Elon Musk is skeptical about Stargate, the AI joint venture that includes OpenAI, and in a rare occurrence, he may be right.
Musk has taken issue with the big numbers being thrown about in connection with Stargate, a project announced Tuesday by President Donald Trump that promises at least $500 billion in eventual domestic artificial-intelligence investments. Musk, Tesla Motors’s chief executive who has his own AI startup, questioned whether SoftBank Group Corp., the lead JV investor, has secured all the funding it is promising.
“They don’t actually have the money,” Musk said on X, his social-media platform. “I have that on good authority.”
OpenAI, Oracle Corp. and MGX of the United Arab Emirates are the other early investors. While MarketWatch isn’t privy to SoftBank’s funding discussions, Dion Hinchcliffe, vice president of CIO practice at Futurum Research, believes other investors will want to come in. But he expects only the most well-heeled, with the deepest pockets, like Blackstone Inc. , would be able to join.
There’s another major reason investors should take these big investment numbers with a grain of salt. Politicians like to tout huge numbers as they promise greater investments and more jobs, but the associated projects don’t always play out as they’re billed.
Trump should be familiar with this. During his first term, Foxconn promised to build a $10 billion factory in Wisconsin, which Trump touted as part of a plan to revive U.S. manufacturing. But the Taiwanese manufacturer of Apple’s iPhones ended up scaling back those plans dramatically, with Reuters reporting in 2021 that Foxconn opted to invest only $672 million and reduced the number of new jobs to 1,454, a far cry from the original 13,000 jobs promised back in 2017. Now it employs more than 1,000 people, building data servers, according to Wisconsin Public Radio.
There was also the U.S. Chips Act under President Joe Biden, which authorized $280 billion toward new semiconductor plants in the U.S. But some of the high-profile new facilities associated with that program have been hit with construction delays, faced labor shortages and run into regulatory issues.
The Stargate venture claims its infrastructure will create “hundreds of thousands of jobs.” But on the company’s calls with Wall Street, Oracle co-founder and Chief Technology Officer Larry Ellison has often touted Oracle‘s autonomous database, the autonomous functions of its cloud-computing services and its low labor costs. So if the projections are for building the data centers, those jobs will mostly disappear once the plants are complete. And if many jobs are somehow going to result through improved AI, the companies are ignoring what jobs in other industries will be lost.
OpenAI could prove the biggest beneficiary of all, as the ChatGPT creator could use data centers built by Oracle to train ever more data and fulfill Chief Executive Sam Altman’s long-term goal of AGI (artificial general intelligence), when AI either matches or surpasses human intelligence.
Meanwhile, Musk is the founder of a rival AI company, called xAI, and that could explain why he took a shot at Stargate — despite his closeness to Trump — and sparked a public battle with Altman, who he has feuded with over the direction of OpenAI.
Responding to Musk’s posts, Altman called Musk’s claim “wrong,” and invited him to come tour the first site, while also calling Musk “the most inspiring entrepreneur of our time.”
Investors should question what the proponents of the venture mean by proclaiming Stargate will benefit the U.S. through the “re-industrialization of the United States.” Building 10 large data centers in Texas to train large language models and then running those models appears to be beneficial one company — OpenAI — and its hardware and software suppliers, not the rest of the U.S. industrial economy.
Stocks of the companies that provide the hardware and software rallied Wednesday on the news, especially the shares of NVIDIA, Oracle, ARM Holdings and lead investor Softbank. But investors should remember that big ventures involving political stakes may shift radically in the future.
So while Musk has made many questionable statements in the past — just look at his promises of Tesla’s future robotaxis and self-driving capabilities — in this instance, his cautionary stance about a competitor looks justified.
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