Generative AI boom sparks investment spree

Generative AI, or GenAI, the term for artificial intelligence systems able to generate text, images, video, audio and other media in response to prompts, is making waves within the global technology sector and beyond. The launch of ChatGPT in November 2022 placed this burgeoning segment of AI firmly on the public radar. The technology’s potential to automate and streamline tasks that would otherwise require human intervention has produced countless headlines, some optimistic and some bleak.

While many questions about the technology remain unanswered, the economic potential of GenAI is attracting significant attention. Valued at US$40 billion in 2022, Bloomberg Intelligence projects that the global market may grow to US$1.3 trillion by 2032.

High-growth GenAI startups have also been capturing investor attention. A flurry of venture capital and M&A transactions have been announced since ChatGPT’s launch, as dealmakers seek out competing startups that look set to shake up the industry.

Microsoft’s big bet

Microsoft kicked off 2023 with a landmark investment in ChatGPT developer OpenAI, which will see the US software giant acquire a 34.5% stake in the company for a reported consideration of US$10 billion, based on an enterprise value of US$29 billion. This follows Microsoft’s initial US$1 billion investment round in the AI research company held in July 2019, as the software group looks to integrate OpenAI’s technology across its business operations.

Microsoft’s strategic investment in OpenAI—widely viewed as a market leader in the GenAI space—highlights the value sought in large language models. This technology builds on earlier forms of machine learning through its capability for “zero-shot” learning, which is the ability to carry out new tasks without previous training. Open AI’s newest form of its software, GPT-4, offers users a unique conversational experience, answering follow-up questions and even turning down requests deemed inappropriate.

In April, a group of investors including Sequoia Capital, Andreessen Horowitz, Thrive and K2 Global poured a further US$300 million into OpenAI, underscoring the faith investors are placing in GenAI’s tremendous growth potential.

VCs race to fund the next big thing

The investments in OpenAI sparked a buying spree among venture capital investors looking to be a part of a credible competitor to ChatGPT. While many VCs have cooled on investments in other tech innovations such as cryptocurrency and blockchain—and with VC funding in general down 53% year over year in Q1 2023—GenAI is a bright spot.

Rapid innovation, or in some cases pivoting, by startups has generated a stream of GenAI competitors coming to market, as VC firms are eagerly pursuing these opportunities. In 2022 alone, investment in the sector reached US$2.1 billion—a 425% increase compared to 2020, according to PitchBook data.

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Generative AI boom sparks investment spree
SophoTree Inc, Alexander D. Kostopoulos August 30, 2023
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