Google Invests In Anthropic For $2 Billion As AI Race Heats Up

Key takeaways

• Google has announced a $2 billion investment into Anthropic, adding to its $550 million funding from earlier this year
• Amazon made a similar move just weeks before, announcing a $4 billion investment in the ChatGPT rival
• Google shares closed nearly 2% higher at the news

Looks like AI company Anthropic has a queue of suitors. Big Tech giant and AI leader Google has agreed to invest a further $2 billion in the AI start-up, the two confirmed at the end of last week.

The news arrives hot on the heels of Amazon’s investment in the same start-up, as Big Tech increasingly puts its eggs into the two AI baskets. Given Wall Street’s laser focus last week on earnings and whether AI was starting to make a dent yet in the figures, we can’t blame them for wanting to get ahead.

Here’s the lowdown on the latest Google play, why the company is looking for an AI win at the moment and the stock market reaction to the deal.

Google’s bet on Anthropic

Alphabet’s Google is investing $2 billion into OpenAI rival Anthropic, adding fuel to the fire that is the AI race to the top. Google said it had made a $500 million upfront investment in Anthropic and would stump up the remaining $1.5 billion over time.

Google has already invested $550 million into Anthropic, founded in 2021 by ex-OpenAI engineers earlier this year. Anthropic has also apparently signed a $3 billion contract with Google Cloud, though neither party has confirmed it yet.

The start-up is focused on developing its rival to ChatGPT, called Claude, having already achieved a valuation of $4 billion earlier this year. Most of its backing previously came from the now-collapsed FTX and its disgraced founder, Sam Bankman-Fried, leaving Anthropic urgently seeking new funding.

The move comes after Amazon announced it was pouring $4 billion into the AI start-up, making Google the second patron Anthropic has with bottomless pockets. In an SEC filing this week, Amazon confirmed it had invested a $1.25 billion note into the company it can convert to equity, with a deadline to invest the remaining $2.75 billion by the first quarter of 2024.

Between the two companies, Anthropic has raised nearly $7 billion in funding this year alone. Both are hefty investments, but neither comes close to the $10 billion Microsoft spent on OpenAI, the creator of ChatGPT, back in January, giving the Big Tech titan a 49% stake in the company.

The Anthropic investment is one of many AI plays Google has made since the race began nearly a year ago. The Big Tech giant has also invested in AI video production app Runway and open-source SaaS company Hugging Face, while also working on its own AI algorithm called Gemini.

The market reaction

Google’s share price climbed as high as 2.6% after the news broke on Friday, closing the trading day 1.97% higher. Amazon also saw a 3.8% boost to its stock, while Microsoft closed 2.26% higher.

Google stock has soared 38% since the start of 2023, while Microsoft has enjoyed a near 40% boost to its stock after both companies had win after win with their AI announcements. Amazon has seen even more growth, with its share price gaining nearly 54% in the same time period, bolstered by big-ticket shopping events and its ongoing investment in AI.

AI focus at financial results

As Big Tech shared their usual earnings reports last week, Wall Street paid an unusual amount of attention to the cloud computing segments this year, keen to see whether the massive upfront investments in AI were paying off yet.

Microsoft was the season’s victor, having recorded a 28% constant currency basis increase in its Microsoft Azure cloud division. Revenue grew by 24% to $31.8 billion, well above estimates and Microsoft’s own guidance. The tech giant also noted how AI’s direct impact had grown revenue: it was responsible for three percentage points of Azure’s overall 28% growth.

Google, on the other hand, didn’t have quite so stellar results. Don’t get us wrong – Google Cloud still recorded a 22% growth rate compared to last year – but when Microsoft is punching above its weight, the numbers paled in comparison. Google Cloud pulled in $8.5 billion in revenue, falling short of analysts’ expectations which were at $8.6 billion. As a result, Google suffered its worst daily stock performance since March 2020, dropping 9.5% in a day.

Amazon suffered a similar reaction as its third-quarter earnings report revealed $23.1 billion in revenue for AWS, up 12.3% from the same time last year and pretty much in line with expectations. But the fact that the previous quarter had seen similar levels in sales had investors wondering whether AWS was stagnating. It wasn’t until CEO Andy Jassy confirmed AWS had some chunky contracts lined up for the fourth quarter that the stock price rose 5%.

The bottom line

Google’s latest move into the world of AI start-ups is to be expected as we watch the tech titans get their fingers into as many AI pies as possible to capitalize on the new tech.

Wall Street is watching closely as some of the big names disappointed in their cloud computing results, so expect another flurry of AI investments to distract from the negativity.