An interesting new report by Dealroom and Flow Partners breaks down the massive investment that the “Magnificent Seven” (or M7 for short) are plowing into AI across verticals.
It’s impossible to ignore the impact that Google/Alphabet, Microsoft, Amazon, Nvidia, Meta, Apple and Tesla/xAI have on AI. With a combined value of $14 Trillion (representing 32% of the S&P 500), these companies invest $400 billion a year into frontier technologies, namely AI and cloud infrastructure.
This post highlights a few interesting points that stood out from the report “The Venture Capital frontier & the new AI Wild West” (link at the bottom of the post).
We’re entering a new innovation cycle of AI and automation
According to the report, this is a cycle that happens every 20 years or so (the PC era, the Internet era (including the shift to mobile and cloud), and now AI & Automation). , but no doubt that the current incarnation of AI is a tectonic shift and the incumbents are all leaning in, especially since some of them missed the previous ‘leaps’.
Fierce competition is driving turf wars
As I wrote in my post ‘the evolution of tech wars‘, the need for growth is driving the magnificent seven to look for new growth areas (aka, billion dollar market opportunities). Competition for AI hardware layer and AI model layer is heating up, and to concentrate efforts, these companies are diverting resources – for example, Meta shut down Workplace, its enterprise offering.
In the past, acquisitions played a key role in turf wars, but regulatory scrutiny shifted the focus to investments
While acquisitions are still happening (Nvidia acquired Israeli startups Run:AI and Deci AI in May for a combined $1 billion) regulatory scrutiny on M&A is shifting the focus to venture capital. The magnificent seven completed only 7 acquisitions in 2023, but participated in 208 VC deals.
So far in 2024, the magnificent seven invested $24.8 billion in VC deals, more than the UK venture investments per year combined.
The level of investment in venture by these strategic players increased so much, that they are now the biggest investors in tech in 2023-2024, mainly in the late stage, where traditional VCs left a vacuum.
Until now, most of the funding went to infrastructure and foundation models
In a way, investment in the infrastructure layer and foundational models could be seen as a barter deal for the magnificent seven – take my money, but commit to spend it on my services (Nvidia, Amazon, Microsoft, Alphabet). Foundation models required deep pockets: they required expensive engineers, GPUs and access to data.
Slowly, there’s a shift into the application layer, and applied AI
As my partner Kevin Baxpehler mentioned in “the real promise of Gen AI is in the apps, not the pipes“, we’re starting to see more of an emphasis on applications of the technology vs. infrastructure. There are several reasons for this shift, and regulation plays a role here as well.
But the activity of the M7 players is across the stack: from hardware chips, to foundational LLMs through to humanoid robotics, self driving technology, AI health, etc.
Within the application layer, there are massive opportunities in applied AI – healthcare, devices, media, software cloud, climate, education, defence, mobility and manufacturing, representing $50 trillion in economic potential.
The Race to AGI
The goal, it seems, for each of the M7 companies, is to be the first to reach AGI. It’s unclear how far we are from getting there or who will get there first, but each company is leveraging its own advantages.
Device lock in – Apple, Tesla and to an extent Alphabet
? User and data flywheel – Alphabet, Meta, xAI, Amazon(and to an extent) Anthropic and OpenAI
? Technology head start – Nvidia, OpenAI and Anthropic
? Enterprise lock in – Microsoft, Amazon, Nvidia
Data centres could soon consume up to 19% of the U.S. national power usage…
One final interesting insight is that the energy demands of the magnificent seven are rivalling those of small countries, which means that they will have to invest in order to turn into sustainable energy companies. Limitless clean energy supply (fusion, fission, solar and geothermal) will be a critical success factor.
In conclusion
When it comes to startups, to survive in the generative AI market, founders need to find opportunities that aren’t core to the magnificent seven, unless they’re able to secure enough funding to compete. Increasingly, vertical applied AI opportunities, and the LLM ops/ orchestration layer, seem to be the areas where that potential can be found.
For more colour on what areas the M7 companies are investing in and what might be next in the battle of AI supremacy, I recommend reading the full report.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
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