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Zoom founder Eric Yuan poses in front of the Nasdaq building as the screen shows the logo of the video-conferencing software company Zoom after the opening bell ceremony on April 18, 2019 in New York City. The video-conferencing software company announced it’s IPO priced at $36 per share, at an estimated value of $9.2 billion.
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Salesforce needed 14 years as a public company to reach a market cap of $100 billion. Getting there required three multibillion-dollar acquisitions and four distinct revenue sources.

When Zoom topped the $100 billion mark last year, it had been public for just over 14 months. The company was reliant on a single product and had completed just one tiny acquisition.

While it’s still just a toddler on the Nasdaq, Zoom is now being forced to take on adult responsibilities for investors, thanks to its unexpectedly rapid ascent. The video chat company’s historic growth during the Covid-19 pandemic vaulted its market cap from $9.2 billion at the time of its 2019 IPO to a peak of $159 billion in October, putting it tentatively even with Cisco.

Zoom has lost about one-third of its value since then, despite reporting 191% revenue growth in the latest quarter, as investors prepare for a post-pandemic future and as competition picks up, most notably from Microsoft Teams.

Still, Zoom is among the 25-most valuable North American tech companies and the only one in that pack to go public in the last four years. Shopify and Snap, which went public in 2015 and 2017, respectively, are the only companies in the group that trade for a richer multiple to sales.

In other words, the stock market is giving Zoom the tools to become a major dealmaker. And Zoom is taking advantage, announcing earlier this week the $14.7 billion purchase of Five9, which sells cloud-based software to call centers.

“It allows them to use their currency to buy things that are impactful,” said Alfred Chuang, a partner at venture firm Race Capital who previously co-founded BEA Systems and sold it to Oracle for $8.5 billion in 2008. “I can’t imagine this will be last one.”

The Five9 deal is one of the 10 largest U.S. enterprise software transactions on record, according to FactSet, and is bigger than any acquisition ever by Amazon, Google, Oracle, Cisco or Adobe. At about 23 times Five9’s expected 2022 revenue, it’s also the second-priciest software deal on a price-to-sales basis, behind only Salesforce’s $27 billion purchase of Slack, which closed earlier this month.

Chuang, who has been friends with Zoom CEO Eric Yuan since his pre-Zoom days at WebEx, says Yuan is now in a position familiar to Salesforce CEO Marc Benioff, whose company has more than doubled in value since mid-2018 to $240 billion.

Both companies are set up to be cloud consolidators as automation changes the future of work and the enterprise software stack of the future gets built, Chuang said. In the three years since reaching a $100 billion market cap, Salesforce has completed four billion-dollar-plus deals, including Slack and the $15.7 billion purchase of Tableau.

“Not everything has worked out,” Chuang said, but he argues it’s important to take take big swings, even if the business is currently in good shape.

“When you have a very fast-growing company and become very successful, most people don’t want to rock the boat,” he said. “Acquisitions are not only useful to acquire customers but are super critical to satisfy a product vision you may have.”

The Cisco connection

Zoom’s initial talks with Five9 date back to last year, according to people familiar with the matter. The CEOs, who both previously worked on collaboration products at Cisco, know each other well and forged a product integration in 2019, when Zoom launched a phone offering.

Yuan was a lead engineer at WebEx when the company was acquired by Cisco in 2007, and Five9 CEO Rowan Trollope ran all of Cisco’s collaboration products, including WebEx, until taking the Five9 job in 2018. They never overlapped at Cisco — Yuan left to start Zoom a year before Trollope joined — but the connection is key as they both saw the challenges of retrofitting a legacy technology company for the cloud era.

Acquisition talks cooled for a while and picked up in the last three months, said people with knowledge of the transaction, who asked not to be named because the discussions were confidential. That’s when Goldman Sachs started advising Zoom on a deal and Five9 hired Frank Quattrone’s Qatalyst Partners.

Zoom also shuffled internal responsibilities this year, putting CFO Kelly Steckelberg in charge of business development, a job that had previously been held by operating chief Aparna Bawa, people close to the matter said. Yuan and Steckelberg drove the Five9 deal, the people said.

Bawa has assumed increased responsibilities elsewhere in the business. She oversees security, privacy and government relations, which all took center stage as Zoom became a widely-used service at large enterprises as well as in education, health care and among religious organizations.

Representatives from Zoom and Five9 declined to comment.

At a Morgan Stanley investor event in March, Steckelberg was asked about Zoom’s plans for the call center.

“Contact center is an absolutely really important part of the phone strategy,” Steckelberg said in response. “The way we approach that today is through partnering. We have great relationships with Five9. Eric and Rowan are very good friends.”

Zoom’s goal is to be not only a video service used for meetings with co-workers and clients, but to become the center of all work communication, including for customer service reps in call centers.

Yuan went a step further in June on Zoom’s quarterly earnings call. He responded to an analyst’s question about contact center expansion by telling investors, “Stay tuned, you will see something.” He followed by suggesting that details could be revealed around the time of the company’s Zoomtopia conference in September.

“I hope we will be able to do more,” he said, indicating that Zoom may go beyond integrations with call center technology providers.

Buy vs. build

A big reason why an agreement took so long to come together was because both stocks were so volatile, people familiar with the talks said. Shares of Zoom and Five9 moved 10% or more in a single week on several occasions this year, making it difficult to come to terms. Ultimately, the acquisition price was a modest 13% premium to Five9’s last closing price before the announcement.

The deal is projected to close in the first half of 2022 and Trollope will continue to run Five9 as a president of Zoom. Five9 adds a projected $650 million in revenue next year to the $4.8 billion in sales that analysts expect from Zoom, according to StreetAccount.

On the investor call following the announcement, Yuan and Trollope said that common customers have been telling them they want to count on a single vendor that can provide communications technology for internal purposes as well as customer service. Zoom could invest in building the product itself, but customers “do not want to wait,” Yuan said.

Analysts like BTIG’s Matt VanVliet said the decision to buy instead of build is the right one.

“Overall, we are encouraged by Zoom’s strategy to supercharge its platform with this acquisition rather than rely purely on its own internal R&D chops, which would have taken years to scale,” wrote VanVliet, who has a buy recommendation on Zoom, in a report on July 19.

Zoom has a long way to go before it can claim to have a portfolio of cloud software products, like Salesforce, Adobe and ServiceNow.

Late last year, the company entered the live events space with the launch of a homegrown product called OnZoom, expanding the video platform beyond the workplace and betting that online gatherings, in some form, are here to stay. In July, Zoom hired Abhisht Arora, a 21-year Microsoft veteran and Teams program manager, as its head of corporate strategy, reporting directly to Yuan.

Between development of new products and big acquisitions into parallel markets, Yuan is trying to ensure that Zoom is more than just a pandemic stock, and that its status as an enterprise giant remains long after we say goodbye to Covid-19.

— CNBC’s Alex Sherman contributed to this report.

WATCH: Zoom’s acquisition of Five9 is a ‘steal of a deal,’ says analyst

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Web giant Cloudflare to block AI bots from scraping content by default

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Web giant Cloudflare to block AI bots from scraping content by default

Jaque Silva | Nurphoto | Getty Images

Internet firm Cloudflare will start blocking artificial intelligence crawlers from accessing content without website owners’ permission or compensation by default, in a move that could significantly impact AI developers’ ability to train their models.

Starting Tuesday, every new web domain that signs up to Cloudflare will be asked if they want to allow AI crawlers, effectively giving them the ability to prevent bots from scraping data from their websites.

Cloudflare is what’s called a content delivery network, or CDN. It helps businesses deliver online content and applications faster by caching the data closer to end-users. They play a significant role in making sure people can access web content seamlessly every day.

Roughly 16% of global internet traffic goes directly through Cloudflare’s CDN, the firm estimated in a 2023 report.

“AI crawlers have been scraping content without limits. Our goal is to put the power back in the hands of creators, while still helping AI companies innovate,” said Matthew Prince, co-founder and CEO of Cloudflare, in a statement Tuesday.

“This is about safeguarding the future of a free and vibrant Internet with a new model that works for everyone,” he added.

What are AI crawlers?

AI crawlers are automated bots designed to extract large quantities of data from websites, databases and other sources of information to train large language models from the likes of OpenAI and Google.

Whereas the internet previously rewarded creators by directing users to original websites, according to Cloudflare, today AI crawlers are breaking that model by collecting text, articles and images to generate responses to queries in a way that users don’t need to visit the original source.

This, the company adds, is depriving publishers of vital traffic and, in turn, revenue from online advertising.

Read more CNBC tech news

Tuesday’s move builds on a tool Cloudflare launched in September last year that gave publishers the ability to block AI crawlers with a single click. Now, the company is going a step further by making this the default for all websites it provides services for.

OpenAI says it declined to participate when Cloudflare previewed its plan to block AI crawlers by default on the grounds that the content delivery network is adding a middleman to the system.

The Microsoft-backed AI lab stressed its role as a pioneer of using robots.txt, a set of code that prevents automated scraping of web data, and said its crawlers respect publisher preferences.

“AI crawlers are typically seen as more invasive and selective when it comes to the data they consumer. They have been accused of overwhelming websites and significantly impacting user experience,” Matthew Holman, a partner at U.K. law firm Cripps, told CNBC.

“If effective, the development would hinder AI chatbots’ ability to harvest data for training and search purposes,” he added. “This is likely to lead to a short term impact on AI model training and could, over the long term, affect the viability of models.”

WATCH: AI engineers are in high demand — but what is the job really like?

AI engineers are in high demand — but what is the job really like?

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Elon Musk’s xAI raises $10 billion in debt and equity as it steps up challenge to OpenAI

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Elon Musk's xAI raises  billion in debt and equity as it steps up challenge to OpenAI

Elon Musk announced his new company xAI, which he says has the goal to understand the true nature of the universe.

Jaap Arriens | Nurphoto | Getty Images

XAI, the artificial intelligence startup run by Elon Musk, raised a combined $10 billion in debt and equity, Morgan Stanley said.

Half of that sum was clinched through secured notes and term loans, while a separate $5 billion was secured through strategic equity investment, the bank said on Monday.

The funding gives xAI more firepower to build out infrastructure and develop its Grok AI chatbot as it looks to compete with bitter rival OpenAI, as well as with a swathe of other players including Amazon-backed Anthropic.

In May, Musk told CNBC that xAI has already installed 200,000 graphics processing units (GPUs) at its Colossus facility in Memphis, Tennessee. Colossus is xAI’s supercomputer that trains the firm’s AI. Musk at the time said that his company will continue buying chips from semiconductor giants Nvidia and AMD and that xAI is planning a 1-million-GPU facility outside of Memphis.

Addressing the latest funds raised by the company, Morgan Stanley that “the proceeds will support xAI’s continued development of cutting-edge AI solutions, including one of the world’s largest data center and its flagship Grok platform.”

xAI continues to release updates to Grok and unveiled the Grok 3 AI model in February. Musk has sought to boost the use of Grok by integrating the AI model with the X social media platform, formerly known as Twitter. In March, xAI acquired X in a deal that valued the site at $33 billion and the AI firm at $80 billion. It’s unclear if the new equity raise has changed that valuation.

xAI was not immediately available for comment.

Last year, xAI raised $6 billion at a valuation of $50 billion, CNBC reported.

Morgan Stanley said the latest debt offering was “oversubscribed and included prominent global debt investors.”

Competition among American AI startups is intensifying, with companies raising huge amounts of funding to buy chips and build infrastructure.

OpenAI in March closed a $40 billion financing round that valued the ChatGPT developer at $300 billion. Its big investors include Microsoft and Japan’s SoftBank.

Anthropic, the developer of the Claude chatbot, closed a funding round in March that valued the firm at $61.5 billion. The company then received a five-year $2.5 billion revolving credit line in May.

Musk has called Grok a “maximally truth-seeking” AI that is also “anti-woke,” in a bid to set it apart from its rivals. But this has not come without its fair share of controversy. Earlier this year, Grok responded to user queries with unrelated comments about the controversial topic of “white genocide” and South Africa.

Musk has also clashed with fellow AI leaders, including OpenAI’s Sam Altman. Most famously, Musk claimed that OpenAI, which he co-founded, has deviated from its original mission of developing AI to benefit humanity as a nonprofit and is instead focused on commercial success. In February, Musk alongside a group of investors, put in a bid of $97.4 billion to buy control of OpenAI. Altman swiftly rejected the offer.

CNBC’s Lora Kolodny and Jonathan Vanian contributed to this report.

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China’s Huawei open-sources AI models as it seeks adoption across the global AI market

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China's Huawei open-sources AI models as it seeks adoption across the global AI market

In recent years, the company has transformed from a competent private sector telecommunications firm into a “muscular technology juggernaut straddling the entire AI hardware and software stack,” said Paul Triolo, partner and senior vice president for China at advisory firm DGA-Albright Stonebridge Group.

Ramon Costa | SOPA Images | Lightrocket | Getty Images

Huawei has open-sourced two of its artificial intelligence models — a move tech experts say will help the U.S.-blacklisted firm continue to build its AI ecosystem and expand overseas. 

The Chinese tech giant announced on Monday the open-sourcing of the AI models under its Pangu series, as well as some of its model reasoning technology.

The moves are in line with other Chinese AI players that continue to push an open-source development strategy. Baidu also open-sourced its large language model series Ernie on Monday. 

Tech experts told CNBC that Huawei’s latest announcements not only highlight how it is solidifying itself as an open-source LLM player, but also how it is strengthening its position across the entire AI value chain as it works to overcome U.S.-led AI chip export restrictions.

In recent years, the company has transformed from a competent private sector telecommunications firm into a “muscular technology juggernaut straddling the entire AI hardware and software stack,” said Paul Triolo, partner and senior vice president for China at advisory firm DGA-Albright Stonebridge Group.

In its announcement Monday, Huawei called the open-source moves another key measure for Huawei’s “Ascend ecosystem strategy” that would help speed up the adoption of AI across “thousands of industries.”

The Ascend ecosystem refers to AI products built around the company’s Ascend AI chip series, which are widely considered to be China’s leading competitor to products from American chip giant Nvidia. Nvidia is restricted from selling its advanced products to China. 

A Google-like strategy?

Pangu being available in an open-source manner allows developers and businesses to test the models and customize them for their needs, said Lian Jye Su, chief analyst at Omdia. “The move is expected to incentivize the use of other Huawei products,” he added.

According to experts, the coupling of Huawei’s Pangu models with the company’s AI chips and related products gives the company a unique advantage, allowing it to optimize its AI solutions and applications. 

While competitors like Baidu have LLMs with broad capabilities, Huawei has focused on specialized AI models for sectors such as government, finance and manufacturing.

“Huawei is not as strong as companies like DeepSeek and Baidu at the overall software level – but it doesn’t need to be,” said Marc Einstein, research director at Counterpoint Research. 

“Its objective is to ultimately use open source products to drive hardware sales, which is a completely different model from others. It also collaborates with DeepSeek, Baidu and others and will continue to do so,” he added. 

Nvidia CEO: Huawei ‘has got China covered’ if the U.S. doesn’t participate

Ray Wang, principal analyst at Constellation Research, said the chip-to-model strategy is similar to that of Google, a company that is also developing AI chips and AI models like its open-source Gemma models.

Huawei’s announcement on Monday could also help with its international ambitions. Huawei, along with players like Zhipu AI, has been slowly making inroads into new overseas markets.

In its announcement Monday, Huawei invited developers, corporate partners and researchers around the world to download and use its new open-source products in order to gather feedback and improve them.

“Huawei’s open-source strategy will resonate well in developing countries where enterprises are more price-sensitive as is the case with [Huawei’s] other products,” Einstein said. 

As part of its global strategy, the company has also been looking to bring its latest AI data center solutions to new countries. 

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