- Big tech companies are spending unprecedented amounts of money investing in artificial intelligence startups to avoid missing out on the generative AI boom.
- Amazon's $2.75 billion investment in AI startup Anthropic this week marks the company's largest venture deal in its history.
- “They definitely don't want to miss out on being part of the AI ecosystem,” said Fred Havemeyer, Macquarie's head of US AI and software research, regarding the overall surge in investment.
Tech giants haven't made many acquisitions lately, largely due to an unfavorable regulatory environment. But they're finding other ways to spend billions on the next big thing.
Amazon's $2.75 billion investment in artificial intelligence startup Anthropic announced this week is the company's biggest venture deal and the latest example of the AI gold rush that is prompting big tech companies to open their wallets. .
Anthropic is the developer of Claude, an AI model that competes with Microsoft-backed OpenAI's GPT and Google's Gemini. Like Meta and Apple, each company is integrating generative AI into its vast portfolio of products and features to keep pace in a market that is expected to surpass $1 billion in revenue within a decade. are competing to try.
According to PitchBook, in 2023, investors poured in $29.1 billion across nearly 700 generative AI deals, an increase of more than 260% year-over-year in value.
A significant portion of that funding was strategic and came from technology companies rather than from venture capitalists or other institutions. Fred Havemeyer, head of US AI and software research at Macquarie, said fear of missing out was one factor driving their decision.
“They definitely don't want to miss out on being part of the AI ecosystem,” Havemeyer said. “I definitely think there is FOMO in this market.”
Building and training AI models is notoriously expensive, requiring huge investments to date, requiring thousands of specialized chips, primarily made by Nvidia. Meta, which is developing its own model called Llama, said it is spending billions of dollars on NVIDIA graphics processing units. NVIDIA is one of many companies that helped the semiconductor maker increase its year-over-year revenue by more than 250%.
Whether you go down the construction path or the investment path, there are only a limited number of companies that can afford to play in the market. In addition to developing chips, Nvidia has emerged as one of Silicon Valley's top investors, taking stakes in a number of emerging AI companies as one way to ensure its technology is widely deployed. . Similarly, Microsoft, Google, and Amazon may also offer cloud credits as part of their investments.
The deal between Amazon and Anthropic announced Wednesday said the two companies will work closely together in a variety of ways. Anthropic plans to use Amazon Web Services for its computing needs and Amazon's chips. Anthropic's models are distributed by Amazon to his AWS customers.
Earlier this month, Anthropic announced its most powerful model, the Claude 3. This allows users to upload photos, graphs, documents, and other types of unstructured data for analysis and answers.
Microsoft has long been in the business of investing in generative AI, investing $1 billion in OpenAI in 2019. The investment size has since grown to about $13 billion. Microsoft uses his OpenAI models extensively and offers open source models on the Azure cloud.
Alphabet plays the role of builder and investor. The company has refocused much of its product development on Generate AI and its newly rebranded Gemini model, adding features to search, documents, maps, and more. Google last year committed to investing $2 billion in Anthropic, after previously confirming it had acquired a 10% stake in the company in addition to a large cloud deal between the two companies.
In this photo illustration, Gemini Ai is seen using a cell phone in New York City on March 18, 2024.
Havemeyer said tech giants aren't simply putting money into the “hype cycle” as investments in AI startups are aligned with their own product roadmaps.
“I don't think it's frivolous,” he said.
Havemeyer said partnering with a major cloud provider not only brings startups the capital they need, but also helps them sign up customers.
Cloud companies are saying, “Come to us, work on our platform, have native access to the latest and greatest AI models, and also use our infrastructure,” Havemeyer said. “This is also part of a larger ecosystem effort.”
“We're seeing a lot of alliances emerging between hyperscalers that have significant scale, infrastructure and very deep pockets,” he added.
“Shaping the next 10 years”
In recent earnings calls, technology company executives reiterated their focus on generative AI, making it clear to investors that they must spend money to make a profit, whether it's in-house development or investing in startups. did.
Microsoft Chief Financial Officer Amy Hood said last year that the company was “aligning our workforce for AI-first work without significantly increasing our workforce.” He said Microsoft will continue to prioritize investments in AI as “what will shape the next decade.”
Leaders at Google, Apple and Amazon have also signaled to investors that they intend to cut costs broadly across their divisions to free up more money for AI efforts.
Start-ups are also benefiting.
In addition to OpenAI, Microsoft has also acquired stakes in Mistral, Figure, and Humane. The company invested in Inflection AI before it effectively disbanded and joined Microsoft this month. Mistral is an open source-focused company that uses the Azure cloud and serves Azure clients.
Startup Figure AI is developing general-purpose humanoid robots.
Figure, a startup aiming to develop robots that walk like humans, has raised funding from Microsoft, OpenAI and Nvidia, and was valued at $2.6 billion last month.
Amazon's biggest bet is Anthropic, with a total of $4 billion invested so far. The company also invested in Hugging Face, an open source AI platform developer.
Google's investments include Essential AI, which develops consumer AI programs and is backed by AMD and Nvidia. Alphabet and Nvidia have also invested in Runway ML, a generative AI company known for its video editing and visual effects tools. Other companies in Nvidia's portfolio include Mistral, Perplexity, and Cohere.
Meanwhile, many Big Tech companies continue to spend internally developing their own models.
Microsoft has invested in many of the technologies behind generative AI through its Microsoft Research division. Amazon reportedly plans to train models that are larger and require more data than OpenAI's GPT-4.
Apple researchers recently announced details of their work on MM1, a family of miniature AI models that can receive both textual and visual input. Apple is in a different position than its peers in that it doesn't sell cloud services. Still, the tech giant is reportedly looking for AI partners, which could include Google in the US and Baidu in China. An Apple representative declined to comment on AI partners.
creativity in trading
Daniel Newman, CEO of technology analysis firm Futurum Group, said technology companies need to get smarter about their investments in AI.
For example, Microsoft's investment in OpenAI included profit sharing in the nonprofit sector and credits for using Microsoft's cloud services. Microsoft's deal with Inflection AI represents a big-ticket acquisition, with some reports putting the total spend at his $1 billion. As part of the deal, Microsoft hired Inflection AI founder Mustafa Suleyman to lead his Copilot AI initiative.
“I think we're starting to see some creativity and deal potential,” Newman said. Regarding Amazon and Anthropic's agreement, he said acquisitions are “much more difficult than investments.”
Regulators around the world are cracking down on Big Tech companies, making it more difficult to make large acquisitions. Even investment is under scrutiny.
In January, the Federal Trade Commission announced a wide-ranging investigation into the largest companies in the AI space, including Amazon, Alphabet, Microsoft, Anthropic, and OpenAI.
FTC Chair Lina Khan described the investigation as a “market investigation into investments and partnerships being formed between AI developers and major cloud service providers.” Regulators have the power to order companies to submit certain reports about their operations and respond in writing to questions.
“We know that regulators are increasingly looking at the traditional way of completing acquisitions,” Neumann said. “Right now, games are accessing the most basic IP.”
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