AI creates wealth at a record pace

Author: Li Xiaoyin, The Wall Street Journal

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

According to CB Insights data, there are currently 498 AI "unicorn" companies globally valued at over $1 billion, with a total value of $2.7 trillion. Among them, 100 companies were established in 2023 and beyond, and there are over 1,300 companies valued at over $100 million.

At the core of this wealth boom is the astonishing fundraising ability and skyrocketing valuations of AI startups. Anthropic is negotiating to raise $5 billion at a $170 billion valuation, 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 a record for the largest seed round ever.

This round of wealth creation is not limited to startups; the soaring stock prices of publicly traded tech giants like Nvidia, Meta, and Microsoft, along with the booming infrastructure companies such as data centers, collectively form a panorama of this AI wealth explosion.

Andrew McAfee, a principal researcher at MIT, stated:

"Looking back at 100 years of data, we have never seen such scale and speed of wealth creation; it is unprecedented."

A Rapid Emergence of New Billionaires

This year's significant funding rounds are rapidly creating new billionaires. According to Bloomberg's estimates from March, the four largest private AI companies have created at least 15 billionaires, with a total net worth of $38 billion. 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 in the billions. Additionally, Anysphere was valued at $9.9 billion during its June funding round, and weeks later reportedly received valuation offers between $18 billion and $20 billion, likely making 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 wealth" within private companies, making it difficult for founders and equity holders to cash out immediately.

Unlike the late 1990s internet bubble, when many companies rushed to IPO, today's AI startups can remain private for longer periods due to ongoing investments from venture capital, sovereign wealth funds, family offices, and other tech investors.

Although IPO channels have narrowed, the new AI elites are not without ways to convert paper wealth into liquidity. The rapid development of secondary markets provides them with opportunities to sell equity, and structured secondary sales or tender offers are becoming increasingly common.

OpenAI's ongoing secondary share sale negotiations are a typical example, aimed at providing cash for employees. Additionally, many founders can also borrow against their equity.

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, 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 co-founder Lucy Guo, after leaving the company in 2018, used her equity wealth to purchase a mansion in the Hollywood Hills of Los Angeles for about $30 million.

Wealth Creation Highly Concentrated in the Bay Area

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

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

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

McAfee stated:

"This wave of AI is astonishingly geographically concentrated. Those who know how to start, fund, and grow tech companies are all there. For 25 years, I've been hearing 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 on and potential IPOs loom, the immense wealth created by these private AI companies will eventually become more liquid, presenting historic opportunities for the wealth management industry.

According to tech consultants, all major private banks, large brokerages, and boutique investment banks are actively reaching out to AI elites, hoping to win their business.

However, serving this new elite is not an easy task. Simon Krinsky, Executive Managing Director at Pathstone, pointed out that most AI wealth remains locked in illiquid private company equity. He believes that the proportion of illiquid wealth among new AI billionaires is much higher than that of employees who worked at large public companies like Meta or Google in the past.

Krinsky expects that AI billionaires will follow a similar behavioral pattern to the internet billionaires of the 1990s: initially using excess liquidity to invest in similar tech companies they know through their networks, and after experiencing high volatility and concentrated risks in speculative industries, ultimately turning to professional wealth management services for diversification and professional protection.

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