Generative AI ‘FOMO’ is driving tech heavyweights to invest billions of dollars in startups

Tech
giants
aren’t
doing
much
acquiring
these
days,
due
mostly
to
an
unfavorable
regulatory
environment.
But
they’re
finding
other
ways
to
spend
billions
of
dollars
on
the
next
big
thing.

Amazon’s
$2.75
billion
investment
in
artificial
intelligence
startup
Anthropic,
announced
this
week,
was
its

largest
venture
deal
and
the
latest
example
of
the
AI
gold
rush
that’s
prompting
the
biggest
tech
companies
to
fling
open
their
wallets.

Anthropic
is
the
developer
behind
the
AI
model
Claude,
which
competes
with
GPT
from


Microsoft-backed
OpenAI,
and


Google’s
Gemini.
Along
with


Meta
and


Apple,
they’re
all
racing
to
integrate
generative
AI
into
their
vast
portfolios
of
products
and
features
to
ensure
they
don’t
fall
behind
in
a
market
that’s

predicted
to
top
$1
billion
in
revenue
within
a
decade.

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

A
significant
chunk
of
that
money
was
strategic,
in
that
it
came
from
tech
companies
rather
than
venture
capitalists
or
other
institutions.
Fred
Havemeyer,
head
of
U.S.
AI
and
software
research
at
Macquarie,
said
a
fear
of
missing
out
is
one
factor
driving
their
decisions.

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

The
hefty
investments
are
necessary
because
AI
models
are
notoriously
expensive
to
build
and
train,
requiring
thousands
of
specialized
chips
that,
to
date,
have
largely
come
from


Nvidia.
Meta,
which
is
developing
its
own
model
called

Llama,
has
said
it’s
spending
billions
on
Nvidia’s
graphics
processing
units,
one
of
the
many
companies
that’s
helped
the
chipmaker

bolster
year-over-year
revenue
by
more
than
250%.

Whether
going
the
building
or
investing
route,
there
are
a
finite
number
of
companies
that
can
afford
to
play
in
the
market.
In
addition
to
developing
the
chips,
Nvidia
has
emerged
as
one
of
Silicon
Valley’s
top
investors,
taking
stakes
in
a
number
of
emerging
AI
companies,
partly
as
a
way
to
make
sure
its
technology
gets
widely
deployed.
Similarly,
Microsoft,
Google
and
Amazon
sometimes
offer
cloud
credits
as
part
of
their
investments.

In
the
Amazon-Anthropic
deal
announced
on
Wednesday,
the
two
companies
said
they’ll
work
closely
together
in
a
variety
of
ways.
Anthropic
will
be
using
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
3,
its
most
powerful
model
and
one
that
it
says
lets
users
upload
photos,
charts,
documents
and
other
types
of
unstructured
data
for
analysis
and
answers.

Microsoft
got
into
the
business
of
generative
AI
investing
earlier,
putting

$1
billion
into
OpenAI
in
2019.
The
size
of
its
investment
has
since
swelled
to
about
$13
billion.
Microsoft
heavily
uses
OpenAI’s
model
and
offers
open
source
models
on
its
Azure
cloud.

Alphabet
is
playing
the
part
of
builder
and
investor.
The
company
has
refocused
much
of
its
product
development
on
generative
AI,
and
its
newly
rebranded
Gemini
model,
adding
features
into
search,
documents,
maps
and
elsewhere.
Last
year,
Google

committed
to
invest
$2
billion
in
Anthropic,
after
previously
confirming
it
had
taken
a
10%
stake
in
the
startup
alongside
a
large
cloud
contract
between
the
two
companies.

Havemeyer
said
tech
giants
aren’t
just
throwing
money
into
the “hype
cycle,”
as
these
investments
in
AI
startups
align
with
their
product
road
maps.

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

Havemeyer
said
that
alliances
with
big
cloud
providers
not
only
bring
much-needed
cash
to
startups
but
also
help
them
sign
up
customers.

The
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. “It’s
also
part
of
a
much
larger
ecosystem
play.”

“We’re
seeing
a
lot
of
alliances
appearing
among
those
hyperscalers
that
have
substantial
scale,
infrastructure
and
very
deep
pockets,”
he
added.

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

Microsoft
Chief
Financial
Officer
Amy
Hood
said
last
year
the
company
was
adjusting
its “workforce
toward
the
AI-first
work
we’re
doing
without
adding
material
number
of
people
to
the
workforce.”
She
said
Microsoft
will
continue
to
prioritize
investing
in
AI
as “the
thing
that’s
going
to
shape
the
next
decade.”

Leaders
of
Google,
Apple
and
Amazon
have
also

suggested
to
investors
that
they’re
willing
to
cut
costs
broadly
across
departments
in
order
to
redirect
more
funding
toward
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
essentially
dissolved
and
joined
Microsoft
this
month.
Mistral
is
an
open
source-focused
company
that
uses
Azure’s
cloud
and
offers
its
service
to
Azure
clients.

Figure,
a
startup
seeking
to
build
a
robot
that
walks
like
a
human,
has
raised
money
from
Microsoft,
OpenAI
and
Nvidia
and
was

valued
last
month
at
$2.6
billion.

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

Google’s
investments
include
Essential
AI,
which
is
developing
consumer
AI
programs
and
is
backed
by


AMD
and
Nvidia.
Alphabet
and
Nvidia
are
also
investors
in
Runway
ML,
a
generative
AI
company
known
for
its
video-editing
and
visual
effects
tools.
Others
in
Nvidia’s
portfolio
include
Mistral,
Perplexity
and
Cohere.

Meanwhile,
many
of
the
Big
Tech
companies
continue
to
spend
internally
on
developing
their
own
models.

Microsoft
has
invested
in
many
of
the
techniques
underpinning
generative
AI
through
its
Microsoft
Research
division.
Amazon

reportedly
has
plans
to
train
a
bigger,
more
data-hungry
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
take
both
text
and
visual
input.
Apple
is
in
a
different
position
than
its
peers
in
that
it
doesn’t
sell
a
cloud
service.
Still,
the
tech
giant
is
reportedly
looking
for
AI
partners,
including
potentially
Google
in
the
U.S.
and


Baidu
in
China.
An
Apple
representative
declined
to
comment
on
AI
partners.

Daniel
Newman,
CEO
of
technology
analysis
firm
Futurum
Group,
said
tech
companies
are
having
to
get
clever
when
it
comes
to
investing
in
AI.

For
example,
OpenAI’s
investment
from
Microsoft
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
acquihire,
with
some
reports
putting
the
total
outlay
at

$1
billion.
As
part
of
the
transaction,
Microsoft

hired
Inflection
AI
founder
Mustafa
Suleyman
to
lead
Copilot
AI
initiatives.

“I
think
we’re
starting
to
see
some
creativity
and
dealmaking,”
said
Newman.
With
respect
to
Amazon’s
agreement
with
Anthropic,
he
said
an
acquisition
would
be “a
lot
harder
than
investing.”

That’s
because
regulators
across
the
globe
are
cracking
down
on
Big
Tech,
making
it
more
difficult
to
do
sizable
acquisitions.
Even
the
investments
are
attracting
scrutiny.

In
January,
the
Federal
Trade
Commission
announced
it
will

conduct
an
extensive
inquiry
into
the
field’s
biggest
players
in
AI,
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
has
the
authority
to
order
companies
to
file
specific
reports
or
answer
questions
in
writing
about
their
businesses.

“We
know
regulators
are
becoming
increasingly
focused
on
the
traditional
path
of
closing
an
acquisition,”
Newman
said. “Right
now,
the
game
is
having
access
to
the
most
fundamental
IP.”