Google launched Bard AI, it’s own chatbot to rival Microsoft and OpenAI’s ChatGPT.
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Tech investors are eager to hear how much industry leaders are bolstering profitability now that they’re in cost-cutting mode.
But there’s one area where they also want to see hefty investments: artificial intelligence.
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Alphabet, Microsoft, Amazon and Meta all reported quarterly results this week, updating Wall Street on their efforts to improve efficiency as economic concerns mount. When it comes to AI and the latest boom in so-called large language models (LLMs) that power products like ChatGPT, the mega-cap tech companies can’t afford to get left behind.
Generative AI programs use increasing amounts of data and processing power to produce outputs that seem like they were made by a human — a block of text, a snippet of code, or a computer-generated image. They require specialized supercomputers that aren’t cheap.
On their earnings calls this week, tech CEOs talked at length about the potential for AI, whether they’re building their own models or rapidly integrating it into products. The common theme was their emphasis on the large sums of money they’ll be spending to build and run these applications.
Here’s what executives from Alphabet, Microsoft, Amazon and Meta told analysts:
Alphabet
Sundar Pichai, chief executive officer of Alphabet Inc.
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Sundar Pichai, Alphabet’s CEO, is under intense pressure to deliver AI products due to the perceived threat that the company’s core Google search engine faces from the sophisticated chatbots hitting the market. The company recently declared an internal “code red.”
Pichai said on Tuesday’s earnings call that the company was making “good progress” towards its AI goals.
“We’ll continue to incorporate generative AI advances to make search better in a thoughtful and deliberate way,” Pichai said.
He said Google is using AI to improve the conversion rate of ads and reduce the amount of “toxic text” that goes into AI models. The company is also combining two primary AI teams, Brain and DeepMind.
Pichai said that in addition to using its own homegrown chips to power its models, it’s using processors from Nvidia, which makes the vast majority of graphics chips used to train and deploy cutting-edge AI.
Microsoft
Microsoft CEO Satya Nadella speaks during an interview in Redmond, Washington, on March 15, 2023.
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Microsoft is using OpenAI’s GPT technology in its Bing search engine, Office, and Teams teleconferencing system.
CEO Satya Nadella says that AI will eventually drive revenue growth and is already sparking increased uptake in the company’s apps. Bing, for example, has seen downloads quadruple since Microsoft added a chatbot, he said. Microsoft has generated over 200 million images through its Bing integration.
Nadella warned that a significant amount of capital will be required to build out the massive datacenters needed to run AI applications.
“We will continue to invest in our cloud infrastructure, particularly AI-related spend, as we scale to the growing demand driven by customer transformation,” Nadella said. “And we expect the resulting revenue to grow over time.”
Amazon
Andy Jassy on stage at the 2022 New York Times DealBook on November 30, 2022 in New York City.
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Amazon CEO Andy Jassy gave an unusually lengthy response on Thursday to an analyst’s question about the company’s generative AI plans.
Jassy said Amazon is building its own LLMs, and designing data-center chips for machine learning, emphasizing that the market is massive.
“These large language models, generative AI capability, has been around for a while. But frankly, the models were not that compelling until about six to nine months ago,” Jassy said. “They have gotten so much bigger and so much better so much more quickly that it really presents a remarkable opportunity to transform virtually every customer experience that exists.”
Jassy also said Amazon’s size would allow it to become one of a handful of companies building LLMs, which can take hundreds of computers running for weeks, overseen by expensive machine learning engineers.
“There will be a small number of companies that want to invest that time and money and we will be one of them at Amazon,” Jassy said.
Unlike Microsoft and Google, Amazon’s focus is selling access to the technology through its Amazon Web Services division. However, Jassy said Amazon will work on some applications, such as programs to help engineers write code.
“Every single one of our businesses inside of Amazon are building on top of large language models to reinvent our customer experience,” Jassy said. That includes voice assistant Alexa, he said.
Meta
Mark Zuckerberg, co-founder and CEO of Meta Platforms, in July 2021.
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Meta CEO Mark Zuckerberg tried to dispel the notion that his company is no longer focused on the metaverse after turning his attention in that direction in late 2021.
But he wanted investors to know that Meta can invest in metaverse technologies while simultaneously putting tons of resources into AI, which he called a “key theme” for his company.
Zuckerberg said that while the company has used machine learning to deliver recommendations and power products like Facebook’s news feed or ad systems, a new main area of focus is generative foundation models.
“It’s been a pretty amazing year of progress on this front, and the work happening now is going to impact every single one of our apps and services,” Zuckerberg said.
He said the company would work on a variety of products using the technology, including chat experiences in WhatsApp and Facebook Messenger, tools for making images for posts on Facebook and Instagram, and eventually programs that could spit out entire videos from short descriptions.
A concept he’s particularly excited about is “AI agents,” which often refer to AI programs that can carry out goals.
“There’s an opportunity to introduce AI agents to billions of people in ways that will be useful and meaningful,” Zuckerberg said. One possibility for an AI agent would be to handle customer service for businesses, Meta has said.
Zuckerberg discussed the company’s big investments to build out its datacenters for AI applications. He said the technology was the “main driver” of Meta’s growth in capital expenditures over the past few years.
“At this point we are no longer behind in building out our AI infrastructure,” Zuckerberg said.
That doesn’t mean Meta is done buying graphics processors. Zuckerberg said the company would need to “continue investing,” but would do so after it launches its generative AI products and gets a better grasp on the resources required.
Liz Reid, vice president, search, Google speaks during an event in New Delhi on December 19, 2022.
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Testimony in Google‘s antitrust search remedies trial that wrapped hearings Friday shows how the company is calculating possible changes proposed by the Department of Justice.
Google head of search Liz Reid testified in court Tuesday that the company would need to divert between 1,000 and 2,000 employees, roughly 20% of Google’s search organization, to carry out some of the proposed remedies, a source with knowledge of the proceedings confirmed.
The testimony comes during the final days of the remedies trial, which will determine what penalties should be taken against Google after a judge last year ruled the company has held an illegal monopoly in its core market of internet search.
The DOJ, which filed the original antitrust suit and proposed remedies, asked the judge to force Google to share its data used for generating search results, such as click data. It also asked for the company to remove the use of “compelled syndication,” which refers to the practice of making certain deals with companies to ensure its search engine remains the default choice in browsers and smartphones.
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The DOJ also proposed the company divest its Chrome browser but that was not included in Reid’s initial calculation, the source confirmed.
Reid on Tuesday said Google’s proprietary “Knowledge Graph” database, which it uses to surface search results, contains more than 500 billion facts, according to the source, and that Google has invested more than $20 billion in engineering costs and content acquisition over more than a decade.
“People ask Google questions they wouldn’t ask anyone else,” she said, according to the source.
Reid echoed Google’s argument that sharing its data would create privacy risks, the source confirmed.
Closing arguments for the search remedies trial will take place May 29th and 30th, followed by the judge’s decision expected in August.
The company faces a separate remedies trial for its advertising tech business, which is scheduled to begin Sept. 22.
From left, Parker Conrad, co-founder and CEO of Rippling, and Kleiner Perkins investor Ilya Fushman speak at the venture firm’s Fellows Founders Summit in San Francisco in September 2022.
Rippling
Human resources software startup Rippling said Friday that its valuation has swelled to $16.8 billion in its latest fundraising round.
The company raised $450 million in the round, and has committed to buying an additional $200 million worth of shares from current and previous employees. The company’s valuation is up from $13.5 billion in a round a year ago.
Rippling said there was no lead investor. Baillie Gifford, Elad Gil, Goldman Sachs Growth and others participated in the round, according to a statement from the San Francisco-based company.
With the tech IPO market mostly dormant over the past three-plus years, and President Donald Trump’s new tariffs on imports leading several companies to delay planned offerings, the most high-profile late-stage tech startups continue to tap private markets for growth capital. Rippling co-founder and CEO Parker Conrad told CNBC in an interview the the company isn’t planning for an IPO in the near future.
Conrad also highlighted a change that’s taken place in public markets in recent years, since inflation began soaring in late 2021, followed by higher interest rates. With concerns about the economy swirling, many tech companies downsized and took other steps toward generating and preserving cash.
“It does look a lot like, in order to be successful in the public markets, your growth rates have to come down so that you can be profitable,” said Conrad, who avoided enacting layoffs. “And so for us, that sort of pushes things out until the company looks profitable and probably slower growing, right?”
At Rippling, annual revenue growth is well over 30%, Conrad said, though he didn’t provide an updated sales figure. The information reported last year that Rippling doubled annual recurring revenue to over $350 million by the end of 2023 from a year prior.
Given the pace of expansion, Conrad said he isn’t fixated on profits at the moment at Rippling, which ranked 14th on CNBC’s Disruptor 50 list.
Rippling offers payroll services, device management and corporate credit cards, among other products. Competitors include ADP, Paychex, Paycom Software and Paylocity.
There’s also privately held Deel, which Rippling sued in March for allegedly deploying a spy who collected confidential information. Conrad suggested that the publicity surrounding the case may be boosting business.
“I think it’s too early to say, looking at the data, how all of this is going to evolve from a market perspective, but certainly we see some companies that have said, ‘Hey, we’re talking to Rippling because of this,'” Conrad said.
Fortnite was booted from iPhones and Apple’s App Store in 2020, after Epic Games updated its software to link out to the company’s website and avoid Apple’s commissions. The move drew Apple’s anger, and kicked off a legal battle that has lasted for years.
Last month’s ruling, a victory for Epic Games, said that Apple was not allowed to charge a commission on link-outs or dictate if the links look like buttons, paving the way for Fortnite’s return.
Apple could still reject Fortnite’s submission. An Apple representative didn’t respond to a request for comment. Apple is appealing last month’s contempt ruling.
The announcement by Epic Games is the latest salvo in the battle between it and Apple, which has taken place in courts and with regulators around the world since 2020. Epic Games also sued Google, which operates the Play Store for Android phones.
Last month’s ruling has already shifted the economics of app development for iPhones.
Apple takes between 15% and 30% of purchases made using its in-app payment system. Linking to the web avoids those fees. Apple briefly allowed link-outs under its system but would charge a 27% commission, before last month’s ruling.
Developers including Amazon and Spotify have already updated their apps to avoid Apple’s commissions and direct customers to their own websites for payment.
Before last month, Amazon’s Kindle app told users they could not purchase a book in the iPhone app. After a recent update, the app now shows an orange “Get Book” button that links to Amazon’s website.
Fortnite has been available for iPhones in Europe since last year, through Epic Games’ store. Third-party app stores are allowed in Europe under the Digital Markets Act. Users have also been able to play Fortnite on iPhones and iPad through cloud gaming services.