Jun 28, 2023 - Technology

The AI buying spree is on

Illustration of bricklaying where the bricks have a digital binary glow

Illustration: Natalie Peeples/Axios

The race to lead in AI is spurring a fresh wave of corporate acquisitions and investments as tech companies seek to show customers they aren't sleeping on the red-hot technology.

Why it matters: AI is poised to reshape many industries, and the pressure is on CEOs to prove they have an AI strategy.

On the acquisition front, Databricks announced this week it is paying $1.3 billion (or $21 million per employee) to buy two-year-old startup MosaicML, which specializes in open source AI models.

  • Thomson Reuters, meanwhile, said Tuesday it will pay $650 million for legal AI assistant Casetext.

Hundreds of millions more is being invested by large tech companies for minority stakes in AI startups.

  • Earlier this month, Salesforce Ventures said it was doubling the size of its generative AI fund — to $500 million.
  • Venture arms from Google, Microsoft and others are also actively investing in AI startups.
  • Corporate investing can help larger firms get an insider view of startups' technical work and spot potential acquisition targets.

It's not just tech companies that are opening up their checkbooks. Consulting and other firms outside of tech are also stepping up their AI investments.

  • Accenture last week closed its purchase of Bangalore, India-based Flutura, which it says will boost its ability to offer AI services in the energy, chemicals, metals, mining and pharmaceutical industries.
  • PwC US recently announced it’s planning to invest $1 billion over the next three years in AI projects and the upskilling of its 65,000-person workforce.

Yes, but: The old Latin saying caveat emptor (buyer beware) applies here, too. Everyone these days says their company is an AI company.

Be smart: Not everyone needs to build their own ChatGPT.

  • For many companies, success will mean taking other companies' AI technology and combining it with their unique expertise or data sets.
  • At the same time, many existing businesses will find themselves under pressure from nimble new rivals who have an AI-based approach that can operate cheaper, better or faster.

Between the lines: Among early stage investors, there are now two different worlds — generative AI startups and then everything else, PitchBook has found.

  • "Investors are measuring generative AI and all other startups on very different criteria: the first on sheer potential and the latter on cold, hard revenue," PitchBook notes.
  • Median pre-money valuations for early-stage rounds of generative AI companies have jumped 16% so far this year compared to last year, while prices for all other startups raising Series A or Series B have dropped by nearly 24%, according to PitchBook data.
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