AI creates wealth at a record speed

Written by: Li Xiaoyin

Artificial intelligence is creating wealth at an unprecedented speed and scale, giving rise to a new generation of billionaires.

According to data from CB Insights, there are currently 498 AI "unicorn" companies globally valued at over $1 billion, with a total value of $2.7 trillion. Among these, 100 companies were established in 2023 or later, and the number of companies valued at over $100 million has exceeded 1,300.

The core of this wealth feast is the astonishing financing ability and skyrocketing valuations of AI startups. Anthropic is in talks to raise $5 billion at a valuation of $170 billion, nearly doubling its valuation since March. Thinking Machines Lab, founded by former OpenAI CTO Mira Murati, completed a $2 billion seed round in July, setting the record for the largest seed round in history.

This round of wealth creation is not limited to startups; it also includes the soaring stock prices of publicly traded tech giants such as Nvidia, Meta, and Microsoft, as well as the booming development of infrastructure companies like data centers, together forming a panorama of this AI wealth explosion.

Andrew McAfee, Chief Researcher at MIT, stated:

"Looking back at the data from the past 100 years, we have never seen such a scale and speed of wealth creation, which is unprecedented."

A new group of billionaires is rapidly emerging.

This year's major financing rounds are creating new billionaires in bulk. According to Bloomberg's estimates in March, the four largest private AI companies have created at least 15 billionaires, with a total net worth of 38 billion dollars. Since then, more than a dozen unicorn companies have emerged.

According to media reports citing informed sources, Anthropic AI's CEO Dario Amodei and his six co-founders are now likely billionaires with fortunes worth billions of dollars. Additionally, Anysphere was valued at $9.9 billion during its funding round in June, and a few weeks later reportedly received valuation offers between $18 billion and $20 billion, which could very likely make its 25-year-old founder and CEO Michael Truell a billionaire.

It is worth noting that most of the current AI wealth still exists in the form of "paper riches" in unlisted companies, which makes it difficult for founders and equity holders to cash out immediately.

Unlike the internet bubble period in the late 1990s when a large number of companies rushed to IPO, today's AI startups are able to remain private for a longer time with continuous funding from venture capital, sovereign wealth funds, family offices, and other tech investors.

Despite the narrowing of IPO avenues, the new AI elite do have ways to convert paper wealth into liquidity. The rapid development of the secondary market provides them with opportunities to sell equity, and structured secondary sales or tender offers are becoming increasingly common.

The ongoing secondary stock sale negotiations by OpenAI are a typical example aimed at providing cash for employees. In addition, many founders can also borrow through equity pledges.

Mergers and acquisitions are another important liquidity event. According to CB Insights, there have been 73 liquidity events in the AI sector since 2023, including mergers and acquisitions, IPOs, reverse mergers, or majority stake acquisitions.

For example, after Meta invested $14.3 billion in Scale AI, its founder Alexandr Wang joined Meta's AI team. Meanwhile, Scale AI's co-founder Lucy Guo, after leaving the company in 2018, spent about $30 million to purchase a mansion in the Hollywood Hills of Los Angeles with her equity wealth.

Wealth creation is highly concentrated in the Bay Area.

This wave of AI enthusiasm is highly concentrated in the San Francisco Bay Area, reminiscent of Silicon Valley during the internet era.

According to data from the Silicon Valley Research Institute, companies in Silicon Valley received over $35 billion in venture capital last year. Additionally, a report from New World Wealth and Henley & Partners indicates that the number of billionaires in San Francisco has now reached 82, surpassing New York's 66. Over the past decade, the population of millionaires in the Bay Area has doubled, while New York's increase has been 45%.

The influx of wealth has directly boosted the local economy. According to data from Sotheby's International Realty, the number of homes sold in San Francisco for over $20 million last year reached an all-time high. This city, which faced a "doom loop" just a few years ago, is now experiencing a significant increase in rents, home prices, and demand due to AI-driven demand.

McAfee said:

"This wave of AI is astonishingly concentrated geographically. Those who know how to found, fund, and develop tech companies are all there. For 25 years, I've heard people say 'this is the end of Silicon Valley' or that some place is the 'new Silicon Valley,' but Silicon Valley is still Silicon Valley."

The wealth management industry faces new opportunities and challenges.

As time goes by and with the potential IPO in the future, the enormous wealth created by these private AI companies today will eventually become more liquid, bringing historic opportunities to the wealth management industry.

According to technology consultants, all mainstream private banks, large securities firms, and boutique investment banks are actively reaching out to AI elites in hopes of winning their business.

However, serving this new class of wealthy individuals is no easy task. Simon Krinsky, the Executive Managing Director of Pathstone, points out that most of the AI wealth is still locked in illiquid private company equity. He believes that the proportion of illiquidity in the wealth of new AI billionaires is much higher compared to employees who previously worked at large public companies like Meta or Google.

Krinsky expects that AI tycoons will follow a similar behavioral pattern to the internet moguls of the 1990s: initially leveraging excess liquidity to invest in tech companies they're familiar with through their networks, and after experiencing high volatility and concentrated risks in the speculative industry, eventually turning to professional wealth management services in search of diversification and professional protection.