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Generative AI VC Deals Plummet by 76%, Startups' Profitability Questioned

Tech market update!

INSIGHT

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Early-stage VC investment in generative AI has plummeted 76% since Q3 2023 due to market saturation and big tech dominance. With only 34 deals recorded in Q1 2024, concerns about profitability has led to caution among investors. The launch of OpenAI's GPT store offering free code completion and copywriting services has made numerous startups obsolete. Investors now demand clear differentiation from new startups in an increasingly crowded market.

💡 Insight: Investor caution is intensifying due to market saturation and the impact of dominant players like OpenAI offering free accessible services. Startups face significant hurdles in proving differentiation and profitability. The bar for investment is higher, shifting interest to practical AI applications rather than infrastructure.

The FTC is probing Microsoft's deal with AI startup, Inflection AI, over potential antitrust issues. In March, Microsoft hired Inflection's co-founder, a majority of its employees and signed a licensing deal worth $650 million. The FTC's focus is to discern if this arrangement was intentionally designed to circumvent governmental antitrust reviews. The probe extends to all AI investments by tech giants such as Microsoft and Alphabet.

💡 Insight: The structure of the Perplexity deal, not buying the compnay but licenings the tech, was a direct effect of the extreme scrutiny on Big Tech M&A. If the deal is blocked by the FTC, this experiment was a failure; if not, it might lead to a leading framework to circumvent antitrust issues.

Apple has agreed to a temporary partnership with OpenAI to considerably enhance Siri for iOS 18's relaunch. The deal will enable Siri to deliver ChatGPT-powered chatbot functions, albeit as a provisional measure until Apple solidifies its own generative AI chatbot, Apple GPT. Notably, Dag Kittlaus, Siri's co-founder, suggests the OpenAI collaboration is a transitory setup while Apple enriches its chatbot technology.

💡 Insight: The Apple-OpenAI partnership, viewed as a temporary measure, underscores Apple's strategy to quickly enhance Siri while it develops Apple GPT. This approach balances immediate AI advancements with risk management, leveraging disclaimers and opt-in models to manage current generative AI limitations.

Last week, U.S. information-technology stocks witnessed their largest outflow since July 2023, marking a significant shift in the market rally experienced in May, as reported by BofA Global Research.

💡 Insight: Recent outflows in the information-technology sector, heightened by market volatility, suggest investor caution despite the tech rally in May. This could reflect concerns over overvaluation or shifts towards safer assets amid macroeconomic uncertainty. Investors need to monitor closely for potential sector-wide impacts.

BRIEF

Canada's Radio-television and Telecommunications Commission (CRTC) has ordered major streaming services to pay 5% of their Canadian revenue to fund local content, a directive expected to rake in $200 million annually starting 2024-2025. The decision faced criticism from tech giants such as Amazon, Google, and Netflix, but only applies to services earning at least $25 million a year in Canada, and excludes revenue from user-generated content, audiobooks, podcasts, and video games.

Airbnb's postings in New York have decreased significantly due to a new law that imposed rigid restrictions on short-term rentals. Jay Carney, global head of policy and communications, said the law has had a negative impact on hosts without affecting rental rates or the housing inventory, which continue to rise. He also expressed Airbnb's intent to collaborate with authorities to revamp the regulation.

Alphabet has appointed Anat Ashkenazi, the former CFO of pharmaceutical titan Eli Lilly, as its new CFO, replacing Ruth Porat. Ashkenazi, with 23 years of experience at Eli Lilly, will assume her role at Google's parent company on July 31, 2024. The move comes as Alphabet strengthens its foothold in the healthcare sector through entities such as Verily, Calico, and the AI-based drug discovery firm, Isomorphic Labs.

Google's new equity-free program, "Google for Startups AI Academy: American Infrastructure", seeks to integrate AI into public sector applications. The 12-week program offers hands-on AI training and industry connections. Applications close June 17.

ClickUp has launched an AI-based system, "ClickUp Knowledge Management", intending to compete with services like Notion and Atlassian’s Confluence, offering centralized business data management.

Nvidia has overtaken Apple as the second-most valuable US public company with a market cap of $3.019 trillion. This acceleration is driven by Nvidia's dominance in the AI chip market and investors' increased confidence in its growth potential.

Asana's 'AI teammate' uses historic data to assign tasks, consolidate missing information, and introduce a chat interface for questions. Other tech giants have similarly introduced AI workflow automation.

QUICK

Subscription Models Drive Efficient Growth in Tech Sector - According to Chargebee's 2024 report, subscription models have gained traction as businesses prioritize customer retention and efficient growth. The findings underscore a shift in strategy from acquisition efforts to managing customer value and subscription cancellation experiences. Emphasis on flexibility and personalized promotions linked to customer satisfaction continues.

Wix Unveils AI-Powered Tool for Easy Mobile App Creation - Wix is launching an AI tool enabling customers to create and edit apps using plain English descriptions. The functionality expands the platform's existing AI website generator and is part of their broader digital experience strategy. This AI-powered app builder costs $99 per month.

eBay Introduces AI Tool for Enhanced Product Photos, Bolsters E-Commerce Strategy - eBay introduced an AI tool for enhancing product images by altering backgrounds, using the Stable Diffusion model. The tool aims to boost product display, contributing to eBay's growth strategy.

Elliott Management Urges $15B Buyback by SoftBank, Shares Surge 6.3% - SoftBank Group shares jumped 6.3% as Elliott Management, holding a $2 billion stake, urged for $15 billion in share buybacks, sparking optimism in SoftBank’s AI-focused strategy.

Google Acquires Cameyo to Boost ChromeOS with Windows App Virtualization - Google's acquisition of software virtualization company Cameyo aims to intensify Windows app support on ChromeOS, advancing Google's Chromebook push in education and business.

Smartsheet's Soars as 20% Revenue Jump Beats Analyst Estimates - Smartsheet's Q1 revenue rose 20% YoY to $263M, outpacing analysts' estimates. Net losses dropped from $29.9M to $8.9M, leading to a 13% stock surge in after-hours trading.

SAP Seals $1.5B Acquisition of Israeli Software Firm WalkMe - SAP SE is acquiring software firm WalkMe Ltd for $1.5 billion. The buyout price stands at $14 per share, a 45% premium on WalkMe's Tuesday closing price.

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