Technology revolutions like the internet and mobile computing always reshape the business landscape — but in different ways.
The internet birthed new market leaders such as Google, Amazon, and Netflix. Mobile tech, on the other hand, extended the dominance of incumbents like Apple, whose resources and distribution networks couldn’t be matched.
Now, the AI revolution is here. Generative AI platforms like ChatGPT are the fastest-growing consumer applications in history. Over 72% of organizations globally use AI in at least one business function. And tech giants like Amazon and Microsoft are pouring in record capital to get ahead.
The big question is, who will reap the rewards of this latest revolution – startups or incumbents?
This was a hot topic at Jefferies 2024 Private Internet Conference, “In the Age of AI,” where tech leaders and investors debated the future of these game-changing technologies.
Startups vs. Incumbents: Competing to Shape the Future
Gaurav Kittur, Global Co-Head of Internet Investment Banking at Jefferies, spoke to current tensions in the race to develop and commercialize AI.
“You have a tremendous amount of big tech capital going into companies like OpenAI and Anthropic. These [companies] will only get stronger, as their models and infrastructure layers build out,” Kittur explained. “You also have AI-first application businesses challenging the status quo. Their products are bringing innovation to massive industries like nursing, executive assistance, graphic design, and so on.”
To date, 44% of the capital invested in generative AI is controlled by tech giants: Microsoft, AWS, Anthropic, GitHub, OpenAI, and Alphabet. They have a natural advantage in this space, as AI models are notoriously expensive to build and train.
Incumbents can afford to spend billions on Nvidia’s graphics processing units, as Microsoft, Alphabet, and Meta — Nvidia’s biggest customers — are currently doing. AI models are also only as good as their training data, and big tech companies have the best and most extensive data stores.
That said, AI-native startups have their own advantages. These companies thrive on speed and disruption, a contrast to incumbents’ resource and distribution strengths.
Take Perplexity, for example. This buzzy startup’s AI-powered search engine is challenging Google’s dominance in search. Their product completely reframes how users think about search – a level of disruption that entrenched incumbents rarely achieve.
Another complicating factor is open-source AI. Generative AI models like LLAMA II, Falcon, Stable Diffusion, and Mistral 7B provide datasets, prebuilt algorithms, and interfaces that any developer can use to power their AI applications.
While these models are owned by incumbents like Meta, they speed up innovation and time to market for new developers and researchers. The long-term impact of open-source AI, and who will ultimately benefit, remains to be seen.
What Comes Next in the AI Gold Rush?
Though AI products are growing and attracting capital at record rates, it’s still too early to declare a winner – startups or incumbents. At this stage, companies with an innovative idea and the team to execute it have immense opportunities ahead, regardless of their size.
For now, one thing is certain: everyone from venture capitalists to large public companies will continue pouring money into AI, preferring to overinvest and risk failure than miss the boat entirely.
How this capital plays out may shape the business and technology landscape for decades to come.
For more coverage of AI, tech investing, and more, visit Jefferies Insights.
