Artificial intelligence (AI) is already making big changes to the corporate landscape. Generative AI applications are capable of answering in plain language almost any query posed to them. They can also create photos, documents, and video content based on user-generated parameters and even write computer code.
This latest version of the technology has real potential to drive the next productivity boom for businesses. Cathie Wood’s investment firm Ark Invest estimates that generative AI could add roughly $200 trillion to the global economy by 2030 by making knowledge workers — like lawyers, scientists, and software engineers — more efficient.
But the big technology companies aren’t the ones driving this revolution. Many of the major AI breakthroughs in 2023 were actually achieved by smaller start-ups. Hoping to benefit from this fact, tech giants are pouring billions of dollars into those up-and-comers to accelerate their progress and put their AI applications in front of millions of potential customers.
Let’s look at some of the start-ups attracting investments from trillion-dollar tech companies like Microsoft (MSFT -0.38%), Amazon (AMZN 0.38%), and Alphabet (GOOG -1.00%) (GOOGL -1.12%).
Image source: Getty Images.
1. OpenAI: The creator of ChatGPT
OpenAI is probably the best-known AI start-up this year thanks to its ChatGPT chatbot. The company made waves in the tech sector when it announced the AI model was available for use in November 2022, and it became the fastest-growing platform in history, amassing 100 million users in just two months.
Those waves became a tsunami when Microsoft made a $10 billion investment in the company in January on the back of that user growth. Microsoft had previously bet $1 billion on OpenAI back in 2019. In exchange, OpenAI agreed to be Microsoft’s exclusive partner for commercializing AI technologies.
The fruits of those deals are growing more ripe by the day. The Microsoft Azure cloud platform has attracted over 11,000 customers to the new Azure OpenAI Service segment, where it offers the latest GPT-4 AI models for businesses to build upon. Plus, OpenAI’s technology is now powering the AI capabilities of Microsoft Bing, 365, Edge, and Windows.
OpenAI has grown rapidly in a short amount of time. As part of its recent $10 billion investment, Microsoft will (reportedly) take 75% of OpenAI’s profits, until such time the tech giant has earned that money back. Microsoft’s overall investment in OpenAI is reported $13 billion at this point and its equity stake in the company amounts to 49%. Given the various investments in OpenAI, the company was valued at roughly $29 billion when the deal was made in January.
Recent reports suggest OpenAI is conducting another equity sale right now that could value it at a whopping $90 billion. That would make it one of the most valuable private enterprises in America, closely trailing Elon Musk‘s $140 billion SpaceX company.
2. Anthropic: Focusing on AI sustainability and safety
Anthropic describes itself as an AI safety and research company, and it was founded by seven former employees of OpenAI. Anthropic released its own generative AI applications, but it focuses on responsible development, and it pledges to only train AI models beyond certain capability thresholds if safety standards can be met.
Anthropic’s flagship generative AI chatbot is named Claude, and the company is attracting customers on the back of its safety strategies. Management tells businesses that Claude is designed to reduce brand risk because it has Constitutional AI — a training method that helps weed out harmful responses during conversation — built in.
Anthropic managed to attract the investment dollars of tech behemoths like Alphabet, Salesforce, and Zoom Video Communications, but the start-up was thrust into the spotlight in late September when Amazon swooped in and bought a $4 billion stake. It was the single-largest investment in Anthropic so far, and it comes with major benefits for Amazon’s cloud business, Amazon Web Services (AWS).
Anthropic will use AWS as its primary provider of cloud services, and the start-up will also train its future AI models using Amazon’s chips — Inferentia and Trainium — which gives the hardware some pedigree in an industry dominated by Nvidia. Plus, Anthropic will make its models available for business customers of AWS to build upon, which could attract more developers to the cloud platform.
Anthropic’s value was estimated at $4.1 billion in May, and reports suggest it’s seeking even more funding to supplement Amazon’s investment, which could value the start-up somewhere between $20 billion and $30 billion.
3. Builder.ai: The ultimate software development tool
Builder.ai is a little different from OpenAI or Anthropic. It does lean on generative AI, but it’s a structured platform of tools designed to help entrepreneurs develop software without requiring them to have any programming expertise.
The process starts with the customer engaging a human development expert who assists in designing and managing the project, and once pricing is agreed upon, Builder.ai’s AI assembles the software application. Small businesses that rely upon third-party plugins to process payments or take bookings from customers on their online store, for example, could discard those expensive tools in favor of building their own via Builder.ai. The best part is they take full ownership of the end product.
The start-up won an investment from Microsoft back in May. The specific details were undisclosed, but Builder.ai is almost certainly much smaller than OpenAI and Anthropic; reports suggest it has only raised a total of $450 million so far.
Microsoft has integrated Builder.ai into its Teams software, where customers can use it to build business applications for the workplace platform. However, I think integration with Microsoft Azure would eventually make a lot of sense because Builder.ai could help attract hordes of small businesses and serve as an on-ramp to the cloud platform.
Here’s how investors can own a slice of OpenAI, Anthropic, and Builder.ai
Unfortunately, these three start-ups remain privately held, so the average retail investor can’t buy a stake in them directly. Venture capitalists, private equity firms, and tech giants get those opportunities. However, to get some exposure to OpenAI, Anthropic, and Builder.ai, investors can buy shares in Microsoft, Amazon, and Alphabet.
Don’t get me wrong — those tech giants are each worth north of $1 trillion, so their investments in these start-ups probably won’t move the needle for any of them very much. But investors will benefit from their other AI initiatives, which are quickly ramping up, not to mention their other high-quality businesses.
Microsoft is a software, cloud, and gaming juggernaut; Amazon is the world’s largest e-commerce and cloud company; and Alphabet owns dominant platforms like Google Search and YouTube. The three tech giants will likely have a positive impact on any stock portfolio over the long term.
