Google is set to invest up to $40 billion in the artificial intelligence (AI) startup Anthropic, following Amazon's recent investment. This investment comprises an initial$10 billion, with an additional $30 billion contingent on future performance milestones. The deal values Anthropic at$350 billion, consistent with its valuation from a February investment round. Although Anthropic competes with Google in the AI model sector, it is a significant customer for Google's chips and cloud services, utilizing Tensor Processing Units (TPU) and Google Cloud. As part of the agreement, Google Cloud plans to provide Anthropic with 5 GW of computing capacity over the next five years, with potential for further expansion. For context, 1 GW is equivalent to the power generation of one nuclear power plant and can supply electricity to one million households. Google had previously announced at its 'Google Cloud Next' event in Las Vegas that Anthropic's AI model, Claude, would be available on Google Cloud. Dario Amodei, Anthropic's CEO, has a historical connection to Google, having worked there as an AI researcher early in his career, and Google had previously invested $3 billion in Anthropic.

This investment from Google follows a similar large-scale commitment from Amazon, which earlier in the week invested $5 billion in Anthropic, with an agreement to potentially provide an additional$20 billion. Consequently, Anthropic has secured investment commitments totaling up to $65 billion from two major technology companies within the current month.

The surge of investment into Anthropic is largely attributed to its preparations for an initial public offering (IPO), targeted for the fourth quarter of this year. Anthropic, which primarily focuses on the enterprise customer market, is noted for being preferred over its competitor OpenAI in coding tool markets, such as 'Claude Code,' and is perceived to have more stable financial conditions than OpenAI. Products like 'Claude Cowork,' which has been hailed for potentially disrupting Software-as-a-Service (SaaS) models, and 'Claude Mythos,' recently identified as a source of concern for AI-driven security threats, have also significantly heightened interest in Anthropic. While OpenAI is also pursuing an IPO, investors are reportedly flocking to Anthropic due to a perception that it is currently undervalued relative to OpenAI. Industry observers predict that Anthropic's valuation could exceed $800 billion upon its public listing.

However, these investments from Google and Amazon in Anthropic have also raised concerns about potential "circular transactions" in the intensifying AI market. Some financial analysts have pointed out the risk inherent in Anthropic receiving funds from Google and Amazon only to then use those funds to purchase cloud usage rights from the very same investors. This concern echoes previous anxieties surrounding Nvidia's investments in its graphics processing unit (GPU) clients, such as OpenAI. Jensen Huang, Nvidia's CEO, dismissed such concerns, stating that his company funds businesses in which they believe will succeed. Following the news of Google's investment, Alphabet's stock price saw an increase of approximately 1.5%, trading around $344 as of 3 PM ET.