OpenAI Drops Exclusivity Deal with Microsoft

22:01Ed Ludlow:And that's why I love having you on the program. I just outlined the story. Two of the biggest companies in this country and in the world cutting levels that we've not seen, but spending a lot. Is that the trade-off that companies are managing right now? We're seeing this across the board. It's a trend in tech ed, and it is really important right now that we look at people and their performance and not just what they're doing with tokens or what they're doing with AI. It's very interesting right now how you see leaders that are investing in severance and not necessarily the skills. It's a transformation in tech, and we need to have leaders with the courage to take people from here to there.

22:41Ed Ludlow:You know, job cuts and roles being eliminated is not pleasant, right? You know, and if anyone from Meta or Microsoft is watching, you know, reach out, tell us what your experience has been. But what you said on performance is so interesting. So what the managers are measuring this in revenue per employee or output per employee to make that decision? You see a lot. You see revenue per employee. You also see token maxing as a trend right now. In this day and age, yeah. Yes, right? But ask yourselves, would you look at the person at your company that sends the most email as the most productive? It's a new thing that we can use to measure.

23:16It's not necessarily the correlation to performance. And what we need to do is help people get from where we are today to where we're going to with AI.

23:26Ed Ludlow:You know, a lot of people would look at the overall size of a Microsoft or a Meta and say, you know, well, 10 ,000 roles or 8 ,000 roles is or isn't a lot to anyone's point of view. From the payroll perspective, does cutting that level really free up capital? Does it take the pressure off the finance teams? It doesn't really relieve the pressure, and it also deeply impacts culture. Whether it's one person or 1 ,000 people or 10 ,000, it is a human. And people care about what happens to other humans. So there's a real cost on the spreadsheet. There's also a real cultural cost to what it means to lay off people.

24:05Ed Ludlow:I always try and look deeper. What's the underlying story? I remember when you and I were talking kind of more immediately after the pandemic, the idea was to undo pandemic era exuberance and hiring. Now it's about the AI era, right, and freeing up for CapEx. But what those two things have in common is when you see waves of layoffs to that level, they're really experienced people in there. Sometimes they go and found companies of their own. Yeah, no, it's what we're seeing right now is a big transformation in tech. And it's not just for the companies. It's also for the people with the careers.

24:39They've spent years, decades even, working on refining their craft and what it means to be told to change overnight. It's like me telling you, be in Europe in an hour. Unless you know how to teleport, it's not possible. But you can get there in a day. And so everybody's looking right now, how do I transform? How do I evolve with AI? And it's something that's the responsibility of leaders and also people to take it into their selves to learn as well.

25:07Ed Ludlow:I also want to make the distinction, you know, Meta is doing cuts. Microsoft is doing what I used to call in the UK voluntary redundancies, but buyouts here in America. is there is there something to learn from that distinction or it's just a different means to the same end it's still an investment in severance and not in the skills in your people and that's the big difference and so the more that we can invest in how we train people how we get them from point a to point b the better that we will all be because it's a short-term gain on the spreadsheet but a long-term loss in the knowledge that you have in the workforce sarah franklin for Ladis.

25:44Ed Ludlow:It's great to have you back on Bloomberg Tech. And we are just at the start of what is a big week in earnings. Now, coming up, Elon Musk and Sam Altman will face off in an Oakland court this week in a battle that could determine the future of open AI. There's going to be a big one and we're going to look at it. Right now, this is a market that's being driven by news flow. It's kind of a situation where there have been so many headlines through the morning. Everyone needed a moment to make sense of it. I would linger for a second on the Philadelphia Semiconductor Index or SOX. We just talked about it with Tim Akuri from UBS.

26:19Ed Ludlow:On Friday, we ended the show by saying that that index was up for an 18th straight day, a record. We're giving some of that back. We're off by 2%. Also, what we used to say was our risk asset of choice, Bitcoin, at$76 ,600 per token. Also, I guess we're saying this is a risk-off environment. That's what the world looks like. We're only halfway through the program. It is halftime. And this is Bloomberg Tech.

26:54Ed Ludlow:Welcome back to Bloomberg Tech. Our top story, OpenAI has broken free from its exclusivity pact with Microsoft. Microsoft's down four tenths of a percent. When When this story broke two red headlines on the terminal, Microsoft fell 4 % and then it came back. Everyone's assessing what this means. But basically, OpenAI is free to distribute and sell its models with other cloud providers. And that is the reaction from Bloomberg Intelligence. A lot of focus on Amazon and AWS. Our colleague, Anurag Rana at BI, he kind of leads the coverage of hyperscalers, is saying that this amended partnership is going to be a net positive enterprise AI adoption, but more broadly for AWS, something he's been writing about all year.

27:37Ed Ludlow:And of course, OpenAI did that deal. Amazon jumped in the pre-market. It's now kind of given up some of the momentum. Let's head to another OpenAI story. One of the biggest feuds in tech heads to court today. Elon Musk claims OpenAI abandoned its founding mission as a nonprofit. He's suing the company, two of its co-founders, Sam Altman and Greg Brockman, and Microsoft. Musk is seeking up to$134 billion in damages that he says should go to open AI's charitable arm if he wins. Let's bring in Bloomberg's AI editor, Seth Figerman. We should note that there was a developing story at the end of last week when Musk actually dropped a number of the claims that he was making.

28:16Ed Ludlow:So let's start there. We go to court today. There's jury selection. What are the claims that Musk is sticking with? Yeah, I mean, this is a years-long saga that's really culminating in the court case. this week. And at the heart of it, Elon is alleging that Altman and other leaders at OpenAI effectively tried to enrich themselves by pursuing a for-profit push at OpenAI, which was originally founded by Musk, Altman, and a group of others as a non-profit research organization. And he's claiming that he has effectively been defrauded as part of that. And he is asking for up to$134 billion in damages, but in some ways even more crucially than the amount of money he's asking for are some of the remedies for that, which range from seeking to have Altman pushed out as CEO and his other official positions of the company, and also trying to unwind the for-profit conversion that was completed late last year.

29:12Ed Ludlow:We were just showing some of those that are due to testify. It's a pretty blockbuster list on who's who. Right. Sam Altman is going to testify, Elon Musk himself, Mira Moratti, formerly OpenAI CTO now of Thinking Machines, Microsoft CEO Satya Nadella. There is some historical beef here, which you should explain. The relationship between Musk and Altman plays out on social media. Musk, of course, is also the founder and leader of a rival frontier lab, XAI. That's right. Yeah. I mean, these were two close colleagues for a time who were instrumental in the founding of OpenAI more than a decade ago.

29:51Elon, in some ways, is very much the benefactor of the organization in its early days. Sam has previously said that he considers Elon Musk to be a hero of his. But there was a falling out within the first few years of the company's launch, seemingly in opening eyes telling of it because Elon Musk wanted more control. He wanted to operate as part of Tesla. He seemed to want to be CEO of the organization himself. Altman and others refrained from that and Musk ended up leaving OpenAI around 2018. Since then, there's been a lot of name-calling on both sides, with Musk in particular loving to call Sam Altman scam Altman.

30:33Among other things, Elon has also taken steps to try to undercut the organization, not just through launching a rival company, but making a hostile bid, as some might recall, to try to basically take over the nonprofit that controls OpenAI. this court case should be understood in that larger fight.

30:51Ed Ludlow:Bloomberg, Seth McGinn, thank you very much. Let's talk through the legal claims that the jury will be asked to weigh in more detail with Dorothy Lund, professor of law at Columbia Law School, where she specializes in corporate ownership, governance, securities regulation. Let's start with the legal claims in the case. I mean, technically speaking, what is it that Elon Musk is suing for? And based on what? And hoping to achieve what? Yeah, so at this point, there are only two claims that remain. A lot of others have been dropped or dismissed. And so the first is that Altman and OpenAI violated a promise to Musk that OpenAI would have a permanent charitable mission to develop safe, open-source AI technology for the public good and not private gain.

31:40And this was violated when, in 2019, OpenAI created a for-profit affiliate. So that's the first allegation. And the second is that, and it's related, is that Altman and OpenAI received undeserved benefits, such as Musk's investment, because of these broken promises.

32:02Ed Ludlow:Professor Lund, does it matter that this is a jury trial? You know, this is a jury trial, yes, but the jury in this case is only being used as an advisory to Judge Gonzalez Rogers. So she actually doesn't have to follow their opinion, although it will certainly give her some cover if she does. And so today, you know, we're starting jury selection and it's a really interesting process. And the law here doesn't require that jurors have never heard of Elon Musk or they've never used OpenAI. But instead, you know, the goal will be to find people that can put aside what they've heard, what they know about these people and to decide the case only on the evidence presented in court.

32:47But, you know, these are two very infamous figures, right? Musk and Altman. Musk has been aggressively moving companies to Texas and out of California, has been leaning hard into mega politics. Altman isn't as well known, but he's had some recent episodes suggesting he faces some real personality challenges as well. You know, the recent Molotov cocktail attack on his house. And, you know, I think in general, there's just growing unease and skepticism about whether AI is going to visit its dystopian future on all of us. Unemployment, data center, environmental effects, power consumption. So, you know, I think here it's going to be the jury's views may be colored on these specific views on each of these individuals and also AI generally.

33:35Ed Ludlow:Well, Mr. Altman is well known to regular viewers of this program. But just in case he's the CEO of OpenAI, which is regarded probably as the most consequential AI lab at this moment in time. But therein lies an interesting point. Elon Musk is also at the helm of XAI. which is now owned by SpaceX, a company of which he is CEO. Does that matter going into the case that he leads a rival company to the one that Sam Altman now leads? Absolutely. I mean, you know, it's very easy to view this suit cynically because Musk is operating his own rival AI company. And he's tried to partner with or take over OpenAI multiple times.

34:21he's been spurned. So I think absolutely there's a reason to be suspect about his motives here. And even the judge in this case has called this out, you know, in some pretrial motions. You can, in fact, see in his IPO letter for SpaceX that they disclose that Grok is going to benefit if this suit is successful. So I think at the end of the day, the judge and jury are going to have to determine whether Musk is disingenuously using this lawsuit to kneecap OpenAI and create more room for his own for-profit initiatives to thrive with less competition. And this is essentially what OpenAI is pointing to in this litigation.

35:05Ed Ludlow:Dorothy, we just have two minutes left here, but the central issue is the non-profit origin of OpenAI. And within the world of AI, of course, we have public benefit corporation structures as well. Is there a chance that this case sets precedent for the legal structure of companies that operate that way? Yeah. So, I mean, there's a lot to say about this structure. One of the arguments that Musk has made is that if we're not careful here, this is going to cause other nonprofits to follow the same path as open AI. They're going to make promises and then fall behind on them. And we're going to see other nonprofits kind of going this way.

35:52I think this is ultimately a weak argument. For one, open AI is not your typical startup, right? This is a very unique company and business. It's had a very unique sort of governance history. Each of its iterations has looked really different in interesting ways that we could spend far more than two minutes on. And, you know, the other thing I think is important to note in this conversation is that something that's true of corporate law is that it's enabling. It allows businesses to change their forms based on their unique business needs, right? And so, you know, over time, you know, the argument that OpenAI has made is that we started off as a nonprofit, but this is a really capital-intensive business.

36:34and we just needed more money in order to continue to pursue our mission and develop this technology. And this is why we made these changes. And this is all sort of consistent with our initial goals and the promises that were made up front. And so, again, I think that this is something you would expect from organizations, that they change their business form over time and you wouldn't necessarily want to deter that either.

37:03Ed Ludlow:dorothy lund professor at columbia law school again the open ai must trial jury selection starts today in oakland thank you very much now coming up we're going to speak with under secretary of state for economic affairs jacob hellberg about strengthening the u.s tech supply chain big focus on chips and silicon this is bloomberg tech we were the chip capital of the world and now, you know, Intel. And now they're coming back. All the chip companies are coming back.

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39:10Ed Ludlow:Let's get back to one of our top stories today. China has blocked Meta's$2 billion acquisition of AI startup Manus, effectively unwinding a deal that we thought was done. It's a clear move by Beijing to keep advanced AI technology from flowing to the US just weeks before the expected Trump-Xi meeting. Joining us on the show today, Under Secretary of State for Economic Affairs Jacob Helberg, who's been shaping the US strategy on exactly this kind of thing, economic and technology competition. This is about statecraft. We are going to talk a lot about silicon. That's been a big focus for you. But this move by China and one of its regulatory bodies to block this deal, how do you interpret that as a strategy and statecraft on China's side?

39:58Well, Ed, it's great to be here and great to be with the Bloomberg team. So I think this is just the latest example of how China's economic diplomacy branded itself to the rest of the world as being all about connectivity. And in fact, it's really been about coercion and practice. What we have done at the State Department is built an economic security coalition with 14 countries called Paxilica. In January, I gave a speech at Hudson that really laid out the blueprint. And last week, we announced a forward deployed industrial base with our partner or our oldest ally in Asia, the Philippines, which really is the beginning of the build.

40:37And we're incredibly excited to get to hit the ground running.

40:39Ed Ludlow:When we talk about China and from a policy standpoint, this program, we talk about Belt and Road, the initiative. How is Paxilica different? Why is the strategy through Paxilica a better form of statecraft? Yeah, so we are obviously building this effort with the benefit of having been able to study what China's done through the Belt and Road Initiative for the past 25 years. And the easiest way to understand the Belt and Road Initiative is it was China's attempt to build government-owned roads and government-operated bridges and railways with state-owned enterprises. The Chinese government has done this entirely in-house.

41:16We have a totally different model. We believe America's superpower is the power of its private companies. and its ability to build products that delight and enchant billions of users around the world. And so we decided to partner with the private sector to really roll out platforms. The Forward Deployed Industrial Base is our first major rollout that will be a platform for American companies in partnership with a strong, sovereign partner in the Philippines. and ultimately the framework that we adopted is a framework where both the U.S. and the Philippines have skin in the game and share in the upside of success.

41:55And it's that kind of positive sum approach that we hope to bring to all of our partnerships.

42:00Ed Ludlow:Let's discuss the Philippines a little bit more as a case study. Beyond its geographic position on the map, why is that an important partner? I guess if you looked at it through an economic lens or through a trade lens or a supply chain lens? Well, we're very excited to partner with the Philippines because it's our oldest ally in Asia. It is a defense treaty ally. It's also a country that has very rich manufacturing capabilities. And so ultimately, that kind of... This is the potential, the forward-looking bit. The forward-looking bit, but they already today have a very deep manufacturing sector.

42:37And so the values alignment combined with the complementary industrial capabilities we thought provide the Philippines with a very compelling value proposition as a first test bed for the forward deployed industrial base, as well as for American companies and for Filipino workers. So we're thrilled to be partnering with them. And we think American companies will be very excited to go there.

43:01Ed Ludlow:Under Secretary, this is the first opportunity we've had to speak, I think since CES in January, actually. But of course, in between, we've had the conflict in Iran, the war in Iran. And we spent a lot of time on this program talking about the impact to chip supply chains because of helium, for example, key stabilizer in the chip manufacturing process. Has that had an impact in the work that you were doing? You know, some of those golf partners are key to what you're trying to do. Well, let me just say that we obviously have made a very conscious decision to really double down on our partnerships with the Gulf.

43:38We work with them incredibly closely. I hosted the US-UAE AI Working Group in Washington with my colleagues from the Office of Science and Technology at the White House, as well as the Commerce Department. Ultimately, one of the big takeaways from an economic diplomacy standpoint of the Iran crisis is really just the importance of de-risking single points of failure. Right now, we have a concentration risk across our supply chains, whether it's logistics, whether it's actuators, whether it's rare earth magnets, that remains unacceptably high. And ultimately, that really is the genesis of what Paxilica is meant to address.

44:19Ed Ludlow:When the president meets with Xi Jinping, what's on the table as a point of negotiation or interest to those sides may well change. We spent a lot of time with you and other colleagues in government talking about the idea of whether China should or should not have access to leading edge chips. But there's a software component to this as well. If we take the Manus case study, do you expect the president to bring that up and use the competence of Chinese AI companies on the software side as a point of discussion, or are we just focused on chips? I expect the president to really walk into that room with maximum leverage and decision space.

45:04His national security strategy made abundantly clear that America will secure the inputs it vitally needs for its supply chains. And ultimately, President Trump has reshaped American economic diplomacy the way only an executive could. And it is really thanks to his leadership that this historic arrangement and partnership with the Philippines was made possible.

45:29Ed Ludlow:Jacob Helberg, U.S. Undersecretary of State for Economic Affairs, back on Bloomberg Tech in what has been an astonishing start to 2026. Now, coming up, it's a$16 trillion test for the tech market this week. Those are the names at the heart of it. This is Bloomberg Tech.

45:55Ed Ludlow:It's time for Talking Tech. First up, Meta is reaching for the stars to fuel its AI ambitions. The tech giant reserved up to one gigawatt of power from startup Overview Energy, which plans to beam solar rays from orbit back to Earth. Meta said it hopes to secure uninterrupted energy for its massive data centers by 2030. Plus, a former Tokyo electron engineer has been sentenced to 10 years in jail for stealing TSMC's proprietary data. Taiwan is on high alert for technology leaks. The hefty prison term for the former engineer reflects the government's efforts to guard its world-class semiconductor industry.

46:33Ed Ludlow:Former deep mine researcher and AlphaGo mastermind David Silver has raised$1.1 billion for his new startup Ineffable Intelligence at a$5.1 billion valuation with backing from Sequoia, Nvidia, and Google, silver's moving beyond large language models to focus on reinforcement learning and robotics. Okay, it's a$16 trillion test for the market rally. With the Magnificent Seven projected to grow profits by 19%, the stakes could not be higher. Bloomberg's Karin Reineke joins us to break down. It is a make or break week for the S &P 500, the Mag 7. We can frame it in any aggregate you like, but we have big earnings Wednesday.

47:15Ed Ludlow:We have big earnings Thursday. say, what are you watching for? Yeah, it's really going to be a flurry of excitement, especially Wednesday after the bell. We get four of the biggest hyperscalers reporting. That's Alphabet, Microsoft, Amazon and Meta Platforms. These companies are the biggest in the S &P 500. They've helped drive a lot of this rally that's gone back to record highs that we've seen in April. And so these earnings are so important for the entire market. And really what investors are going to be looking for is this balance between high capital expenditures on artificial intelligence infrastructure going forward and the return on that investment.

47:51So the group that we're getting this week, they're expected to spend more than$640 billion in 2026 on capital expenditures. That's up from more than$400 billion this year. So this is a huge jump in the amount of money these companies are spending and investors are going to be watching for what the return on that investment is.

48:11Ed Ludlow:We've become accustomed to watching the capital expenditures numbers. It's been several quarters now. But if we put that to one side, what else is it that investors are looking for? I guess across the forum Wednesday. Yeah. So there are a few line items that are going to be really important. One is cash flow, free cash flow. And there are some interesting facts to kind of dive into here. So for Amazon, for example, free cash flow is expected to be negative this quarter and potentially the widest since 2022, when what was happening then is that the company was investing a lot in warehouses to meet sort of demand that had been fueled by the pandemic.

48:48So that's something investors are going to be watching really closely. Meta's first quarter free cash flow is also expected to be the smallest in nearly four years. And then on the flip side with some of the other companies, including Amazon and Alphabet, that cloud sales, so how those cloud businesses are doing, is going to be extremely important. Investors really want to see growth here. It's proof for the AI trend going forward.

49:14Ed Ludlow:We didn't get to Apple, but that's on Thursday. So I'm giving us a breather. We can do it later in the week. But that was a great summary of what's to come. Carmen Reinecke, thank you. And that does it for this edition of Bloomberg Tech. So many news headlines that were driving tech markets this morning. Recap on the podcast. You know where to find it on the Bloomberg terminal, as well as online on Apple, Spotify, and iHeart. This is Bloomberg. If you follow markets, you know the value of long-term thinking. You plan, you diversify, you prepare for volatility. But even the best strategies can't prevent every bad day.

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