When Anthropic goes public this month in what is expected to be one of the biggest initial public offerings in history, it will mint billionaires and flood its hometown, San Francisco, with new wealth.
But some of the biggest beneficiaries will be tech industry giants that are already worth trillions of dollars. Amazon and Google invested in Anthropic and are its largest outside shareholders, together owning more than a quarter of its shares.
If Anthropic’s IPO goes as it hopes, the company will be worth as much as $1.4 trillion. Amazon’s $18 billion investment could balloon to be worth more than $250 billion, and Google’s $33 billion into $140 billion.
The size and sheer speed of the gains are without parallel in the history of corporate venture investments. And they reflect a paradox of the artificial intelligence boom: While startups are at the forefront of AI development, the industry’s biggest companies have profited the most from demand for the technology.
Gil Luria, a tech analyst at investment bank D.A. Davidson, estimated that more than $1 trillion in market capitalization — largely from providing the startup cloud computing and offering its AI to their customers — for each of the companies was a direct result of their relationship with Anthropic.
AI is “an extraordinarily unusual opportunity to forever change the size” of Amazon, Andy Jassy, the company’s CEO, told investors this year.
The big tech companies were in the position to benefit from Anthropic’s rise because they ran some of the most profitable businesses in the world. Like its close competitor OpenAI, Anthropic, which was founded just five years ago, needed huge cash infusions to pay for its AI development. Only a handful of companies were capable of providing that much money.
Even Nvidia, now one of the most valuable companies in the world, did not have that much money on hand a few years ago. The company simply wasn’t “in a position to make the multibillion-dollar investment into Anthropic so that they could use our compute,” Jensen Huang, Nvidia’s CEO, said on a podcast this year.
The bets on Anthropic were made when two factors collided. After Anthropic was founded in 2021, its early investors were primarily wealthy individuals, including Jaan Tallinn, a co-founder of Skype, and cryptocurrency mogul Sam Bankman-Fried. After Bankman-Fried’s company collapsed in scandal and bankruptcy, Anthropic’s future was uncertain.
Just weeks later, OpenAI quietly released ChatGPT and ignited the AI race.
Amazon was an initial donor to OpenAI when it started as a nonprofit in 2015, but passed several years later when OpenAI was looking for a major partner to fuel its ambitions. Instead, Microsoft invested $1 billion in OpenAI in 2019.
The early success of ChatGPT, and its halo over Microsoft, set off a scramble for everyone else.
The big tech companies have seen a strategic benefit from working with Anthropic. They provided advanced chips and computing power to the startup and have access to Anthropic’s systems to sell to customers.
Google made its first Anthropic investment in 2023, and Anthropic committed to using Google’s in-house chips. In September 2023, Amazon, which was dogged by the perception that it was an AI laggard, put in its first $1.25 billion. At the same time, Anthropic named Amazon its primary provider of cloud computing services.
The relationship was “very symbiotic,” Adam Selipsky, who led Amazon’s cloud services division, said in an interview that fall. “Folks at Anthropic are very smart — some of the best technical minds in the world.”
Anthropic gave Amazon a cutting-edge customer that could push the tech company to radically improve its in-house AI chips, which aim to compete with Nvidia’s. And Amazon committed to provide Anthropic vast amounts of computing capacity.
Selipsky called the equity investment in Anthropic “a natural outcropping of that strong, strong business relationship.”
For Jassy, the investment was a low-risk bet because Amazon could promote its cloud relationship with Anthropic, said Matt McIlwain, a managing partner at Madrona Venture Group in Seattle.
“The upside,” McIlwain said, “came in the form of being a significant equity holder.”
Marc Benioff, the CEO of Salesforce, said on a recent podcast that his company had also invested in Anthropic as a Plan B. He said Sam Altman, the CEO of OpenAI, had told him that OpenAI’s relationship with Microsoft prevented Salesforce, a competitor, from investing.
“We felt like, ‘Whoa, we can’t go here; we’re going to have to go everywhere else,’ and so we ended up with Anthropic,” Benioff said. “I think we’ll make not just billions but maybe tens of billions of dollars on it,” he added.
Amazon and Google added to their investment over the years and expanded their computing deals. Amazon is building one of the largest data centers on the globe specifically for Anthropic’s needs.
After the public offering, few expect the big tech companies to sell off most of their stakes quickly. Google, Microsoft and a few others are planning to buy more shares in the private placement alongside Anthropic’s IPO. “Their stake is strategic,” Luria said, and the relationship gives them access to computing volumes and chip deals.
Whether the big tech companies are ultimately winners depends on whether AI demand ultimately justifies the enormous investments.
“There is a circularity in investing here, partly driven by not wanting to be left out,” said Aswath Damodaran, who teaches corporate finance and valuation at the Stern School of Business at New York University.
He likened the AI frenzy to building the biggest factory ever but not knowing exactly what the factory will make, whether people will buy what it produces or how much they will pay for it.
“It is a loaded bet,” he said, “but I don’t think anybody wants to be left out of the bet.”
This article originally appeared in The New York Times.
Source: Khaleej Times