttgart-based startup called Secre Act. They just raised $110 million in a series B Round of Funding to build robots that simulate the consequences of their actions before they actually move.

This whole round was led by headline and they also had some participation from Bullhound, Daphne, they had Felix Kapital, and then I think a bunch of their existing backers like Air Street and Cretum.

They announced Sunday and the money funds to things in particular.

Number one, they're opening a Boston office and they're scaling their Cortex 2.0, which they're calling kind of their robot brain.

This is what's interesting specifically about Cortex 2.0.

It bolts a world model onto a vision language action stack.

So basically all of the robots that we have today, the AI can just see things and then it picks.

Cortex 2 is going to think first before it sees and makes an action.

It runs possible actions through a learning model of physics and object behavior.

So, you know, it's like looking at a stack of books and it's like if I move forward too fast and bump that over, this is what's going to happen.

If I move my arm to grab this book, this is what's going to happen.

So it's like predicting what its actions will, you know, what course, what things will happen, the physics that will happen after it makes a certain movement,

which is really interesting in safety and in, you know, making sure that stock inside of warehouses isn't getting destroyed by robots.

They're really understanding the implications of their actions, which is very interesting.

And in addition to this, when it is looking and deciding what to do, it's going to pick basically the action that is most likely to work and then it's going to update in real time as the scene changes, right?

Because in warehouse, when robots sitting there looking at, you know, a stack of products to go grab and move or when it's looking at, you know, a car in a repair shop, it's not looking at a picture.

It's looking at a moving image. Things are constantly moving.

The CEO is rad guild and he was talking about this. He said, quote, we bet early that you can't build real robotics AI in a lab.

You build it with a data flywheel fed by real deployments, shipping into production, living with the failures.

So they've already done over a billion real production picks and they have a bunch of incredible customers.

They have a BMW, Daimler truck and also PepsiCo.

This is the same world model thesis, basically that Jeff Bezos's stealth AI lab is reportedly chasing. They have a $10 billion round Bloomberg just flagged it last week.

I think we covered it already.

Anyways, robotics in 2026 is getting to be one of these really interesting areas and these world models.

I think they're going to be a huge part of that and just like as a one interesting thing because we've been talking about these world models for a while.

And I think a lot of people don't understand them.

But we have video companies like Runway that has allegedly been working on a world model.

We have a ton of the kind of like the top people that there's a bunch of big people that left like open AI and a thoroughfricate other places over the years to work on these world models.

And we don't hear about them a lot.

So I'm really excited about this. We're starting to see the application and I think as robotics gets bigger,

these world models are going to come out of the woodwork and we're going to realize, oh my gosh, whatever they've been working on for the last, you know,

five years is incredibly important and applicable to what we need for humanoid and other robots today.

Okay, another story is that David Silver.

This is the guy who built AlphaGo Alpha0 and AlphaStar at DeepMind.

He just announced a record $1.1 billion seed round for his new startup, which is called ineffable intelligence.

The valuation on this is $5.1 billion.

It is the largest seed round in European history.

It was co led by Sequoia and light speed in video DST index, Google and the UK sovereign AI fund.

All of them were writing checks into this.

So this is a massive round.

Obviously he's an absolute legend in the industry.

Bloomberg's reporter Will Mathis had the deal terms first was kind of reporting on this.

And essentially he says that the pitch is in the company's name.

The CEO Silver thinks that the most important part of intelligence is what he's calling ineffable,

meaning you literally can't capture them in language.

So LLMs, which are kind of next token prediction models, right?

These are instead of, you know, human text or something.

He's saying that those are going to hit a ceiling and his bet is a different path entirely.

He's betting on massive scale reinforcement learning agents that learn from their own experience,

world models and what he and Rich Sutton wrote up last year as the quote, era of experience.

Now, this is really interesting because it's kind of a different direction altogether from Anthropic and Open AI right now.

And I mean, you just heard earlier I was talking about a lot of these world models and the importance of them.

So this is kind of, it's interesting that we feel like in order to perhaps get to AGI or to get to the next level of AI,

we're going to have to move away from LLMs and possibly move into world models.

Now, this is a theory or working with it.

I mean, we can see a ton of potential in this theory.

So I actually have a lot of confidence in this.

But, you know, to this point, Anthropic, Open AI, these are the models that have scaled the most.

They have the most users and they're kind of at the forefront.

But I wouldn't be surprised if these world models start kind of competing.

If I'm being honest, I have some skin in this debate because when you actually build production apps on top of these models,

the limits of just kind of pure language pre-training shows up pretty fast.

Pat Grady, he works over at Sequoia and he put it in their, he put a quote in their blog recently that I was like,

oh man, that it's pretty pointed at this exact point.

He says, language is a beautiful compression of the world.

It is not the world.

And I think that's pretty accurate.

So if silver, the CEO of ineffable intelligence is right, then the next decade of AI tools looks nothing like the last three years.

But if he's wrong, then somebody just a little billion dollars on fire.

In my opinion, the investors who are putting money into this are not the kind that lose those bets often.

So I think this is going to be exciting to watch.

Okay, Elon Musk versus Sam Altman.

This is finally going to trial.

We've heard the drama and seen the tweets back and forth for like, I don't know.

It feels like forever over a year, right?

The jury selection started this morning at the Oakland Federal Courthouse.

Judge Yvonne Gonzales Roger was presiding.

The open arguments are happening tomorrow.

NPR's Bobby Allen has a preview on this basically if you want the full timeline.

But the trial is scheduled to run four weeks.

And the witness list, I mean, this is just pure Silicon Valley tech drama.

But we have Elon Musk, Sam Altman, Greg Brockman, we have Satya Nadella.

All of them are expected to take this stand.

And the case has been narrowed very dramatically.

Originally, there was about 26 claims that Musk filed in 2024.

So yeah, geez, this has been like two years.

Only two of those claims have survived unjust enrichment and breach of charitable trust.

The arguments basically are going to boil down to this.

Elon Musk donated tens of millions of dollars to open AI when it was a nonprofit.

And then Sam Altman, according to him, defrauded him by converting it into a for profit now valued near a trillion dollars.

If you're a knowledge worker watching AI policy, I think this matters way beyond kind of this personal feud that we've seen play out.

Judge Gonzales Rogers could effectively pause opening eyes for profit conversion or rewrite the rules for how nonprofit AI labs become commercial entities,

which I think like there's a lot of cascading impacts that could happen onto anthropic and I think onto the next kind of gen of these AI models.

Over on X, Cara Swisher called it quote, the case that determines whether AI's foundational nonprofit promise means anything.

I think that's kind of accurate.

If you watch the Nadella testimony in particular, I think that's where the actual partnership facts are going to come out under oath.

And it is going to be especially spicy given what Microsoft and OpenAI just announced today.

So this is wild, but let's talk about what Microsoft and OpenAI just announced today.

OpenAI and Microsoft announced a fundamental rewrite of the partnership that has powered most of the consumer AI revolution.

Microsoft loses its exclusive license to OpenAI's models and OpenAI is now free to sell its products on AWS Google Cloud and basically anywhere it wants.

So Microsoft was kind of holding this back for quite a while here and I think OpenAI hated this because you saw anthropic get massive adoption with enterprise.

Microsoft is going to stop paying revenue share to OpenAI and OpenAI's revenue share Microsoft is now capped before it was uncapped.

So running through 2030 CNBC's Hayden field was reporting on this and Bloomberg the financial times information everyone was basically writing stories about this has been pretty wild widely reported on Microsoft stock dropped about 5% before pairing to around 2%.

Amazon was up 1% on this exact same headline.

I think before we get into what this actually means and why I think I think the bullcase is being floated.

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There is a link in the description. Okay, let's talk about what's going on with OpenAI and Microsoft because OpenAI just stripped Microsoft's exclusive license.

And I think that there is a lot happening downstream of that decision.

Structurally what actually changed is that Microsoft is going to remain OpenAI's primary cloud partner as you're still gets first launch on new products.

Kind of in theory, but the exclusivity is gone. OpenAI can serve any product on any cloud and Microsoft is no longer going to pay a revenue share back to OpenAI on resold products.

So OpenAI's revenue share to Microsoft is still 20% but it's now capped and the cap runs through 2030.

So Microsoft keeps the IP license through 2032, but it is non-exclusive. And Microsoft keeps its 27% equity stake.

It's currently valued at around $135 billion according to Bloomberg.

The market read on this though is actually kind of bad for Microsoft. So web bushes, Dan Ives, who is normally kind of a permanent bowl on everything Microsoft.

He actually flipped the framing in his note this morning. He said that the deal quote puts OpenAI in a strong path forward to going public.

And he also said that it is a positive moment for Microsoft because it lets them quote, develop tech independence from OpenAI.

They also can do things like partner with Anthropic and you know for copial or something like that. So Ives is basically reading into it as both companies winning.

But if you look at something like the Kobeshi letter on X, they just posted a stock down chart with the line. They said the AI revolution's most important couple is officially open marriage.

I think both of these are going kind of viral. Both of these different takes, right? Like, oh, it's good for everyone or maybe this isn't the greatest thing.

I think the second order angles are where it gets really interesting and where I think the surface coverage is kind of missing the story.

First, this lands two days before Microsoft reports their Q3 fiscal earnings. And also, as yours growth has been guided 37 to 38% in kind of constant currency.

And that is decelerating from 40 the prior year. And Microsoft has been blaming, you know, like the GPU supply by God, man, we can't grow as much as we want.

There's this kind of GPU supply problem. If Wednesday is called now, you know, has to also explain how losing exclusive OpenAI distribution affects forward a zero demand.

That is a much harder story to spin. And second, I think this is kind of the formal end of the standoff that leaked in the OpenAI internal memo on April 13th.

Where OpenAI's revenue chief Dennis Dresser basically told all of the staff that the Microsoft partnership had, quote, limited our ability to reach enterprise customers.

And I think that demand for the Amazon bedrock offering was, quote, frankly staggering. So today's announcement is essentially OpenAI legalizing what they were already doing.

And I think the third part of this is that this also kicks the can on the FTC's review of the original OpenAI Microsoft structure. A non-exclusive license is a much harder antitrust target.

And I think that timing is not a coincidence. Microsoft and OpenAI both said today they wanted to, quote, simplify the partnership, which I'm pretty sure is just like corporate speak for, you know, let's give the regulators less surface area to pull on.

So they're like, we're getting scrutinized. Let's change the arrangement. And then, you know, by the time the government, which is insanely slow on anything gets around to it, it's, you know, more, a little more kosher.

So now if you want the bullcase for Microsoft on this, it's kind of the opposite of my opinion. But if you want it, I think what you, what you could say is that Microsoft didn't actually lose that much. You know, they kept the 20% equity stake. They kept the IP license.

You know, they kind of got off the hook for paying a revenue share. They didn't really want to pay anyways. And they freed themselves to ship anthropics clause inside of co-pilot, which they are reportedly already piloting.

So that's kind of the bullcase on why it's not really that big of a deal. But even with all of that, I still think Microsoft is the big loser today.

The exclusive sale channels was, you know, Microsoft's actual moat equity and open AI is awesome. But it doesn't really protect Azure's enterprise pipeline. And the entire reason that Azure out grew AWS over the last two years was the opening eye lock in so many companies were forced to move over to Azure if they wanted to get the latest and greatest from opening eye because that was the only place it was going AWS now gets to compete on price and surface area with the exact same model.

And the opening eye memo from two weeks ago basically tells you exactly what demand looks like it is staggering. So in opening eyes own words, I think we're going to see some really big movement over on AWS Brad Gershner at Altimer has been basically pounding the drum that open a eyes on a path to $100 billion in revenue inside of a couple years.

If he's even half right then the company that just lost exclusive distribution Microsoft to that revenue stream. That's a pretty big hit. So the last piece is that this is the partnership restructure on the same day that Sam Altman Elon Musk and Satya Nadella are all walking into the Oakland courtroom for a four week trial.

And if you're trying to kind of read the future of AI as a business, I think today is one of the cleanest possible signals that the consolidated kind of opening eye Microsoft era is over these.

I think we're going to see a lot more competition and deals play out across all of the different cloud providers, the different model providers, all of the different vendors. And I think overall this is good for capitalism. It's good for the market. It's good for consumers. So I'm happy with this. All right. That's the show for today. If you got something out of it, it would mean the world to me.

If you dropped a comment on Apple podcasts or if you hit the stars over on Spotify, it's the about tab where you can kind of drop some stars on Spotify.

Anyways, thank you so much for tuning in. If you want to get access to over 80 AI models and an automation builder that runs on plain English for 899 a month, go check out my startup AI box dot AI. A link is in the description. I'll catch you guys all in the next episode.