A new area of AI booms, even amid the tech gloom


SAN FRANCISCO — Five weeks ago, OpenAI, a San Francisco artificial intelligence lab, released ChatGPT, a chatbot that answers questions in clear, concise prose. The AI-powered tool immediately caused a sensation, with more than 1 million people using it to create everything from poetry to high school term papers to rewrites of Queen songs.

Now OpenAI is in the midst of a new gold rush.

The lab is in talks to complete a deal that would value it at around $29 billion, more than twice its valuation in 2021, two people with knowledge of the discussions said. The potential deal — where OpenAI would sell existing company shares in a so-called tender offer — could total $300 million, depending on how many employees agree to sell their stock, they said. The company is also in discussions with Microsoft — which invested $1 billion in it in 2019 — for additional funds, two people said.

The clamor around OpenAI shows that even in the most dismal tech downturn in a generation, Silicon Valley’s deal-making machine is still kicking. After a humbling year that included mass layoffs and cuts, tech investors — a naturally optimistic bunch — can’t wait to jump on a hot trend.

No area has created more excitement than generative artificial intelligence, the term for technology that can generate text, images, sounds and other media in response to short prompts. Investors, pundits and journalists have talked up artificial intelligence for years, but the new wave — the result of more than a decade of research — represents a more powerful and more mature breed of AI.

This type of AI promises to reinvent everything from online search engines like Google to photo and graphics editors like Photoshop to digital assistants like Alexa and Siri. Ultimately, it could provide a new way of interacting with almost any software, letting people chat with computers and other devices as if they were chatting with another person.

That has sent deal-making around generative AI companies into overdrive. Jasper, a generative AI startup founded in 2021, raised $125 million in October, valuing it at $1.5 billion. Stability AI, an image generating company founded in 2020, raised $101 million that same month, valuing it at $1 billion. Smaller generative AI companies, including Character.AI, Replika and You.com, have also been inundated with investor interest.

In 2022, investors pumped at least $1.37 billion into generative AI companies across 78 deals, almost as much as they invested in the previous five years combined, according to data from PitchBook, which tracks financial activity across the industry.

OpenAI’s $29 billion valuation was earlier reported by The Wall Street Journal. Venture capital firms Thrive Capital and Founders Fund may buy shares in the tender offer, two people said. Because OpenAI began as a not-for-profit company, pinpointing its precise valuation is difficult.

OpenAI, Thrive Capital and Founders Fund did not provide comments on the proposed investment.

Companies have developed generative AI for years, including tech giants like Google and Meta as well as ambitious startups like OpenAI. But the technology did not capture the public’s attention until last spring, when OpenAI unveiled a system called DALL-E that let people generate photo-realistic images simply by describing what they wanted to see.


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