Microsoft and OpenAI's close partnership shows signs of fraying

While technical AI and LLMs are not something I’m well versed in. So as I sit on the sidelines and see the current proliferation of AI startups I’m starting to wonder where the moats are outside of access to raw computing power. Open AI seemed to have a massive lead in this space but that lead seems to be shrinking every day.

You hit the nail on the head. Companies are scrambling for an edge. Not a real edge, an edge to convince investors to keep giving them money. Perplexity is going all in on convincing VCs it can create a "data flywheel".

Perhaps I've missed something, but where will the infinite amounts of training data come from, for future improvements?

If these models will be trained on the outputs of themselves (and other models), then it's not so much a "flywheel", as it is a Perpetual Motion Machine.