An fascinating new report by Dealroom and Stream Companions breaks down the large funding that the “Magnificent Seven” (or M7 for brief) are plowing into AI throughout verticals.
It’s inconceivable to disregard the impression that Google/Alphabet, Microsoft, Amazon, Nvidia, Meta, Apple and Tesla/xAI have on AI. With a mixed worth of $14 Trillion (representing 32% of the S&P 500), these firms make investments $400 billion a 12 months into frontier applied sciences, specifically AI and cloud infrastructure.
This put up highlights just a few fascinating factors that stood out from the report “The Enterprise Capital frontier & the brand new AI Wild West” (hyperlink on the backside of the put up).
We’re coming into a brand new innovation cycle of AI and automation
Based on the report, this can be a cycle that occurs each 20 years or so (the PC period, the Web period (together with the shift to cellular and cloud), and now AI & Automation). , however little doubt that the present incarnation of AI is a tectonic shift and the incumbents are all leaning in, particularly since a few of them missed the earlier ‘leaps’.
Fierce competitors is driving turf wars
As I wrote in my put up ‘the evolution of tech wars‘, the necessity for progress is driving the magnificent seven to search for new progress areas (aka, billion greenback market alternatives). Competitors for AI {hardware} layer and AI mannequin layer is heating up, and to pay attention efforts, these firms are diverting assets – for instance, Meta shut down Office, its enterprise providing.
Prior to now, acquisitions performed a key position in turf wars, however regulatory scrutiny shifted the main focus to investments
Whereas acquisitions are nonetheless taking place (Nvidia acquired Israeli startups Run:AI and Deci AI in Could for a mixed $1 billion) regulatory scrutiny on M&A is shifting the main focus to enterprise capital. The magnificent seven accomplished solely 7 acquisitions in 2023, however participated in 208 VC offers.
Up to now in 2024, the magnificent seven invested $24.8 billion in VC offers, greater than the UK enterprise investments per 12 months mixed.
The extent of funding in enterprise by these strategic gamers elevated a lot, that they’re now the largest buyers in tech in 2023-2024, primarily within the late stage, the place conventional VCs left a vacuum.
Till now, a lot of the funding went to infrastructure and basis fashions
In a means, funding within the infrastructure layer and foundational fashions might be seen as a barter deal for the magnificent seven – take my cash, however decide to spend it on my companies (Nvidia, Amazon, Microsoft, Alphabet). Basis fashions required deep pockets: they required costly engineers, GPUs and entry to knowledge.
Slowly, there’s a shift into the appliance layer, and utilized AI
As my accomplice Kevin Baxpehler talked about in “the actual promise of Gen AI is within the apps, not the pipes“, we’re beginning to see extra of an emphasis on purposes of the expertise vs. infrastructure. There are a number of causes for this shift, and regulation performs a job right here as nicely.
However the exercise of the M7 gamers is throughout the stack: from {hardware} chips, to foundational LLMs by means of to humanoid robotics, self driving expertise, AI well being, and many others.
Throughout the utility layer, there are large alternatives in utilized AI – healthcare, gadgets, media, software program cloud, local weather, training, defence, mobility and manufacturing, representing $50 trillion in financial potential.
The Race to AGI
The objective, it appears, for every of the M7 firms, is to be the primary to achieve AGI. It’s unclear how far we’re from getting there or who will get there first, however every firm is leveraging its personal benefits.
Gadget lock in – Apple, Tesla and to an extent Alphabet
? Person and knowledge flywheel – Alphabet, Meta, xAI, Amazon(and to an extent) Anthropic and OpenAI
? Expertise head begin – Nvidia, OpenAI and Anthropic
? Enterprise lock in – Microsoft, Amazon, Nvidia
Information centres might quickly eat up to19% of the US nationwide energy utilization…
One remaining fascinating perception is that the power calls for of the magnificent seven are rivalling these of small nations, which implies that they should make investments so as to flip into sustainable power firms. Limitless clear power provide (fusion, fission, photo voltaic and geothermal) will likely be a vital success issue.
In conclusion
In relation to startups, to outlive within the generative AI market, founders want to seek out alternatives that aren’t core to the magnificent seven, except they’re in a position to safe sufficient funding to compete. More and more, vertical utilized AI alternatives, and the LLM ops/ orchestration layer, appear to be the areas the place that potential will be discovered.
For extra color on what areas the M7 firms are investing in and what could be subsequent within the battle of AI supremacy, I like to recommend studying the complete report.
I am a former common accomplice at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google’s first bodily hub for startups.
I am additionally the founding father of Techbikers, a non-profit bringing collectively the startup ecosystem on biking challenges in assist of Room to Learn. Since inception in 2012 we have constructed 11 colleges and 50 libraries within the creating world.
