Due to the unfavorable regulatory environment, tech giants are not making as many acquisitions as they used to. Instead, they are spending billions of dollars on the “next big thing.”

Amazon’s $2.75 billion investment in AI startup Anthropic is its largest venture ever, and the latest example of the AI ​​craze that has some of the biggest tech companies opening their wallets.

Anthropic is the developer of the Claude AI model, competing with OpenAI’s GPT and Google’s Gemini. From Meta to Apple, everyone is racing to integrate AI into their product and feature portfolios to ensure they don’t fall behind in a market that is expected to reach $1 trillion in revenue within a decade.

Amazon is among the tech giants opening their wallets to generative AI startups. Photo: Synthesia

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

A significant portion of that money is strategic, coming from tech companies rather than venture capitalists or other institutions. Fred Havemeyer, head of US software and AI research at Macquarie, said that fear of missing out (FOMO) was a factor in their decision.

“They definitely don’t want to miss out on being part of the AI ​​ecosystem,” Havemeyer said. “I definitely have FOMO in that market.”

Huge investments are needed because AI models are notoriously expensive to build and train, requiring thousands of specialized chips. Meta, which is developing its own model Llama, revealed it is spending billions of dollars on Nvidia GPUs.

Whether they take the building or investing route, only a handful of companies have the potential to play the market. In addition to chip development, Nvidia has emerged as one of Silicon Valley’s leading investors, taking stakes in a number of emerging AI companies. Similarly, Microsoft, Google, and Amazon sometimes offer cloud credits as part of their investments.

The Amazon-Anthropic deal will see the two companies collaborate closely in a number of ways. Anthropic will use Amazon Web Services (AWS) for its computing needs, as well as Amazon chips. Anthropic’s models will be distributed by Amazon to AWS customers. Earlier this month, Anthropic launched Claude 3, its most powerful model yet, allowing users to upload photos, graphs, documents, and other types of unstructured data for analysis and answers.

Microsoft has been an AI investor before, investing $1 billion in OpenAI in 2019. That investment has grown to about $13 billion. Microsoft uses many of OpenAI's models and offers open-source models on its Azure cloud.

Alphabet, Google’s parent company, plays both the role of builder and investor. The company has refocused its product development on generative AI and the Gemini model, adding features to search, documents, maps, and more. Last year, Google committed to investing $2 billion in Anthropic, after confirming it had acquired a 10% stake in the startup alongside a major cloud deal between the two companies.

Havemeyer said the investments fit well with their product roadmaps. “I don’t think it’s frivolous,” he said. Alliances with major cloud providers not only provide startups with much-needed cash, but also help them gain more customers, he said.

'Shaping the next decade'

In recent earnings calls, tech leaders have reiterated their focus on generative AI, making it clear to investors that they have to spend money to make money, whether developing internally or through investing in startups.

Microsoft CFO Amy Hood said it will continue to prioritize investing in AI, “which will shape the next decade.”

Leaders from Google, Apple and Amazon have also hinted at a willingness to make drastic cost cuts to redirect more funding to AI efforts.

Startups are among the beneficiaries.

In addition to OpenAI, Microsoft also has stakes in Mistral, Figure, and Humane. The company invested in Inflection AI before the startup essentially dissolved and joined Microsoft in March. Mistral focuses on open source, uses the Azure cloud, and provides services to Azure customers.

Figure, a startup looking to build robots that walk like humans, has raised money from Microsoft, OpenAI and Nvidia and is valued at $2.6 billion.

Amazon's biggest bet is Anthropic, where it has invested a total of $4 billion to date. The company has also invested in 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 investing in Runway ML, an AI company known for its video editing and visual effects tools. Other companies in Nvidia’s portfolio include Mistral, Perplexity and Cohere.

Meanwhile, many Big Techs continue to spend internally to develop their own models. Microsoft is investing in many of the foundational techniques for generative AI through its Microsoft Research division. Amazon is reportedly planning to train a larger, more data-hungry model than OpenAI’s GPT-4.

Apple researchers recently published details of their work with MM1, a family of small AI models that can take both text and image inputs. Apple is reportedly looking for AI partners, including Google in the US and Baidu in China.

(According to CNBC)