Amazon spent $2.75 billion on Anthropic, becoming its largest venture investment to date

Amazon is making the biggest outside investment in its three-decade history as it seeks to gain an edge in the artificial intelligence race.

The tech giant said it will spend another $2.75 billion to support Anthropic, a San Francisco startup widely seen as a leader in 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 marked the second tranche of this funding for Amazon.

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

Over the past year, Anthropic has closed five different financing deals valued at approximately $7.3 billion. The company’s product directly competes with OpenAI’s ChatGPT in both the enterprise and consumer worlds, and it was founded by former OpenAI academic leaders and employees.

News of Amazon’s investment comes weeks after Anthropic unveiled Claude 3, its latest suite of artificial intelligence models that the company says is its fastest and most powerful yet. The company said the most powerful of its new models outperformed OpenAI’s GPT-4 and OpenAI. GoogleGemini Ultra on industry tests such as undergraduate level knowledge, graduate level reasoning and basic mathematics.

“Generative AI has the potential to be the most transformative technology of our time, and we believe our strategic collaboration with Anthropic will further enhance the experience for our customers and look forward to what comes next,” said Swami Sivasubramanian, Vice President of data and artificial intelligence company Cloud provider AWS.

Amazon’s move is the latest among cloud service providers to stay ahead in the AI ​​race. And this is Anthropic’s second capital structure update in a week. Late Friday, a bankruptcy filing revealed that cryptocurrency exchange FTX had struck a deal with a group of buyers to sell the majority of its stake in Anthropic, confirming a CNBC report last week.

The term “generative artificial intelligence” entered the mainstream and business vernacular overnight, and the field has grown dramatically over the past year, with a record $29.1 billion invested in nearly 700 deals in 2023, according to PitchBook. OpenAI’s ChatGPT will first demonstrate the technology’s ability to create human language and creative content in late 2022. Since then, OpenAI has said that more than 92% 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 be caught off guard.

It’s a symbiotic relationship. As part of the agreement, Anthropic said it would use AWS as its primary cloud service provider. It will also use Amazon chips to train, build and deploy its base models. Amazon is developing its own chips that could eventually compete Nvidia.

Microsoft has been a big spender, with a high-profile investment in OpenAI. Microsoft’s bid for OpenAI has reportedly jumped to $13 billion as the startup’s valuation topped $29 billion. Microsoft Azure is also the exclusive provider of OpenAI’s computing power, meaning startup success and new business flows back into Microsoft’s cloud servers.

Meanwhile, Google has also backed Anthropic with its own Google Cloud deal. It has decided to invest up to $2 billion in Anthropic, including a cash injection of $500 million, with a further $1.5 billion to be invested over time. Salesforce is also a sponsor.

Anthropic’s new set of models, announced earlier this month, marks the first time the company has proposed “multimodality,” or adding capabilities such as photo and video capabilities to generative artificial intelligence.

But multimodality and increasingly complex AI models also bring increased potential risks. Google recently disabled its AI image generator, part of its Gemini chatbot, after users discovered historical inaccuracies and questionable answers that were widely shared on social media.

Anthropic’s Claude 3 does not generate images. Instead, it only allows users to upload images and other documents for analysis.

“Of course, no model is perfect, and I think it’s really important to say that up front,” Anthropic co-founder Daniela Amodei told CNBC earlier this month. “We tried very hard to make these models as functional and safe as possible. Of course, there will be places where models still come up with something from time to time.”

Amazon’s biggest venture bet before Anthropic was an electric vehicle maker Rivianwhere he invested more than $1.3 billion. This was also a strategic partnership.

These partnerships are gaining momentum in the face of increased antitrust scrutiny. Fall of Magnificent Seven acquisitions – Amazon, Microsoft, AppleNvidia, Alphabet, Meta And Tesla — was offset by an increase in venture capital investment, according to Pitchbook.

Investment in artificial intelligence and machine learning by these seven tech companies jumped to $24.6 billion last year, up from $4.4 billion in 2022, according to Pitchbook. At the same time, the number of mergers and acquisitions among major technology companies fell from 40 deals in 2022 to 13 last year.

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

Big tech companies’ increased spending on artificial intelligence has been criticized due to the seemingly cyclical nature of these agreements. Some observers, including Benchmark’s Bill Gurley, have accused tech giants by investing in artificial intelligence startups of funneling money back into their cloud businesses, which in turn could weigh on earnings. Gurley described it’s like a way to “increase your own income.”

The US Federal Trade Commission is scrutinizing these partnerships, including Microsoft’s OpenAI deal and Google and Amazon’s investment in Anthropic. What is sometimes called “back and forth” may be illegal, especially if the purpose is to mislead investors. But Amazon said this type of venture investing is not a round trip.

FTC Chairwoman Lina Khan announced the investigation during the agency’s artificial intelligence technical summit, calling it “a market investigation of investments and partnerships forming between artificial intelligence developers and large cloud service providers.”

Correction: This article has been updated to clarify deals Anthropic made last year.