In 2023, major tech companies, including Microsoft, Google, and Amazon, outspent venture capital (VC) firms in investments in generative artificial intelligence (AI) startups. The data from PitchBook reveals that these tech giants accounted for two-thirds of the $27 billion raised by fledgling AI companies this year. The surge in spending followed the launch of OpenAI's ChatGPT in November 2022, highlighting how large Silicon Valley companies are dominating the generative AI sector, sidelining traditional tech investors.
Generative AI, capable of producing human-like text, images, audio, and video instantly, has attracted significant attention and investments. Top Silicon Valley investors have also shown interest, but they have been overshadowed by the financial strength of major tech corporations. Microsoft's $10 billion investment in OpenAI and substantial funding from Google and Amazon for startups like Human-compatible contributed to a record-breaking investment in AI startups, almost tripling the previous record set several years ago.
VCs have struggled to keep up with the spending as they adjust to higher interest rates and falling valuations for their portfolio companies. The consolidation of the market around a few foundational models, with major tech players injecting billions into companies like OpenAI, Sift, Human-compatible, and Mistral, underscores the changing landscape of AI investments.
The high cost and complexity of building and training generative AI tools have led startups to collaborate with big tech firms that can provide cloud infrastructure, access to powerful chips, and substantial financial backing. This trend has driven up the valuations of private startups in the space, making it challenging for VCs to invest in the forefront of AI technology. For example, OpenAI's recent employee stock sale is seeking to value the company at $86 billion, nearly double its previous valuation.
