Tech giants are currently refraining from extensive acquisitions, primarily due to an unfavorable regulatory climate. However, they’re channeling their resources into alternative avenues, investing billions of dollars in groundbreaking ventures.
Amazon’s recent announcement of a $2.75 billion investment in Anthropic, an artificial intelligence startup, marks its largest venture deal yet and underscores the ongoing AI fervor compelling major tech players to unleash substantial financial resources.
Anthropic, the developer behind the AI model Claude, is positioned to rival Microsoft-backed OpenAI’s GPT and Google’s Gemini.
Alongside Meta and Apple, these industry behemoths are engaged in a frenetic race to seamlessly integrate generative AI across their expansive array of products and features, safeguarding against potential market obsolescence in an industry projected to surpass $1 billion in revenue within the next decade.
In 2023, investors collectively injected $29.1 billion into nearly 700 generative AI deals, reflecting a staggering 260% surge in value compared to the previous year, according to PitchBook.
A significant portion of these funds originated from tech companies, illustrating a strategic shift away from traditional venture capital sources. Fred Havemeyer, head of U.S. AI and software research at Macquarie, identifies a fear of missing out as a driving force behind these corporations’ investment decisions.
“They don’t want to miss out on being part of the AI ecosystem,” Havemeyer said. “I think that there’s FOMO in this marketplace.”
The substantial investments are indispensable due to the exorbitant costs associated with building and training AI models, which necessitate thousands of specialized chips, predominantly supplied by Nvidia.
Meta in its pursuit of developing its model named Llama, has disclosed spending billions on Nvidia’s graphics processing units, contributing to the chipmaker’s impressive year-over-year revenue growth of over 250%.
Whether opting for internal development or external investment, only a select few companies possess the financial means to participate in this market.
Nvidia, aside from its chip manufacturing endeavors, has emerged as a prominent investor in Silicon Valley, acquiring stakes in numerous emerging AI firms, partly to ensure widespread adoption of its technology.
Likewise, Microsoft, Google, and Amazon often provide cloud credits as part of their investment packages.
In the recent Amazon-Anthropic collaboration announced on Wednesday, the two entities declared their intention to collaborate closely across various fronts. Anthropic will leverage Amazon Web Services for its computational requirements, along with Amazon’s chips. Amazon, in turn, will distribute Anthropic’s models to AWS customers.
Earlier this month, Anthropic introduced Claude 3, its most advanced model yet, enabling users to analyze and derive insights from a wide range of unstructured data, including photos, charts, and documents.
Microsoft ventured into generative AI investment earlier, injecting $1 billion into OpenAI in 2019, a figure that has since ballooned to approximately $13 billion. Microsoft extensively utilizes OpenAI’s model and offers open-source models on its Azure cloud platform.
Alphabet is assuming the dual role of both builder and investor in the AI landscape. The company has redirected a significant portion of its product development efforts towards generative AI, exemplified by its revamped Gemini model, which integrates features across search, documents, maps, and other areas.
Last year, Google committed to a $2 billion investment in Anthropic, following an earlier disclosure of a 10% stake in the startup, alongside a substantial cloud contract between the two entities.
Havemeyer emphasized that tech giants aren’t simply indulging in the “hype cycle” with their AI investments; rather, these strategic moves align closely with their product roadmaps.
“I don’t think it’s frivolous,” he said.
Furthermore, Havemeyer pointed out that partnerships with major cloud providers not only infuse much-needed capital into startups but also facilitate customer acquisition.
The cloud companies are enticing startups with propositions like, “Join our platform, gain seamless access to cutting-edge AI models, and leverage our infrastructure,” Havemeyer explained. “It’s part of a broader ecosystem strategy.”
He added, “We’re witnessing a proliferation of alliances among these hyperscale cloud providers, which possess extensive scale, infrastructure, and deep financial resources.”
Shape the next decade
During recent earnings calls, tech executives reiterated their commitment to generative AI, emphasizing to investors the necessity of investing capital to reap future rewards, whether through internal development initiatives or by backing promising startups.
Microsoft’s Chief Financial Officer, Amy Hood, highlighted last year the company’s strategic shift in its workforce towards AI-centric endeavors, without significantly increasing headcount. She affirmed Microsoft’s ongoing prioritization of AI investment as pivotal in “shaping the next decade.”
Similarly, leaders at Google, Apple, and Amazon have signaled to investors their willingness to implement broad cost-cutting measures across various departments to channel additional funds into their AI initiatives.
These moves have been particularly beneficial for startups in the AI space.
Microsoft’s investment portfolio now includes stakes in Mistral, Figure, and Humane, in addition to its significant involvement with OpenAI.
The company also invested in Inflection AI before its recent integration into Microsoft. Mistral, an open-source-focused firm, leverages Azure’s cloud infrastructure and extends its services to Azure clients.
The figure, a startup focused on developing a humanoid robot with human-like walking capabilities, has secured investments from Microsoft, OpenAI, and Nvidia, reaching a valuation of $2.6 billion last month.
Amazon’s major investment initiative revolves around Anthropic, with a total infusion of $4 billion to date. Additionally, the company has backed Hugging Face, an open-source AI platform developer.
Google’s investments extend to Essential AI, a firm specializing in consumer-focused AI programs, supported by AMD and Nvidia.
Alphabet and Nvidia are also backers of Runway ML, renowned for its generative AI tools in video editing and visual effects. Nvidia’s investment portfolio further includes Mistral, Perplexity, and Cohere.
Meanwhile, several Big Tech players continue to allocate resources internally towards developing proprietary AI models.
Microsoft has been actively investing in various techniques underpinning generative AI through its Microsoft Research division. Amazon reportedly has ambitions to train a larger, more data-intensive model than even OpenAI’s GPT-4.
Apple researchers recently disclosed their work on MM1, a suite of compact AI models capable of processing both textual and visual inputs.
While Apple differs from its counterparts in not offering a cloud service, reports suggest the tech giant is exploring AI partnerships, potentially with Google in the U.S. and Baidu in China. An Apple representative declined to comment on any AI partnerships.
Invention in Dealmaking
Daniel Newman, CEO of technology analysis firm Futurum Group, observes that tech companies are employing innovative strategies in their AI investment endeavors.
For instance, Microsoft’s investment in OpenAI involved a unique arrangement including profit sharing in a nonprofit division, alongside credits for utilizing Microsoft’s cloud services.
Microsoft’s acquisition of Inflection AI was characterized as a costly acquihire, with reports estimating the total expenditure at around $1 billion. As part of this transaction, Microsoft brought on board Mustafa Suleyman, the founder of Inflection AI, to spearhead Copilot AI initiatives.
Newman remarks, “I think we’re starting to see some creativity and dealmaking.” Regarding Amazon’s partnership with Anthropic, he notes that an outright acquisition would face considerable challenges compared to investment.
This is due to increasing regulatory scrutiny worldwide, which has made significant acquisitions more challenging for Big Tech firms. Even investments are now under heightened scrutiny.
In January, the Federal Trade Commission (FTC) announced an extensive inquiry into the activities of major players in the AI field, including Amazon, Alphabet, Microsoft, Anthropic, and OpenAI.
FTC Chair Lina Khan described the probe as a “market inquiry into the investments and partnerships being formed between AI developers and major cloud service providers.”
The regulator holds the authority to compel companies to submit specific reports or respond to written inquiries about their operations.
“We know regulators are becoming increasingly focused on the traditional path of closing an acquisition,” Newman observed. “Right now, the game is having access to the most fundamental IP.”
