Brain in the clouds

Hullo, it’s Alex in London. What’s good for AI is good for the cloud providers. But first...Three things you need to know today:• The FTC su [View in browser]( [Bloomberg]( Hullo, it’s Alex in London. What’s good for AI is good for the cloud providers. But first... Three things you need to know today: • The FTC sued Amazon [over antitrust]( • The US is poised to [benefit most from AI]( • Peloton’s last remaining [founder is leaving]( Amazon’s AI bet Amazon.com Inc.’s plan to splash as much as $4 billion on a [stake in the startup Anthropic]( revealed a key part of big tech’s roadmap for our artificially intelligent existence: how the companies intend to make money from it. Well before ChatGPT sparked the recent frenzy, OpenAI’s Sam Altman liked to say that the marginal cost of AI to consumers would be “[close to zero](.” Which implies the profit will need to come from someplace else. Piece the puzzle together, and a route to profitability becomes clearer: Generative AI is shaping up to be the golden carrot for hungry cloud customers. Why, for instance, is Nvidia Corp. the [sine qua non]( of buzzy AI stocks? Because cloud operators are writing massive checks for its bleeding-edge chips to deck out their servers. Analysts reckon data center operators will spend $41 billion on Nvidia chips this year, up from just $15 billion in the 12 months through January 2023. All three major data center operators — Amazon, Google and Microsoft — are working on their own AI software, but the latter two have, by most accounts, taken a clear lead. If you work at a company that wants to use Google’s AI systems for your customer-service chatbot, then you probably need to build it on Google Cloud. If you want to use Google’s Bard to help you write emails or your résumé, then you’ll likely be stuck with Gmail or Google Docs. If ChatGPT is more your thing, Microsoft has first dibs on OpenAI’s services thanks to its $10 billion commitment to the startup. The moneymaking master plan has yet to be fully implemented. For now, of course, you can pay a $20-per-month subscription fee to OpenAI to use ChatGPT Plus. It’s an incredibly un-Silicon Valley business model. One reason that Google and Meta Platforms Inc. have proven such successful businesses is that their earnings potential is not capped by anything as restrictive as a subscription fee. Netflix Inc. has had to find [new and creative ways]( to grow precisely because it’s butted up against the constraints of its own subscription pricing. In the US and Canada, however, Meta made $206 per user last year, up from $139 three years earlier. That revenue came almost exclusively from selling advertisements. It’s hard to imagine a) that it would manage to convince its 199 million users in that part of the world to pay the equivalent $17 per month to use its services, or b) that it could increase consumer prices at the same pace at which it’s managed to boost advertising revenue. In other words, AI’s current pay-to-play model for consumers is not where the real money lies. The prize is the [new generation of startups]( that will be built on AI and convincing them to use your cloud. Cloud computing is already a fabulously profitable line of business. Microsoft’s cloud enjoyed a 70% gross margin in its most recent fiscal year. So the fact that both Google and Microsoft now have pretty compelling generative AI offerings in their cloud lineup represents a substantial threat to Amazon Web Services, the dominant cloud provider. If you can’t get the tech with AWS, you’re more inclined to build that aforementioned chatbot on Google Cloud. That’s what makes this week’s deal to invest in Anthropic so significant. It was founded by former OpenAI employees and has similar technology. It’s noteworthy that the investment is coming directly from AWS, which will now become Anthropic’s “primary cloud provider.” The deal should help Amazon compete far more effectively with Google and Microsoft on this front and maintain its cloud lead. Over time, AI could introduce all sorts of new business models the corporate world has yet to consider. For now, it mostly looks like cloud bait. —[Alex Webb](mailto:awebb25@bloomberg.net) The big story The new CEO of Blue Origin previously helped launch Alexa and is now tasked with [launching Jeff Bezos’ rockets](. One to watch [Watch the Bloomberg Technology TV interview]( with Coinbase Head of US Policy Kara Calvert. Get fully charged The EU claims disinformation is [running rampant on Elon Musk’s X](. A hack that compromised an Egyptian presidential candidate was linked to the[tech company Sandvine](, which was previously used to censor the internet in Belarus. FCC announces plans to reinstate net neutrality after the policy was [rescinded in the Trump era](. Walmart is expanding its selection of[prepaid phone plans](. More from Bloomberg Live event: The Bloomberg Technology Summit in London will host top technology leaders, business executives, innovators and entrepreneurs on Oct. 24. The event will explore the rapid advance of AI, green technology, the escalation of cyber warfare and more. [Register here](. 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