Google is committing a substantial $2 billion investment into Anthropic, a prominent artificial intelligence company, cementing their partnership and igniting Silicon Valley’s AI enthusiasm. This significant deal is structured as a convertible note, representing a type of debt that will transform into equity during Anthropic’s next funding round, as confirmed by an Anthropic spokesperson. It’s noteworthy that Inc. had previously injected up to $4 billion into Anthropic through a similar convertible note investment earlier in the year.

The next phase for Anthropic

In their most recent financial commitment, Alphabet Inc.’s Google has provided an initial $500 million, coupled with a pledge to contribute an additional $1.5 billion in the near future. These insights come from individuals familiar with the matter who, due to confidentiality, prefer to remain unnamed. Google’s current investment builds upon the $550 million they previously allocated to Anthropic earlier this year.

Preceding this financial move, Google also sealed a substantial cloud agreement with the startup, which, according to an insider, surpasses the recent investment in magnitude. This cloud deal involves Anthropic’s utilization of Google’s suite of computing services and extends over multiple years.

This may involve seeking traditional funding instead of convertible debt. At this juncture, both Google and Amazon’s contributions will transition into equity, resulting in a revaluation of the company. Some sources suggest that it had deliberated a valuation ranging from $20 billion to $30 billion, a price tag that may appear steep to certain investors. Earlier this year, PitchBook data had pegged the startup’s valuation at approximately $5 billion.

Despite these possibilities, it is unlikely to rush into raising more capital, given its recent cash influx from Google and Amazon, according to well-informed sources.

For both Google and Amazon, their investments in startups like the startup represent an opportunity to solidify partnerships with companies at the forefront of the next AI wave. Furthermore, it enables them to encourage the adoption of their proprietary cloud tools, an essential resource as AI’s ubiquity continues to grow. This increased prevalence of AI is expected to necessitate substantial computing resources, positioning AI companies as lucrative cloud customers in the future.

Google’s connection with the startup has led to a unique partnership with Amazon, one of its cloud service rivals. While Google has secured a significant cloud deal with Anthropic, Amazon, as part of its investment, has also been designated as Anthropic’s “primary cloud provider.”

The relationship between Google, Amazon, and Anthropic has at times been somewhat uneasy. Google was aware of Anthropic’s intentions to secure additional funding during the summer, according to insiders. However, the details surrounding the startup’s collaboration with Amazon Web Services caught some individuals within Google by surprise, according to multiple sources familiar with the situation.

It primarily operates using a combination of its own servers and computing resources leased from Google Cloud Platform, as revealed by insiders. Google, having previously invested substantial sums in Anthropic, had initially hesitated to commit to an investment of the magnitude that Amazon ultimately made.

In a regulatory filing, Amazon disclosed a $1.25 billion investment in Anthropic in the form of a convertible note, with an option to invest an additional $2.75 billion through a second note, set to expire in the first quarter of the following year. Amazon has also established an agreement with Anthropic, involving the startup’s utilization of AWS cloud services and chips. The specific debt structure of both Google and Amazon’s deals had not been previously disclosed.

These investments have set the stage for a rivalry between the two tech giants and Microsoft Corp., which is injecting over $10 billion into Anthropic’s competitor, OpenAI. Both OpenAI and Anthropic are focused on developing chatbots powered by generative AI technology, capable of generating content in response to prompts. Notably, Anthropic’s chatbot, Claude, emphasizes responsible AI and strives to reduce bias within the technology.

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By Manjeet

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