Cathie Wood’s Ark Invest Holds Stake In OpenAI – A Chance For Elon Musk’s xAI?

Cathie Wood’s Ark Investment Management is investing  in OpenAI, further exploring artificial intelligence (AI). Meanwhile, Elon Musk’s xAI seeks  a hefty $4 billion to compete in the increasingly crowded and well-funded AI race.

OpenAI remains a top recipient of funding among AI ventures, attracting substantial investments from private backers. The influx of capital into AI startups underscores the increasing investor enthusiasm for this rapidly evolving sector.

Cathie Wood Invests In OpenAI

Ark Investment Management, led by Cathie Wood, has revealed its latest strategic move: investing in Silicon Valley AI powerhouse, OpenAI.

In a communication addressed to clients on Thursday, Ark disclosed: “As of April 10, 2024, the Ark Venture Fund has initiated a position in OpenAI,” referencing its $54 million VC fund. The note further elaborated on OpenAI‘s pivotal role in what Ark describes as a “Cambrian explosion” in AI capabilities.

Established in September 2022, the closed-end Ark fund is dedicated to investments in both public and private enterprises. Its diverse portfolio includes prominent names such as Elon Musk’s SpaceX, Epic Games, Freenome Holdings Inc., and Relation Therapeutics.

OpenAI will constitute approximately 4% of the Ark venture fund’s holdings, according to Winton, a representative of Ark. Additionally, Ark has also secured a stake in competitor Anthropic, comprising about 5% of the same fund. With private companies comprising the majority, approximately 80%, of the fund’s holdings, Ark updates the value of its assets daily. This approach aims to provide retail investors participating in Ark’s products with transparent and equitable valuation, as explained by Winton.

Musk Needs $4 Billion For xAI

xAI, Elon Musk‘s emerging AI venture, is in the midst of a fundraising effort to secure between $3 billion to $4 billion, with a proposed valuation of $18 billion, as outlined in materials dispatched to potential investors.

According  to sources familiar with the matter, emails detailing the prospective financing, complete with a comprehensive 20-page pitch deck, are circulating within Silicon Valley’s venture investment circles. Individuals close to Musk have initiated discussions within their networks to gauge interest in participating in the funding round.

While the terms and precise financial figures of the investment round remain subject to adjustment, the general framework is still being refined, and variations are plausible, according to the same sources. Earlier reports by The Wall Street Journal shed light  on certain aspects of the proposed deal.

The pitch deck accentuates various selling points for potential investors, emphasizing Musk’s proven track record at companies like Tesla and SpaceX. Additionally, it underscores the advantage of leveraging high-quality data from Musk’s social network X, a vital resource for training robust AI models. This data access is particularly crucial for the development of large language models, a cornerstone technology underpinning AI chatbots. In this arena, xAI aims to establish itself amidst formidable competition, including well-funded entities such as OpenAI.

AI Funding Race

Looking into broader AI data , a significant chunk – 36% or $18 billion – of AI investments in 2023 was funneled into just three companies: OpenAI, Anthropic, and Inflection AI . If we exclude these, AI investment drops markedly from $45.8 billion in 2022 to $32 billion in 2023.

This concentration suggests investors doubt the potential of new players to compete in the generative AI race. It signals a bet on the dominance of established players, leaving little room for newcomers.

Adding to this, the control of AI GPUs is concentrated among a few big tech giants. By the end of 2024, Meta is set to own a significant 14% of the market share.

While small startups may innovate independently, they often face acquisition or absorption by larger players. The wildcard here is Meta, which, by openly sharing its Large Language Models (LLMs) like Llama, may shape the landscape by supporting new players.

In essence, the race to dominate generative AI foundational models appears to be decided. Although the ultimate winner remains uncertain, it’s likely to emerge from the established players. If this doesn’t unfold as expected, it would be a rare instance where sheer capital doesn’t dictate the outcome.