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Generative AI “FOMO” is pushing tech heavyweights to invest billions of dollars in startups

Microsoft CEO Satya Nadella, right, greets OpenAI CEO Sam Altman at the OpenAI DevDay event in San Francisco on November 6, 2023.

Justin Sullivan | Getty Images News | Getty Images

Tech giants aren’t doing much in the way of acquisitions these days, mainly due to an unfavorable regulatory environment. But they find other ways to spend billions of dollars on the next big project.

from Amazon A $2.75 billion investment in artificial intelligence startup Anthropic, announced this week, was its largest venture capital deal and the latest example of the AI ​​gold rush that is prompting the biggest tech companies to open their wallets.

Anthropic is the developer behind the Claude AI model, which competes with GPT from Microsoft-OpenAI supported, and Google Gemini. With Meta And Applethey are all working to integrate generative AI into their extensive product and feature portfolios to ensure they do not fall behind in a growing market. expected to exceed a billion dollars income in a decade.

In 2023, investors pumped a total of $29.1 billion into nearly 700 generative AI deals, an increase of more than 260% in value from the previous year, according to PitchBook.

A significant portion of this money was strategic, in that it came from technology companies rather than venture capital firms or other institutions. Fred Havemeyer, head of US AI and software research at Macquarie, said fear of missing out was one of the factors driving their decisions.

“They certainly don’t want to miss out on being part of the AI ​​ecosystem,” Havemeyer said. “I definitely think there is FOMO in this market.”

These considerable investments are necessary because AI models are notoriously expensive to build and train, requiring thousands of specialized chips which, until now, have largely come from Nvidia. Meta, which develops its own model called Lamasaid it was spending billions on graphics processing units from Nvidia, one of several companies that helped the chipmaker. bolster year-over-year revenue of more than 250%.

Whether building or investing, there are a limited number of companies that can afford to play in the market. In addition to developing the chips, Nvidia has become one of Silicon Valley’s biggest investors, taking stakes in a number of emerging AI companies, in part to ensure its technology is widely deployed. Likewise, Microsoft, Google and Amazon sometimes offer cloud credits as part of their investments.

In the Amazon-Anthropic deal announced Wednesday, the two companies said they would work closely together in a variety of ways. Anthropic will use Amazon Web Services for its computing needs as well as Amazon’s chips. Anthropic’s models will be distributed by Amazon to AWS customers.

Earlier this month, Anthropic launched Claude 3its most powerful model and which it says allows users to upload photos, charts, documents and other types of unstructured data for analysis and responses.

Microsoft got into the business of investing in generative AI earlier, putting 1 billion dollars in OpenAI in 2019. The size of its investment has since grown to around $13 billion. Microsoft uses the OpenAI model extensively and offers open source models on its Azure cloud.

Alphabet plays the role of builder and investor. The company has refocused much of its product development on generative AI and its new Gemini model, adding features in search, documents, maps and elsewhere. Last year, Google engaged to invest $2 billion in Anthropic, after previously confirming it had taken a 10% stake in the startup alongside a major cloud deal between the two companies.

In this photo illustration, Gemini Ai is seen on a phone on March 18, 2024 in New York.

Michael M. Santiago | Getty Images

Havemeyer said tech giants don’t just invest money in the “hype cycle” because these investments in AI startups align with their product roadmaps.

“I don’t think it’s frivolous,” he said.

Havemeyer said alliances with big cloud providers not only bring much-needed liquidity to startups, but also help them recruit customers.

Cloud computing 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. “It’s also part of a much larger ecosystem.”

“We’re seeing a lot of alliances emerging between these hyperscalers that have very significant size, infrastructure and deep pockets,” he added.

“Shaping the next decade”

In recent earnings calls, tech executives have reiterated their focus on generative AI, making it clear to investors that they need to spend money to make money, whether in internal development or in investing in startups.

Amy Hood, Microsoft’s chief financial officer, said last year that the company was adjusting its “workforce toward the AI-driven work we do without adding a significant number of people to the workforce.” She said Microsoft would continue to prioritize investment in AI as “this is going to shape the next decade.”

Executives from Google, Apple and Amazon also offered to investors that they are prepared to broadly cut costs across all departments in order to redirect more funds towards their AI efforts.

Startups are among the beneficiaries.

Microsoft has taken stakes in Mistral, Figure and Humane, in addition to OpenAI. The company invested in Inflection AI before the startup dissolved and joined Microsoft this month. Mistral is an open source focused company that uses the Azure cloud and offers its service to Azure customers.

The startup Figure AI develops general-purpose humanoid robots.

Figure AI

Figure, a startup seeking to build a robot that walks like a human, has raised funding from Microsoft, OpenAI and Nvidia and has been rated last month at $2.6 billion.

Amazon’s biggest bet is Anthropic, with a total of $4 billion so far. The company also invested in open source AI platform developer Hugging Face.

Google’s investments include Essential AI, which develops consumer AI programs and is backed by AMD and NVIDIA. Alphabet and Nvidia are also investing in Runway ML, a generative AI company known for its video editing and visual effects tools. Other titles in Nvidia’s portfolio include Mistral, Perplexity and Cohere.

Meanwhile, many big tech companies continue to spend internally to develop their own models.

Microsoft has invested in many of the techniques that underpin generative AI through its Microsoft Research division. Amazon would have intends to train a model that is larger and more data-intensive than even OpenAI’s GPT-4.

Apple researchers recently published details of their work on MM1, a family of small AI models which can take both text and visual input. Apple is in a different position from its peers in that it does not sell a cloud service. Still, the tech giant is reportedly looking for AI partners, potentially including Google in the US and Baidu in China. An Apple representative declined to comment on the AI ​​partners.

Creativity in negotiation

Daniel Newman, CEO of technology analytics firm Futurum Group, said tech companies need to be smart when it comes to investing in AI.

For example, Microsoft’s OpenAI investment included profit sharing in a nonprofit wing, as well as credits to use Microsoft’s cloud service. Microsoft’s deal for Inflection AI amounted to an expensive acquisition, with some reports putting the total spend at 1 billion dollars. As part of the transaction, Microsoft hiring Inflection AI founder Mustafa Suleyman will lead Copilot AI initiatives.

“I think we’re starting to see some creativity and negotiation,” Newman said. Regarding Amazon’s deal with Anthropic, he said an acquisition would be “much more difficult than an investment.”

Indeed, regulators around the world are cracking down on big tech, making it harder to make big acquisitions. Even investments attract scrutiny.

In January, the Federal Trade Commission announced that it would conduct a thorough investigation among the biggest players in the AI ​​field, including Amazon, Alphabet, Microsoft, Anthropic and OpenAI.

FTC Chair Lina Khan described the investigation as a “market investigation into investments and partnerships formed between AI developers and major cloud service providers.” The regulator has the power to order companies to file specific reports or respond in writing to questions about their activities.

“We know that regulators are increasingly focused on the traditional route of completing an acquisition,” Newman said. “Right now, the game has access to the most fundamental IP.”

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