The generative AI arms race is just starting

Venture capitalists are pouring hundreds of millions of dollars into generative AI startups.

Driving the news: Reid Hoffman of Greylock Partners, an iconic Silicon Valley investor, just announced he’s leaving Open AI’s nonprofit board to avoid conflicts of interest with coming investments.

• “There are future trillion-dollar companies being built and invested in right now,” Hoffman wrote on LinkedIn (which he co-founded), “which will not only change markets, but launch new ones.”

Why it matters: Generative AI could become as foundational to life and work as today’s cloud and mobile. So there’s an accelerating arms race to shape — and profit from — that future.

What’s happening: OpenAI’s relationship with Microsoft helped ChatGPT leap out of the starting gates. That also has emboldened competitors, who wager that partnering with a legacy tech giant will prove cumbersome.

• So Silicon Valley venture investors have swiftly pivoted from “OpenAI is the next transformational tech company” to “We’ve found a way to beat it.”
• Even many non-tech companies are tinkering with — and productizing on top of — the sorts of large language models that underpin ChatGPT.

Between the lines: The generative AI that has captured the public imagination today — notably OpenAI’s ChatGPT and Microsoft’s AI-powered Bing — requires tremendous computing resources.

• That means the core tech is likely to emanate from huge firms, running on the cloud computers of giants like Google and Microsoft.

• But plenty of startups will harness these technologies, and apply them to specific industries or consumer businesses.

Our thought bubble: Because of the huge resources and data troves that AI innovation requires, this cycle of tech competition could be more winner-take-all than previous rounds.

• Startup investors are betting they can overcome those forces.
• But newcomers will be building on Microsoft and Google models and clouds, then hoping they might be acquired by the giants — unless antitrust regulators try to block the deals.

Reality check: Venture capitalists are fickle, as evidenced by brief funding booms in nanotech and the metaverse.

• Ina Fried and Scott Rosenberg contributed reporting.