The megacap technology companies of Alphabet (GOOGL), Amaxon.com (AMZN), and Microsoft (MSFT) have invested billions in the top artificial intelligence (AI) startup companies.  Now, these deals are coming under scrutiny.  The U.S. Federal Trade Commission (FTC) said Thursday that the three tech companies must provide information to the agency on their investments and partnerships with the startups.  The FTC said it sent subpoenas to the companies to gather information on how the development of AI is impacting the competitiveness in the sector.

Microsoft is the early leader in investing in an AI startup, committing $13 billion to invest in Open AI. Microsoft is moving to integrate Open AI’s technology into virtually all of its businesses.  Other tech giants have partnered with leading AI startups through funding and cloud computing deals.  Salesforce Inc (CRM) invested in Hugging Face, and Alphabet and Amazon have invested billions of dollars in AI startup Anthropic PBC, while Nvidia (NVDA) has invested in several AI startups.

AI startups need the backing of the megacap technology companies.  It is extremely costly and computationally intensive to build large language models like the technology that AI chatbots like ChatGPT use.  The megacap technology companies are among the only firms with the infrastructure and funds to support these costly efforts.  However, the financial backing of AI startups has drawn the attention of regulators worldwide.  Microsoft’s partnership with Open AI is facing scrutiny from UK and U.S. competition regulators.

The FTC is conducting an inquiry into the partnerships of technology companies with AI startups under its 6 (b) authority that allows it to issue subpoenas to conduct market studies and research.  After analyzing the information, the FTC will then issue a report on its findings, though that process can take years to complete.  The FTC is still finalizing the results of studies on pharmaceutical intermediaries and supply chains that it stated in 2021 and 2022.

On Thursday, FTC Chair Khan said her agency was closely monitoring the AI industry and warned that AI companies “cannot use claims of innovation as cover for law breaking.” The inquiry by the FTC comes as megacap technology companies take a more prominent role in backing AI startups in a bid to stake a claim in the sector.  The FTC is concerned that these investments could lead to a heavily consolidated AI market dominated by only a few companies.  Although the information collected by the FTC in its inquiry is for research purposes, it can use any data it finds to open official investigations or aid in existing probes.  Last summer, the FTC opened an investigation into whether OpenAI has violated consumer protection laws with its ChatGPT AI bot. 

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