The Tech Giants Are Eating the Chatbot Kings

When ChatGPT hit the market in November 2022, it sparked a battle for a new product category known as foundation models. These artificial intelligence systems, which generate text and images, cost tens of millions of dollars in computing power to build, and only a few companies have the resources and talent to create them.

In March, one of them was swallowed up by Microsoft Corp. — and much more quickly than anyone expected. After raising more than $1.5 billion from investors, 70 staff from Inflection transferred to Microsoft, which is paying the company $650 million in licensing fees in a deal designed to make investors whole.

Gavin Baker, a managing partner at investment firm Atreides Management, LP, tweeted that certain types of foundation models were now “the fastest depreciating assets in history.” He’s right. These capital-intensive businesses have technology so novel it can take years to figure out a viable business model. And they’re so expensive to build that future rounds of funding are likely to come from deep-pocketed investors in the Middle East. Other firms that have boldly built their own large language models, such as Anthropic,, and Perplexity, may find themselves grappling with the same issues that beset Inflection. (ChatGPT is an exception to the rule, since most of its $1.6 billion revenue in 2023 came from subscriptions.)