Amazon spends $2.75B on Anthropic in largest venture investment yet

Amazon spends $2.75B on Anthropic in largest venture investment yet

Amazon is making the largest outside investment in its three-decade history to gain a lead in the artificial intelligence race.

The tech giant said it would spend an additional $2.75 billion to back Anthropic, a San Francisco-based startup widely considered a pioneer in the field of generative artificial intelligence. Its base model and chatbot Claude competes with OpenAI and ChatGPT.

The companies announced an initial investment of $1.25 billion in September and said at the time that Amazon would invest up to $4 billion. Wednesday’s news marks the second tranche of this funding from Amazon.

Amazon will retain a minority stake in the company and will not have a seat on Anthropic’s board, the company said. According to a source, the deal closed at the AI ​​startup’s last valuation, which was $18.4 billion.

Last year, Anthropic closed five different financing deals worth around $7.3 billion. The company’s product directly competes with OpenAI’s ChatGPT in both the enterprise and consumer spaces and was founded by former OpenAI research executives and employees.

News of the Amazon investment comes weeks after Anthropic unveiled Claude 3, its latest suite of AI models that are said to be the fastest and most powerful yet. The company said the most powerful of its new models outperformed OpenAI’s GPT-4 and Google‘s Gemini Ultra to industry benchmark tests, such as: B. Undergraduate-level knowledge, graduate-level reasoning, and basic mathematics.

“Generative AI is poised to become the most transformative technology of our time, and we believe our strategic collaboration with Anthropic will further enhance our customers’ experiences and look forward to the future,” said Swami Sivasubramanian, vice president of data and AI at AWS cloud provider.

Amazon’s move is the latest in a spending boom among cloud providers to stay ahead of the AI ​​competition. And it’s the second update to Anthropic’s capital structure in a week. Late Friday, bankruptcy filings showed that crypto exchange FTX had struck a deal with a group of buyers to sell a majority of its shares in Anthropic, confirming a CNBC report from last week.

The term “generative AI” entered the mainstream and business vernacular seemingly overnight, and the field has exploded over the past year, with a record $29.1 billion invested across nearly 700 deals in 2023, according to PitchBook. OpenAI’s ChatGPT first demonstrated the technology’s ability to produce human-like language and creative content in late 2022. Since then, more than 92% of Fortune 500 companies have adopted the platform, across industries such as financial services, legal applications and education, according to OpenAI.

Cloud providers like Amazon Web Services don’t want to be caught off guard.

It’s a symbiotic relationship. As part of the agreement, Anthropic said it will use AWS as its primary cloud provider. In addition, Amazon chips are used to train, build and deploy its base models. Amazon has developed its own chips that it could eventually compete with Nvidia.

Microsoft was on its own buying spree with a high-profile investment in OpenAI. Microsoft’s OpenAI bet has reportedly risen to $13 billion as the startup’s valuation surpasses $29 billion. Microsoft’s Azure is also OpenAI’s exclusive provider of computing power, meaning the startup’s success and new business flow back to Microsoft’s cloud servers.

Google has now also supported Anthropic with its own deal for Google Cloud. It agreed to invest up to $2 billion in Anthropic, a cash injection of $500 million, with an additional $1.5 billion to be invested over time. Salesforce is also a supporter.

Anthropic’s new suite of models, announced earlier this month, is the first time the company has offered “multimodality,” or added options like photo and video capabilities to generative AI.

But multimodality and increasingly complex AI models also lead to more potential risks. Google recently took offline its AI image generator, part of its Gemini chatbot, after users discovered historical inaccuracies and questionable answers circulating widely on social media.

Claude 3 by Anthropic does not generate images. Instead, users can only upload images and other documents for analysis.

“Of course no model is perfect, and I think that’s a very important thing to say upfront,” Anthropic co-founder Daniela Amodei told CNBC earlier this month. “We have tried very carefully to make these models as powerful and safe as possible. Of course there will be places where the model will catch up from time to time.”

Amazon’s biggest venture bet before Anthropic was the electric vehicle maker Rivian, where more than $1.3 billion was invested. This was also a strategic partnership.

These partnerships have gained momentum amid increasing antitrust scrutiny. A decline in acquisitions by the Magnificent Seven – Amazon, Microsoft, AppleNvidia, Alphabet, Meta And Tesla – was offset by an increase in risk-taking investments, according to Pitchbook.

According to Pitchbook, these seven tech companies’ investments in AI and machine learning rose to $24.6 billion last year, up from $4.4 billion in 2022. At the same time, Big Tech’s M&A deals fell from 40 deals in the year Year 2022 to 13 last year.

“There is a kind of paranoid motivation to invest in potential disruptors,” said Brendan Burke, AI analyst at Pitchbook, in an interview. “The other motivation is to increase sales and invest in companies that are likely to use the other company’s product – they are more likely to be partners than competitors.”

Big Tech’s AI buying spree has come under fire because of the seemingly circular nature of these deals. Some observers, including Benchmark’s Bill Gurley, have accused the tech giants of pouring money back into their cloud businesses by investing in AI startups, which in turn could be reported as revenue. Gurley described it as a way to “increase your own revenue.”

The US Federal Trade Commission is taking a closer look at these partnerships, including Microsoft’s OpenAI deal and Google and Amazon’s Anthropic investments. What is sometimes called “round-tripping” can be illegal – especially if the goal is to mislead investors. However, Amazon has stated that this type of venture investment does not constitute round-tripping.

FTC Chair Lina Khan announced the investigation during the agency’s technology summit on AI, describing it as a “market investigation into the investments and partnerships being formed between AI developers and major cloud service providers.”

Correction: This article has been updated to clarify deals Anthropic has completed over the past year.

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2024-03-27 18:22:49