Musk’s Lost OpenAI Lawsuit Highlights xAI’s Challenges

(SeaPRwire) –   On Monday, a jury in Oakland took less than two hours to reach a unanimous verdict dismissing Elon Musk’s lawsuit against Sam Altman and OpenAI. Throughout the trial, Musk had described it as the good fight to prevent Altman from “stealing” OpenAI, which was established as a nonprofit organization. However, others viewed it as a more calculated move. “It’s too late now to gin up something to harm a competitor,” said OpenAI’s lead lawyer, William Savitt, during his opening arguments.

In 2015, Musk co-founded OpenAI with Altman and others, motivated by concerns that powerful future AI systems would be developed by Google and controlled by other billionaires. He launched xAI in 2023 following a dispute over control of OpenAI.

Musk had sought from the court to reverse OpenAI’s transition to a for-profit entity, which the company completed late last year, and to return approximately $150 billion to the nonprofit. Such a decision would have been “catastrophic” for OpenAI, according to Charlie Bullock, a senior research fellow at LawAI, and would have “sent shockwaves through the global economy.”

The jury’s ruling that Musk waited too long to file the lawsuit—beyond the three-year statute of limitations—is only the latest setback for Musk and xAI. Rather than bolstering xAI’s standing in the industry, the trial largely highlighted its various shortcomings. In February, Musk’s SpaceX acquired xAI, with the AI company reportedly valued at around $250 billion—far below OpenAI’s most recent valuation of $852 billion. More than 50 employees subsequently left for competitors such as Meta and Thinking Machines Lab. Downloads of Grok, the company’s flagship chatbot, have declined by 60% since January. And fewer than 1% of Grok users had a paid subscription, compared to roughly 6% of ChatGPT users who say they pay for the upgraded product. “xAI is currently falling behind in the AI race,” Peter Wildeford, head of policy at the AI Policy Network, told TIME.

Musk’s sworn testimony on April 30 delivered another blow to his AI company’s credibility. The xAI CEO appeared to admit on the stand that xAI “partly” trains its models using outputs from OpenAI’s models and suggested that “all the AI companies” do the same by training on competing models’ outputs. While Chinese AI firms, which lag behind frontier AI companies’ models by about eight months, have faced accusations of this practice, there is no evidence that other Western frontier AI labs engage in it. Grok trails OpenAI’s latest model, GPT-5.5, by roughly five months, based on data from Epoch AI, an AI research institute. It would be “pretty surprising” if OpenAI, Anthropic, or Google DeepMind were training on competing models’ outputs, Wildeford noted.

Outside the courtroom, xAI was taking steps that further weakened its position in AI model development. On May 6, xAI announced that Anthropic would assume full responsibility for all compute capacity at Colossus 1, a facility xAI had already abandoned in favor of its newer Colossus 2 data center. Musk had previously referred to Anthropic as “woke” and “evil,” but reversed his stance after the deal was revealed. “Everyone I met [at Anthropic] was highly competent and cared greatly about doing the right thing. No one triggered my evil detector,” he wrote on X.

The fact that xAI is leasing out its computing resources to another AI company signals insufficient demand for its models and indicates that the firm “doesn’t know exactly what to do with those data centers,” Nathan Calvin, general counsel at Encode AI, an AI advocacy group, explained. “That’s clearly not good for xAI.”

If xAI falls behind in the race to develop advanced AI models, Musk could still benefit from the AI boom by supplying computing power to other AI companies. Colossus 1 was constructed in just 122 days, showcasing xAI’s capability in building large-scale infrastructure. Anthropic has “expressed interest” in renting orbital computing capacity from SpaceX.

SpaceX, now including its new AI division, is reportedly preparing for an IPO on June 12, potentially valuing the company at $1.75 trillion. But shifting focus away from developing AI models themselves would represent yet another blow to Musk—both financially and personally.