Tesla investors sue Elon Musk over rival AI company

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Tesla investors sue Elon Musk over rival AI company

Several Tesla shareholders are suing Elon Musk and the company’s board, accusing them of diverting talent and resources to Musk’s rival AI company, xAI.

The allegations: The lawsuit claims that Musk and the board breached their fiduciary duty to Tesla by launching xAI in 2023. The plaintiffs allege that Musk has shifted valuable Tesla resources to xAI, which aims to understand “the true nature of the universe.” The plaintiffs include the Cleveland Bakers and Teamsters Pension Fund, and two individual shareholders, Daniel Hazen and Michael Giampietro.

Background: For years, Musk has promoted Tesla as a leader in robotics and AI, helping boost its stock price. However, the plaintiffs argue that Musk has been diverting resources and talent from Tesla to xAI, raising billions for the new venture. Last week, xAI secured $6 billion in its initial funding round to bring its first products to market, including Grok, an edgier version of OpenAI’s ChatGPT.

Specific accusations:

• Resource diversion: The lawsuit cites a CNBC report claiming Musk ordered thousands of Nvidia AI chips intended for Tesla to be redirected to xAI. Musk responded, stating Tesla lacked the capacity to use the chips due to an incomplete factory in Austin, Texas.

• AI chip purchases: Musk estimated Tesla would spend $3–4 billion on AI chips from Nvidia in 2024.

• Stake increase: Musk has suggested needing a larger stake in Tesla to grow it into an AI and robotics leader, implying a conflict of interest with xAI.

• Board inaction: The plaintiffs accuse Tesla’s board of allowing Musk to divert resources to xAI without intervention.

Broader implications: This lawsuit comes as Tesla shareholders are set to vote on relocating the company’s incorporation to Texas, following a Delaware court judge voiding Musk’s substantial pay package. The plaintiffs argue that Musk’s actions undermine Tesla’s value and shift AI-related advancements to xAI instead.

Other legal challenges: This is not the only lawsuit Tesla faces this week. Another institutional investor has sued the company, claiming Musk profited billions from selling Tesla stock using insider information.

The outcome of these lawsuits could significantly impact Tesla and its leadership, highlighting ongoing tensions between Musk’s multiple ventures and shareholder interests.

Is AI the new offshoring?

Technological adoption is accelerating at an unprecedented rate. While it took decades for telephones and televisions to become household staples, AI tools like OpenAI’s ChatGPT reached 23% of American adults within just 15 months. Unlike physical devices, generative AI is mostly free software that integrates seamlessly with existing services, making it more accessible than ever.

Instant availability, slow utilization: The rapid availability of new technology doesn’t guarantee immediate, productive use. Just as foreign aid effectiveness is limited by a country's absorptive capacity, the transformative power of AI depends on how well institutions can integrate and leverage it. While tech giants like Microsoft, Nvidia, Apple, Alphabet, and Amazon dominate the AI landscape, many established companies and startups are still figuring out how to best utilize these powerful tools.

The magnificent seven's dominance: The seven leading tech companies now account for a significant portion of the market index, reflecting their influence and ambition in AI development. These companies are not just innovating—they’re aiming to revolutionize entire industries. However, the broader business world is more cautious, focusing on using AI to improve efficiency and enable new capabilities.

Startups and new business models: A wave of startups is exploring AI’s potential to create entirely new business models. The key to their success lies in identifying specific use cases where AI can provide sustainable and defensible advantages. Established companies, with their proprietary data and strong customer relationships, are also well-positioned to harness AI, provided they overcome internal resistance.

Overcoming institutional inertia: Despite AI’s potential, many organizations, particularly in defense and healthcare, face significant resistance to change. Institutional inertia, characterized by bureaucratic processes and reluctance to adopt new technologies, remains a major hurdle. It’s estimated that it could take five to ten years for companies to fully integrate existing AI models and leverage future advancements.

A new era for private equity?

The traditional private equity model of buying companies, cutting costs, and offshoring operations might evolve with AI. As geopolitical tensions and supply chain concerns grow, AI could become a key tool for transforming corporate cost structures. The possibility of using AI to elevate a company’s market position will undoubtedly attract private equity interest.

The path forward: For AI to realize its full potential, companies must enhance their absorptive capacity, embrace new business models, and overcome institutional resistance. As AI continues to evolve, it offers a promising yet challenging path for businesses looking to innovate and stay competitive.

Oracle emerges as AI leader

Oracle has unexpectedly risen to prominence in the AI revolution, becoming a key player in the industry. Here’s how the company turned its fortunes around.

From underdog to contender: Four years ago, Oracle struggled to keep up with competitors, relying on mature cash flows for expensive acquisitions. Today, its market cap has nearly reached $400 billion, thanks to its subscription-based cloud computing services being chosen by AI leaders like OpenAI to support large language models.

Impressive growth: Oracle's shares surged 13% this week, adding $45 billion to its market cap. Wall Street was impressed by Oracle’s "remaining performance obligations" (RPO), which represent customer commitments. The RPO balance hit $98 billion, a 44% increase from last year, driving earnings and cash flow up significantly.

Strategic bet on cloud infrastructure: In 2020, Oracle and Salesforce both had market caps around $170 billion. While Salesforce has struggled to adapt to the AI era, Oracle’s strategic focus on cloud infrastructure has paid off, positioning it alongside giants like Microsoft and Amazon.

Unexpected success: Oracle’s AI victory is as surprising as its engineer Saurabh Netravalkar leading the US cricket team to an upset win over Pakistan. Both wins demonstrate Oracle’s ability to defy expectations and succeed.

Oracle’s strategic pivot to cloud infrastructure and AI has positioned it as a significant player in the AI landscape. Its growth and innovation highlight how legacy tech firms can reinvent themselves in the age of AI.