Godfather of AI blasts Musk's xAI as 'failure,' says labs are risking a 'big bubble explosion'

Elon Musk's xAI is a "failure" that will be unable to compete on the frontier of artificial intelligence, Yann LeCun, founder of AMI Labs, told CNBC, as he laid out his view on what could cause a "big bubble explosion" in the industry.

LeCun's comments renew a long-running spat with Musk and cast doubt over valuations of some of the world's biggest AI companies.

LeCun, who was previously Meta's chief AI scientist, has clashed with Musk over the past few years on topics ranging from AI to what he described as the Tesla CEO's "conspiracy theories" on social media. Musk for his part, has accused LeCun of being "out of touch with AI for a long time."

LeCun is often dubbed a "godfather of AI" because of his early work in the field.

"xAI is kind of a failure, frankly, because the founding team has" departed, LeCun said.

"Elon is now in a position that is very, very difficult for him to kind of hire top people in AI, because he's kind of, you know, not behaved in sort of very good ways toward the ... previous team."

Over the last year, several of xAI's co-founders have left the organization. In February, Musk merged SpaceX with xAI in a huge deal that valued the company at $1.25 trillion.

In the three months ended Mar. 31, SpaceX's AI segment, which includes xAI, posted a $2.5 billion loss from operations. Meanwhile, AMI Labs raised $1 billion in a funding round in March in pursuit of world models, which amounted to a pre-money valuation of $3.5 billion.

LeCun said that xAI has "huge infrastructure" which it rents to other companies, "because that's the only way he [Musk] can recoup the cost."

LeCun's comments on infrastructure refer to xAI's Colossus 1 and Colossus 2 data centers in Memphis. Both Google and Anthropic have rented compute capacity at xAI's data centers.

"I'm not very positive about the prospect of xAI," LeCun said, adding that he doesn't expect that xAI will be able to compete with heavyweights OpenAI and Anthropic.

SpaceX and xAI were not immediately available for comment when contacted by CNBC.

Enterprise spending on AI has come under scrutiny in recent months as the technology is turning out to be more expensive than expected. OpenAI CEO Sam Altman reportedly said this month in a company live stream that companies are now discussing how much they're spending on AI. Altman said AI costs are a "huge issue." 

"The prices are going up of those AI services, but the cost of running them is going down, but not nearly fast enough. And so all of those companies are losing money, and basically, the use for most people is funded by the investors. That can't go on for a very long right?" LeCun said.

The AMI Labs founder added that labs like OpenAI and Anthropic are "going to have to increase prices, they're going to have to cut costs, or there's going to be a big bubble explosion."

LeCun has been a vocal critic of the limitations of large language models (LLMs), the foundation for the current generation of leading AI products. Instead, LeCun is a proponent of "world models."

LLMs learn language patterns to predict what comes next, which makes them very suitable for reasoning and coding. World models take a different approach by looking to build an understanding of how the real or simulated world works. This involves objects, cause and effect and actions.

"I personally don't think we're going to have generalised reliable agentic systems until they're based on world models," LeCun said.

AI companies from Anthropic to OpenAI are focusing on AI agents which are systems able to carry out more complex tasks autonomously.

LeCun said LLMs are useful for areas such as coding or math. But he noted that "the cost of running those systems with this kind of performance is very high compared to the amount of money that users are ready to pay."