FOMO is driving tech heavyweights to invest billions in generative AI

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

Justin Sullivan | Getty Images News | Getty Images

Tech giants aren’t acquiring much these days, largely because of the hostile regulatory environment. But they’re looking for other ways to spend billions of dollars on the next big thing.

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

Anthropic is the developer behind the AI ​​model Cloud, which competes with GPT Microsoft-Supported OpenAI, and Google’s Gemini. along with Meta And AppleThey are all racing to integrate generative AI into their vast portfolio of products and features to ensure they are not left behind in a market that A top forecast of $1 billion in revenue within a decade.

In 2023, investors invested $29.1 billion in nearly 700 generative AI deals, a more than 260% increase in value from the previous year, according to Pitchbook.

A significant portion of that money was strategic, in that it came from tech companies rather than venture capitalists or other institutions. Fred Havemeyer, head of US AI and software research at Macquarie, said one factor in their decision-making is the fear of missing out.

“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 marketplace.”

Huge investments are required because AI models are notoriously expensive to build and train, requiring thousands of specialized chips that have come to date mostly. Nvidia. Meta, which is developing its own model called the Lama, has said it is spending billions on Nvidia’s graphics processing units, one of several that have helped the chipmaker grow revenue by more than 250% year-over-year. .

Whether going into building or the investment route, there are 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, in part as a way to ensure its technology is widely used. Similarly, Microsoft, Google, and Amazon sometimes offer cloud credit as part of their investment.

In the Amazon-Anthropic deal announced Wednesday, the two companies said they would work together in various 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 Cloud 3, its most powerful model yet, and it says it lets users upload photos, charts, documents and other types of unstructured data for analysis and answers.

Microsoft entered the generative AI investing business earlier $1 billion In OpenAI in 2019. Since then the size of his investment has grown to nearly $13 billion. Microsoft makes heavy use of OpenAI’s models and offers open source models on its Azure cloud.

Alphabet is playing the role of builder and investor. The company has refocused much of its product development on generative AI and its newly rebranded Gemini model, adding features for search, documents, maps and more. Last year, Google committed to investing $2 billion in Anthropic, after previously confirming it had taken a 10% stake in the startup, along with a major cloud contract between the two companies.

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

Michael M. Santiago | Getty Images

Tech giants aren’t just throwing money into a “hype cycle,” Havemeyer said, because these investments in AI startups are aligned with their product road maps.

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

Havemeyer said tie-ups with big cloud providers not only bring in much-needed cash for startups but also help them sign up customers.

Cloud companies are saying, “Come to us, work on our platform, get local access to the latest and greatest AI models and also use our infrastructure,” Havemeyer said. “It’s also part of a much larger ecosystem play.”

“We’re seeing a lot of linkages emerge between those hyperscalers that have significant scale, infrastructure and very deep pockets,” he added.

‘Shape the Next Decade’

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

Amy Hood, Microsoft’s chief financial officer, said last year that the company is equipping its workforce for “AI-first work that we’re doing without adding more people to the workforce.” She said Microsoft will continue to prioritize investment in AI because it is “going to shape the next decade.”

Google, Apple and Amazon are also leaders Indicated to investors that they are willing to cut costs broadly across all divisions to redirect more funding towards their AI efforts.

Startups are among the beneficiaries.

In addition to OpenAI, Microsoft has stakes in Mistral, Figure, and Human. The company invested in Inflection AI before the startup essentially dissolved and merged with Microsoft this month. Mistral is an open source-focused company that uses Azure’s cloud and offers its services to Azure clients.

Startup Figure AI is developing general-purpose humanoid robots.

Figure AI

Creativity in Dealmaking

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

For example, OpenAI’s investment from Microsoft includes profit sharing in the nonprofit wing, as well as credits for using Microsoft’s cloud service. Microsoft’s deal for Inflection AI was a costly acquisition, some reports totaling $1 billion. As part of the transaction, Microsoft hired Inflection AI founder Mustafa Suleman to lead the copilot AI initiative.

“I think we’re starting to see some creativity and dealmaking,” Newman said. Regarding Amazon’s deal with Anthropic, he said the acquisition would be “a lot harder than the investment.”

That’s because regulators around the world are cracking down on Big Tech, making large acquisitions more difficult. Investments also attract scrutiny.

In January, the Federal Trade Commission announced that it would conduct extensive investigations into the field’s biggest players in AI, including Amazon, Alphabet, Microsoft, Anthropic and OpenAI.

FTC Chair Leena Khan described the investigation as a “market investigation of investments and partnerships being formed between AI developers and major cloud service providers.” The regulator has the power to order companies to file certain reports in writing about their businesses or to answer questions.

“We know that regulators are focusing more and more on the traditional way of closing acquisitions,” Newman said. “Right now, the game has access to the most basic IP.”

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