SAN FRANCISCO — A year ago, the mood in Silicon Valley was dour. Big Tech stocks were falling, the cryptocurrency bubble had popped, and a wave of layoffs was beginning to sweep through the industry.
In San Francisco, it’s suddenly impossible to escape the AI hysteria. In bars and restaurants, people are conversing about using ChatGPT and whether AI will take their jobs — or take over the world. AI is one of the only fields here still hiring, and firms are paying huge salaries for the expertise. Workers here are retraining to specialize in the field.
The new AI gold rush — sparked in large part by the release of OpenAI’s ChatGPT in November — is thanks to generative AI, which uses complex algorithms trained on trillions of words and images from the open internet to produce text, images and audio.
“The improvement in quality was much greater than expected,” Dan Wang, a business professor at Columbia University who studies the tech industry, said of the emergence of generative AI. “That took folks by surprise and also released the imaginations of both existing entrepreneurs and aspiring entrepreneurs.”
Following OpenAI’s release of ChatGPT, Microsoft and Google joined the arms race. While they had previously showed relative caution about launching experimental AI tools to real people, both companies suddenly raced to compete by throwing text generators into their core products, including Microsoft Word and Google Search.
On Google parent Alphabet’s most recent earnings call, CEO Sundar Pichai mentioned AI 34 times in his opening statements, compared with five times last year. A video mash-up of him saying “AI” at the company’s development conference later went viral on social media.
“We are at an exciting inflection point,” Pichai said at the conference. “We are reimagining all our core products.”
Facebook and Amazon have also been trumpeting their own AI work, and Apple is expected to spotlight AI research during its big product launch event this week.
Companies are also putting money where their mouths are, and one of the biggest beneficiaries so far is Nvidia.
The company’s video game computer chips have been used by researchers and companies for several years to help them run the massive and complicated algorithms needed to train cutting-edge AI programs. The company began making specialized products and software for AI and had already seen its stock price quadruple from the end of 2019 to the beginning of 2023.
But last week, it announced that it expected to sell $11 billion of new chips in the second quarter of this year, a full $4 billion more than Wall Street analysts had expected. The stock rocketed up 24 percent. It closed with a market valuation of $971.4 billion on Friday.
That’s within spitting range of Amazon, which is worth $1.26 trillion. Nvidia Chief Financial Officer Colette Kress called ChatGPT’s launch a new “iPhone moment” — comparing it to when the world realized mobile phones would completely change how people use computers.
“What can we say other than just ‘Wow!’” C.J. Muse, an analyst with Evercore, said in a client note. “We’ve simply never seen a beat like this … ever.” Big companies and start-ups alike are “clamoring” to buy Nvidia’s products, Muse said.
Tech stocks have rallied across the board, a whiplash return to growth after analysts declared the 10-year bull market was finally over. In 2022, the Nasdaq 100, a stock market index dominated by the biggest tech companies, lost an entire third of its value, falling 33 percent in a massive erasure of wealth that had been built up over the past decade. So far in 2023, the Nasdaq 100 is already up 31 percent.
Even Meta, which changed its name from Facebook to signal its commitment to the metaverse, or virtual reality tech, has been pushing AI among its workers to the extent that some of them asked at a company meeting whether the metaverse was still a priority. Amazon executives have assured their own employees the company is working on major AI initiatives, too.
The start-up ecosystem is rebounding back to optimism as well, at least for those focused on AI.
“VC firms compete for access to hot AI deals while eschewing unprofitable conventional software companies,” said Brendan Burke, an analyst with PitchBook. “AI start-ups experience founder-friendly conditions not extended to the rest of the tech ecosystem.”
About $12.5 billion in investments have gone into generative AI start-ups this year so far, compared with only $4.5 billion invested in the field in all of 2022, Burke said.
Suvrat Bhooshan, a former AI researcher at Meta and founder and CEO of Gan.ai, a start-up that lets people automatically create customized videos of themselves, just raised $5.25 million from investors including Sequoia Capital and Emergent Ventures. The deal came together fast, with some investors giving him full-fledged term sheets just a week after initial introductions, Bhooshan said.
He isn’t the only former Big Tech AI worker who left to begin their own company, Bhooshan said. In the past two years, three or four of the seven people on his team at Meta have left to do their own thing, he said. The same is happening across the industry, showing the desire among AI workers to take advantage of the boom in venture investment to start their own companies.
“The entire transformers team from Google left to start their own company,” Bhooshan said, referring to the Google researchers who wrote the paper on “transformers,” a key aspect of the current crop of generative AI.
The optimism in the AI sector contrasts with the massive layoffs that have been rocking the industry for months. Thousands of tech workers are still out of a job after the massive wave of layoffs that rolled through dozens of start-ups, as well as Microsoft, Amazon, Facebook and Google over the past year. Higher interest rates, which triggered the shakiness for tech companies used to borrowing huge sums to fund their growth, aren’t going away.
And things outside AI can continue to be glum. The number of deals and the valuations start-ups were scoring outside of AI continued to drop through the beginning of the year, with the median late-stage start-up valuation dropping 40 percent from the same time last year, according to PitchBook.
Employees at Google and elsewhere are worrying about more layoffs. Silicon Valley Bank’s collapse spooked tech investors and made it harder for start-ups to get the debt they need to get their businesses off the ground.
House prices are slowly sinking in San Francisco, and the commercial rental market is in crisis, showing the overall impact on the economy.
AI won’t change that overnight, said Wang, the Columbia business professor.
“It’s really exciting,” he said. “But its really hard to say that it’s the kind of thing that will lead the charge back into a bull market.”
