Amazon spends $2.7B on startup Anthropic in largest venture investment

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

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

Over the past year, Anthropic closed five different funding deals worth about $7.3 billion — and with Amazon’s new investment, the total exceeded $10 billion. The company’s product competes directly with OpenAI’s ChatGPT in both the enterprise and consumer worlds, and was founded by former OpenAI research executives and employees.

News of Amazon’s investment comes just weeks after Anthropic debuted Cloud 3, its newest suite of AI models that it says are the fastest and most powerful yet. Is. The company said its new models outperformed OpenAI’s GPT-4 and Google’s Gemini Ultra on industry benchmark tests, such as undergraduate-level knowledge, graduate-level reasoning and basic math. demonstrated.

“Generative AI is poised to be the most transformative technology of our time, and we are confident that our strategic collaboration with Anthropic will further enhance our customer experiences, and look forward to what lies ahead,” said Swami Siva. said Subramanian, vice president of data and AI. AWS

Amazon’s move is the latest in spending among cloud providers to stay ahead of the AI ​​race. And it’s the second update to Anthropic’s capital structure in a week. Late Friday, a bankruptcy filing showed that crypto exchange FTX has reached an agreement with a group of buyers to sell most of its stake 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 investment of $29.1 billion in nearly 700 deals by 2023, according to PitchBook. went. OpenAI’s ChatGPT first demonstrated the tech’s ability to produce human-like language and creative content in late 2022. Since then, OpenAI has said that more than 92 percent of Fortune 500 companies have adopted the platform, spanning industries such as financial services, legal applications and education. .

Cloud providers like Amazon Web Services don’t want to get stuck with flat feet.

This is a symbolic relationship. As part of the deal, Anthropic said it will use AWS as its primary cloud provider. It will also use Amazon Chips to train, build and deploy its foundation models. Amazon is designing its own chips that could eventually compete with Nvidia.

Microsoft continues its spending spree with high-level investments in OpenAI. Microsoft’s OpenAI bet has reportedly reached $13 billion as the startup’s valuation tops $29 billion. Microsoft’s Azure is also OpenAI’s exclusive provider of computing power, which means startup success and new business flows back to Microsoft’s cloud servers.

Google, meanwhile, has backed Anthropic with its deal for Google Cloud. It agreed to invest up to $2 billion in Anthropic, including a $500 million cash infusion, with another $1.5 billion to be invested over time. Salesforce is also a supporter.

Anthropic’s new model suite, which was announced earlier this month, marks the first time the company has offered “multiplicity,” or added options like photo and video capabilities to generative AI. .

But multimodality, and increasingly complex AI models also pose more potential risks. Google recently took its AI image generator, part of its Gemini chatbot, offline after users discovered historical errors and questionable answers, which were widely circulated on social media.

Anthropic’s Claude 3 doesn’t make images; Instead, it allows users to upload only images and other documents for analysis.

“Certainly no model is perfect, and I think that’s a very important thing to have up front,” Anthropic co-founder Daniela Amodi told CNBC earlier this month. “We’ve tried very diligently to make these models as capable and safe as possible. Of course there will be places where the model still creates something from time to time.”

Amazon’s biggest venture bet before Anthropic was electric vehicle maker Raven, where it invested more than $1.3 billion. That too was a strategic partnership.

These contributions are growing amid further antitrust scrutiny. According to Pitchbook, the decline in acquisitions by the Magnificent Seven — Amazon, Microsoft, Apple, Nvidia, Alphabet, Meta and Tesla — has been offset by an increase in venture-style investments.

AI and machine learning investment by these seven tech companies reached $24.6 billion last year, up from $4.4 billion in 2022, according to Pitchbook. At the same time, big tech M&A deals fell from 40 deals in 2022 to 13 last year.

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

Big tech’s spending spree in AI has come into question because of the seemingly circular nature of these deals. By investing in AI startups, some, including Benchmark’s Bill Gourley, have accused the tech giants of plowing cash back into their cloud businesses, which, in turn, could show up as revenue. . Gurley described This as a way “to reduce their own income.”

The US Federal Trade Commission is closely scrutinizing these partnerships, including Microsoft’s OpenAI deal and Google and Amazon’s Anthropic investments. What’s sometimes called “round tripping” can be illegal — especially if the goal is to mislead investors. But Amazon has said that this type of venture capital investment is not round-tripping.

FTC Chair Lena Khan announced the inquiry during the agency’s Tech Summit on AI, describing it as a “market inquiry into investments and partnerships between AI developers and major cloud service providers.” .

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