FOMO is driving leading tech players to invest billions in generative artificial intelligence

Tech giants aren’t making many acquisitions today, mainly due to the unfavorable regulatory environment. But they find other ways to spend billions of dollars on the following big thing.

This week’s $2.75 billion investment in artificial intelligence startup Anthropic was its largest enterprise deal and the newest example of an AI gold rush that has major tech corporations quickly opening their wallets.

Anthropic is the creator of the Claude artificial intelligence model, which competes with GPT from OpenAI and Gemini. Together with they usually are all racing to integrate generative AI into their extensive portfolios of products and features to ensure they don’t fall behind in a market that is it is expected to exceed $1 billion revenues inside a decade.

According to PitchBook, investors pumped a complete of $29.1 billion into nearly 700 generative AI deals in 2023, representing a price increase of greater than 260% compared to the previous 12 months.

Much of this money was strategic since it got here from technology corporations fairly than enterprise capitalists or other institutions. Fred Havemeyer, head of U.S. artificial intelligence and software research at Macquarie, said the fear of missing out is one factor influencing their decisions.

“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.”

The huge investments are vital because AI models are extremely expensive to construct and train and require 1000’s of specialised chips, which until now have largely come from . Meta, which is developing its own model called Llama, says it is spending billions on Nvidia GPUs. It is certainly one of many corporations which have helped the chipmaker grow year-over-year revenues by greater than 250%.

Regardless of whether you select the development or investment route, there are a finite variety of corporations that may afford to play in the market. In addition to developing chips, Nvidia has develop into a serious investor in Silicon Valley, taking stakes in many emerging artificial intelligence corporations, in part to ensure its technology is widely adopted. Similarly, Microsoft, Google, and Amazon sometimes offer cloud lending as a part of their investments.

In the Amazon-Anthropic deal announced Wednesday, the 2 corporations said they’ll work closely together in quite a lot of ways. Anthropic will use Amazon Web Services for its computing needs, in addition to Amazon chips. Anthropic models will likely be distributed by Amazon to AWS customers.

Earlier this month, Anthropic released Claude 3, its strongest model, which it says allows users to upload photos, charts, documents and other forms of unstructured data for evaluation and response.

Microsoft got into investing in generative artificial intelligence earlier, betting $1 billion in OpenAI in 2019. Since then, the investment volume has grown to roughly $13 billion. Microsoft uses the OpenAI model extensively and offers open source models in its Azure cloud.

The alphabet plays the role of a builder and an investor. The company has focused much of its product development on generative artificial intelligence and the recently rebranded Gemini, adding features for search, documents, maps and more. Last 12 months, Google pledged to invest $2 billion in Anthropic, after previously confirming it had taken a ten% stake in the startup together with a big cloud contract between the 2 corporations.

Havemeyer said tech giants aren’t just throwing money into the “hype cycle” because investments in AI startups align with their product development plans.

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

Havemeyer said alliances with large cloud providers not only provide startups with much-needed money, but additionally help them attract customers.

Cloud corporations are saying, ‘Come to us, work on our platform, get native access to the newest and best AI models, and leverage our infrastructure,'” Havemeyer said. “It’s also part of a much larger ecosystem game.”

“We see a lot of alliances emerging between hyperscalers who have significant scale, infrastructure and very deep pockets,” he added.

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

Microsoft’s chief financial officer, Amy Hood, said last year that the company was adapting “its workforce toward primarily AI-based work without adding a major number of individuals to its workforce.” She said Microsoft will continue to prioritize investing in artificial intelligence as “the thing that may shape the following decade.”

Leaders from Google, Apple and Amazon have also suggested to investors that they are willing to cut costs across departments across the board to redirect more resources to artificial intelligence efforts.

The beneficiaries include start-ups.

Microsoft acquired shares in Mistral, Figura and Humane, as well as OpenAI. The company invested in Inflection AI before the startup essentially dissolved and joined Microsoft this month. Mistral is an open source company that uses the Azure cloud and offers its services to Azure customers.

Drawing, a startup that wants to build a robot that walks like a human, has raised money from Microsoft, OpenAI and Nvidia and was valued at $2.6 billion last month.

Amazon’s largest venture is Anthropic, which has contributed a total of $4 billion to date. The company also invested in open-source AI platform developer Hugging Face.

Google’s investments include Essential AI, which develops artificial intelligence programs for consumers and is backed by Nvidia. Alphabet and Nvidia are also investors in Runway ML, a generative artificial intelligence company known for its video editing and visual effects tools. Others in Nvidia’s portfolio include Mistral, Perplexity and Cohere.

Meanwhile, many Big Tech companies continue to spend internal resources on developing their own models.

Microsoft has invested in many of the techniques underlying generative AI through its Microsoft Research division. Amazon supposedly plans to train a larger, more data-intensive model than even OpenAI’s GPT-4.

Apple researchers recently published details of their work on MM1, a family of small AI models that can accept both textual and visual data. Apple is in a different position than its competitors because it doesn’t sell cloud services. Still, the tech giant is reportedly looking for artificial intelligence partners, including potentially Google, in the US and China. An Apple representative declined to comment on AI partners.

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

For example, OpenAI’s investment from Microsoft included profit sharing in the organization’s nonprofit wing, as well as funds to use Microsoft’s cloud service. Microsoft’s deal for Inflection AI was a costly acquisition, with some reports putting the total outlay at $1 billion. As part of the deal, Microsoft hired Inflection AI founder Mustafa Suleyman to lead Copilot AI initiatives.

“I think we’re starting to see some creativity and deal-making,” Newman said. Referring to Amazon’s deal with Anthropic, he said an acquisition would be “way more difficult than investing.”

That’s because regulators around the world are cracking down on Big Tech, making it harder to make major acquisitions. Even investments attract attention.

In January, the Federal Trade Commission announced it would conduct a wide-ranging investigation into the biggest players in the artificial intelligence industry, including Amazon, Alphabet, Microsoft, Anthropic and OpenAI.

FTC Chair Lina Khan described the study as “a market study of the investments and partnerships being formed between AI developers and major cloud service providers.” The regulator has the power to order companies to submit certain reports or provide written answers to questions about their activities.

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