Inside today’s Daily Journal…

Editor’s note: Porter turned over the Journal to Tech Frontiers editor Erez Kalir today so Erez could tell the story of the legal battle between Elon Musk and AI giant OpenAI… what he calls the “trial of the century”.

Here’s Erez… 

Behind every great fortune lies a great crime…

Later this month, in a sleepy federal courthouse in Oakland, California, a 12-person jury will decide whether Honoré de Balzac’s 19th-century maxim applies to one of the great fortunes underlying the artificial-intelligence (“AI”) boom.

The fortune in question belongs to OpenAI – the maker of the leading generative-AI platform ChatGPT – a company now reportedly seeking a staggering $850 billion valuation in a planned initial public offering (“IPO”).

Elon Musk – founder of Tesla (TSLA) and SpaceX, and one of OpenAI’s original founders – has asserted in a detailed lawsuit that the OpenAI fortune was built on fraud. And a widely respected federal judge overseeing the case has already ruled that Musk’s claims are credible enough to merit a trial.

What the jury will decide is not merely whether Elon Musk has a sound grievance. It’s whether OpenAI can continue to exist in its present form… and indeed whether the entire AI ecosystem surrounding OpenAI – an ecosystem that encompasses some of the largest, most powerful corporations on Earth, including Nvidia (NVDA), Microsoft (MSFT), Oracle (ORCL), and others – rests on a rotten, fraudulent foundation.

Let me explain.

OpenAI did not begin as a conventional Silicon Valley company.

It launched in 2015 as a non-profit – explicitly dedicated to developing artificial intelligence for the benefit of humanity, unconstrained by the pursuit of profit. That framing mattered. It attracted leading AI talent… proven technology builders… and it also attracted Elon Musk, who contributed tens of millions of dollars in seed capital and lent his credibility to the venture.

The idea was both idealistic and elegant: Build the most powerful technology the world has ever seen… but do so in a structure designed to prevent its capture by private interests.

Then, as OpenAI’s tech approached commercial viability, the structure changed.

First came a hybrid, “capped profit” model, a kind of halfway house between a non-profit and for-profit. Then came a web of affiliated entities. Then deep commercial ties with Microsoft. Then, in a short span, the non-profit became the launchpad for one of the most meteorically valuable private companies in history.

Musk’s claim is straightforward: He alleges that he deliberately backed a non-profit mission – one grounded in openness, safety, and public benefit – only to see that mission… and the valuable intellectual property that it spawned… get permuted into a for-profit enterprise without his consent.

You don’t have to like Elon Musk or approve of the carnival-show antics in some other parts of his life to recognize that this is not a trivial allegation.

And more importantly, the court has already said as much.

OpenAI, represented by some of the leading law firms in America, sought to have the case dismissed before trial. U.S. District Judge Yvonne Gonzalez Rogers – an experienced, respected jurist overseeing the case – declined OpenAI’s motion. In doing so, she determined that Musk’s claims – which include fraud, breach of fiduciary duty, and unjust enrichment – present genuine disputes of material fact that only a jury can resolve.

In plain English: Musk could win.

The headline damages number that Musk has sought – over $150 billion – is sizable enough to give anyone pause.

But the real danger for OpenAI isn’t whether it must pay damages. It’s how the court characterizes those damages, and what else the court might decide.

Here why: Musk is not simply asking for compensation. He is seeking what lawyers call “equitable remedies” – injunctions, governance changes, and, most importantly, disgorgement.

Disgorgement is an entirely different animal from ordinary damages. It doesn’t ask what the plaintiff lost, but instead what the defendant gained.

Here, if the jury finds that OpenAI’s transformation violated its original non-profit commitments, the question may well not be how much Musk’s original donations were worth, but instead how much of OpenAI’s current value was built on top of that alleged misconduct.

That’s why the numbers Musk’s complaint reference – over $150 billion – are not laughable.

And Musk has recently sharpened his point even further.

Just last week, his legal team amended his requested remedies so that any monetary recovery would go not to Musk personally, but to OpenAI’s charitable arm. At the same time, he reiterated his intention to seek post-trial equitable relief aimed at restoring the non-profit’s role and governance.

The shift in strategy is brilliant and profound.

In effect, Musk is saying to the court and the jury: I’m not in this for a payday. Don’t believe me? I’m prepared to pledge any recovery in a legally binding way to OpenAI’s original non-profit arm.

By stripping away any direct financial benefit he could gain from winning the suit, Musk reframes the story as something more fundamental: whether a charitable mission was warped by greed and used to build a private fortune.

That’s a question juries tend to take seriously.

But for OpenAI, the Musk trial also implicates something much deeper.

If the jury rules decisively against OpenAI – particularly if it finds fraud or orders meaningful equitable relief – it would not simply impose a potentially staggering financial cost.

It would also shatter trust in OpenAI’s integrity as a business and replace it with massive doubt. Doubt about governance. Doubt about ownership. Doubt about whether the company’s structure will survive intact.

This kind of doubt is toxic to capital formation… truly, it’s Kryptonite.

IPOs depend on belief, clarity, and confidence – belief in a company’s story, clarity about the company’s plans, and confidence that the business is durable.

An adverse jury verdict shatters all of these. At best, it materially delays an IPO… at worst, it forces a major restructuring.

But even that’s not the whole story.

OpenAI does not exist in isolation.

It sits at the center of a tightly coupled ecosystem – one that includes Microsoft, Nvidia, Oracle, as well as a vast network of investors who have collectively committed hundreds of billions of dollars to the AI buildout.

Microsoft, specifically, is deeply entangled with OpenAI’s fate.

The software giant’s exposure is not limited to its equity stake. OpenAI is one of the most important customers for Microsoft’s cloud service Azure. It’s a major driver of GPU demand, cloud usage, and the AI-related backlog Microsoft has highlighted to investors.

If OpenAI were materially impaired, Microsoft would not simply take an equity write-down, nor even simply lose revenue. Instead, the AI growth narrative that Microsoft has spun to justify hundreds of billions in sunk capex would itself come under withering scrutiny.

The risk for Microsoft is that an adverse verdict in the OpenAI case breaks the story.

A couple of weeks ago, writing about the Iran War and the petrodollar, I quoted Ernest Hemingway’s justifiably famous line – about the man who goes broke “gradually, then suddenly.”

I was writing at the time about the fate of the dollar… a topic to which I’ll return in another Daily Journal soon.

But the quote may apply equally powerfully to the market’s AI boom.

History is full of moments like this: When systems that have appeared stable are revealed to rest on interlocking assumptions – assumptions about trust, governance, and incentives that have really not been tested until they are tested all at once.

The AI boom today rests on such assumptions – that capital will continue to flow, that governance structures are sound, that the stories companies tell about themselves aren’t fraudulent.

In a few weeks, in a sleepy courtroom in Oakland, those assumptions will be put on trial.

If they crack, the consequences will reverberate far beyond OpenAI.

Tell us what you think: [email protected]

Erez Kalir
Berkeley, California

1. Google’s Gemini is coming to the Pentagon’s classified cloud. Alphabet (GOOGL) is reportedly in substantive talks with the Department of Defense (“DOD”) to deploy its Gemini AI platform in classified military environments. Google has proposed contract language barring the use of its AI for domestic mass surveillance and for autonomous weapons targeting without human oversight – terms that mirror those OpenAI secured earlier this year. The talks extend a relationship that already runs deep: Gemini has been accessible to 1.2 million DOD employees through the GenAI.mil portal since December, processing 40 million prompts, and Google rolled out eight pre-built Gemini agents across the Pentagon’s 3 million-strong workforce in March. With Anthropic – and its Claude AI platform – blacklisted as a “supply-chain risk,” Google is quietly positioning itself as the Pentagon’s AI partner of choice.

2. The White House is putting American industry on a wartime footing. This morning, The Wall Street Journal reported that senior Pentagon officials have held talks with Ford (F) CEO Jim Farley and General Motors (GM) CEO Mary Barra about producing weapons and military supplies – the first such ask since World War II. Meanwhile, the administration has reportedly invited the CEOs of major U.S. oil and gas companies to a call this afternoon to press them to ramp up drilling in the U.S., as gasoline tops $4 a gallon on higher oil prices. The latter is good news for our Complete Investor oil and gas recommendations – particularly royalty firms like Texas Pacific Land (TPL), which collects royalties and water fees across the Permian Basin.

3. Qatar’s one-month warning. “Full-fledged economic impact is coming in one or two months… as a result of this war,” says Qatar’s finance minister to an International Monetary Fund audience in D.C. Beyond rising gas and diesel prices and diminishing supplies of jet fuel, disruptions to helium and fertilizer exports are already threatening the tech and food sectors. Additionally, damage to his nation’s Ras Laffan facility has knocked out 20% of global LNG capacity, with recovery expected to take five years. The resulting impact on global energy, technology, and agriculture is imminent and severe.

Shares of IonQ (IONQ) surged 55% this week after the quantum-computing company won a contract to develop advanced systems for the U.S. Defense Advanced Research Projects Agency (“DARPA”). Nvidia (NVDA) also unveiled its Ising AI model, which it says can correct quantum computing errors up to 3x faster than traditional approaches, adding fuel to the fire.

In Wednesday’s Daily Journal, Porter wrote the essay “It Wasn’t ‘Exceptionalism,’ It Was Capitalism – And It’s Over,” explaining the decline of New York City. Readers share their thoughts below…

Kevin L. writes:

Porter Comment: Winter Park is a unique place in America…

It was set up as a planned community by wealthy English investors in the 1880s and became a winter haven for wealthy New Englanders, who came to Winter Park on the train – much like other railroad towns in the South, like Aiken, South Carolina, and Palm Beach.

Good local government and great zoning laws have retained its charm: big lots, huge oak trees, brick streets, a wonderful downtown strip with a central park and golf course.

It’s a small community (probably about 500 families) that’s seen Orlando grow all around it.

You get a small, luxury community… with good weather…a great airport …

Nothing against Naples, but Orlando is a much bigger economy with more family attractions.

Porter

Bruce K. writes:

David L. writes:

Sarah M writes:

Jade L. writes:

Please note: The investments in our “Porter & Co. Top Positions” should not be considered current recommendations. These positions are the best performers across our publications – and the securities listed may (or may not) be above the current buy-up-to price. To learn more, visit the current recommendations page of the relevant service, here. To gain access or to learn more about our current recommendations, call our Customer Care team at 888-610-8895 or internationally at +1 443-815-4447.