He believes businesses are not just paying money to use AI tools but also sharing their internal expertise, workflows and decision-making processes.
In a long post shared on X, Nadella introduced the idea of the ‘Reverse Information Paradox.’ He said that unlike the traditional ‘Information Paradox’ explained by Nobel Prize-winning economist Kenneth Arrow, AI has created the opposite problem.
— Satya Nadella (@satyanadella) July 12, 2026
“The better you want the model to perform, the more of that knowledge you have to feed it! That is what I think of as the Reverse Information Paradox,” Nadella wrote, adding, “AI creates the reverse problem. In the AI age, the buyer risks giving away knowledge, just in order to use what they bought.”
According to Nadella, companies now have to reveal their own knowledge to AI models to get better results, as they are paying twice – first with money and then with valuable business knowledge.
“You essentially pay for intelligence twice, once with money, and again with something even more valuable: the proprietary knowledge you must reveal to make that intelligence useful,” he added.
Nadella said that every prompt, correction, evaluation and piece of feedback given to an AI system helps improve it. But they also create what he called “intelligence exhaust”.
“Every correction is distilled into institutional know-how. It’s the kind of knowledge a competitor could never buy, and the kind that leaks almost imperceptibly: trace by trace, correction by correction, eval by eval,” he added.
Nadella said patents allow inventors to share ideas without losing ownership of them, but there is no similar protection for the knowledge companies generate while using AI. He argued that businesses need stronger safeguards to ensure the knowledge they create remains under their control.
“In consuming intelligence, you are creating intelligence. And what you create should belong to you,” he wrote.
Nadella also questioned why AI companies could train their models using publicly available data but often restricted customers from using AI-generated outputs to improve or train their own models.
He mentioned that every company should have its own AI learning environment so it can train, improve and customize AI models using its own data and knowledge without sharing that information with outside providers.
“A company should be able to use a model without giving up the knowledge that makes it unique. That is the reverse information paradox we need to confront,” he wrote.
Quoting Palantir CEO Alex Karp, Nadella wrote, “What the technical customers want is control over their compute, their models, their data stack, and their alpha. They want to know they own the means of production, and it’s not being transferred to someone else.”
Speaking about how enterprises should collect data, Nadella said companies need to rethink how they protect their information in the AI era. “Retain ownership of your organization’s memory, traces, feedback, decisions, and institutional context and ability to use outputs of models from your own tasks and queries,” he wrote.
Nadella also said businesses should build private AI environments where models can be trained or customized using internal data without exposing confidential information to outside providers. He further advised companies not to depend on a single AI model. Instead, they should use systems that allow them to switch between different AI models.
According to Nadella, this would also help businesses choose the most cost-effective AI models for different tasks without affecting quality.
