Amazon is making its largest outside investment in three decades to obtain a competitive advantage in artificial intelligence (AI).
The IT titan said that it will invest another $2.75 billion in Anthropic, a San Francisco-based business generally regarded as a pioneer in generative artificial intelligence. Its foundation model and chatbot Claude compete against OpenAI and ChatGPT.
In September, the firms announced an initial investment of $1.25 billion, with Amazon promising to invest up to $4 billion. Wednesday’s announcement represents Amazon’s second round of funding.
According to the company, Amazon will retain a minority ownership in Anthropic but will not have a seat on the board. According to a source, the agreement was finalized at the AI startup’s most recent valuation of $18.4 billion.
Anthropic has concluded five funding rounds totaling around $7.3 billion during the last year. The company’s product competes directly with OpenAI’s ChatGPT in both the enterprise and consumer markets, and it was formed by former OpenAI researchers and staff.
The announcement of the Amazon investment comes just weeks after Anthropic introduced Claude 3, its latest suite of AI models, which it claims is its quickest and most powerful yet. The business claimed that the most capable of its new models surpassed OpenAI’s GPT-4 and Google Gemini Ultra performs well on industry standard examinations such undergraduate level knowledge, graduate level thinking, and basic mathematics.
“Generative AI is poised to be the most transformational technology of our time, and we believe our strategic collaboration with Anthropic will further improve our customers’ experiences, and we look forward to what’s next,” said Swami Sivasubramanian, AWS’s vice president of data and AI.
Amazon’s move is the latest in a wave of spending by cloud providers to remain ahead of the AI race. Anthropic’s capital structure has been updated for the second time in a week. Late Friday, bankruptcy filings revealed that crypto exchange FTX signed a deal with a group of bidders to sell the majority of its share in Anthropic, corroborating a CNBC report from Thursday
What is generative AI?
The term “generative AI” appeared in the popular and business language practically overnight, and the area has surged over the last year, with a record $29.1 billion spent across nearly 700 deals in 2023, according to Pitchbook. OpenAI’s ChatGPT demonstrated the technology’s ability to generate human-like language and creative content in late 2022. Since then, OpenAI has announced that more than 92% of Fortune 500 firms have chosen the platform, which spans industries such as financial services, legal applications, and education.
Cloud companies, such as Amazon Web Services, do not want to be caught off guard.
This is a symbiotic interaction. As part of the partnership, Anthropic stated that it will use AWS as its primary cloud provider. It will also employ Amazon chips to train, construct, and deploy its foundational models. Amazon has been developing CPUs that might compete with Nvidia.
Microsoft just announced a significant investment in OpenAI. Microsoft’s OpenAI investment has reportedly increased to $13 billion, while the startup’s valuation has surpassed $29 billion. Microsoft Azure is also OpenAI’s sole computer power source, thus the startup’s success and new business go back to Microsoft’s cloud servers.
Google, meantime, has backed Anthropic with its own Google Cloud contract. It agreed to invest up to $2 billion in Anthropic, which includes a $500 million immediate infusion and an additional $1.5 billion over time. Salesforce is also a backer.
Anthropic’s latest model suite, introduced earlier this month, is the company’s first to offer “multimodality,” which includes photo and video capabilities in addition to generative AI.
However, multimodality and increasingly complex AI models introduce new hazards. Google recently removed its AI picture generator, which was part of their Gemini chatbot, after users uncovered historical mistakes and questionable responses that were extensively shared on social media.
Anthropic’s Claude 3 does not produce photos. Instead, users can only upload photographs and papers for examination.
“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 worked hard to make these models as capable and safe as feasible. Of course, the model will occasionally make stuff up.”
Prior to Anthropic, Amazon invested more than $1.3 billion in Rivian, an electric vehicle developer. This, too, was a strategic relationship.
These alliances have grown in response to increased antitrust monitoring. According to Pitchbook, the Magnificent Seven — Amazon, Microsoft, Apple, Nvidia, Alphabet, Meta, and Tesla — have decreased acquisitions but increased venture-style investing.
According to Pitchbook, seven major tech companies invested $24.6 billion on AI and machine learning last year, up from $4.4 billion in 2022. At the same time, Big Tech’s M&A activity decreased from 40 deals in 2022 to 13 last year.
“There is a sort of paranoia motivation to invest in potential disruptors,” Pitchbook AI analyst Brendan Burke explained in an interview. “The other motivation is to increase sales, and to invest in companies that are likely to use the other company’s product — they tend to be partners, more so than competitors.”
Big Tech’s AI investment frenzy has come under scrutiny due to the agreements’ apparent circular nature. Some analysts, like Benchmark’s Bill Gurley, have accused the internet titans of funneling funds back into their cloud companies, which may appear as revenue. Gurley described it as a means to “goose your own revenues.”
The US Federal Trade Commission is investigating various collaborations, including Microsoft’s OpenAI transaction and Google and Amazon’s Anthropic investments. What is frequently known as “round tripping” can be illegal, especially if the goal is to deceive investors. However, Amazon has stated that this form of venture funding does not constitute round tripping.
FTC Chair Lina Khan launched the inquiry during the agency’s AI technology summit, describing it as a “market inquiry into the investments and partnerships being formed between AI developers and major cloud service providers.”
Correction: This post has been updated to explain the transactions Anthropic has completed in the last year.
Amazon spends $2.75 billion on AI startup Anthropic in its largest venture investment yet
