The artificial intelligence (AI) start-up battle is heating up.

While OpenAI, backed by Microsoft (MSFT 0.30%), has grabbed much of the attention in the artificial intelligence industry, a team of former OpenAI execs has established its own rival to the ChatGPT creator: Anthropic. The two-year-old AI start-up just announced a $450 million funding round that included Alphabet's (GOOG 1.41%) (GOOGL 1.43%) Google, the tech giant that has emerged as Microsoft's chief rival in the fast-developing AI space.

A person holding a tablet with an image of a circuit board shaped like a brain floating above it.

Image source: Getty Images.

What is Anthropic?

Anthropic was founded in 2021 by former OpenAI research execs and is led by Dario Amodei, who was OpenAI's vice president of research. It has emerged as Google's top horse in the AI start-up race as the Alphabet subsidiary was among the lead investors in the latest round, which also includes venture arms from Salesforce and Zoom Video Communications, and VC firm Spark Capital.

In a funding round in March, Anthropic raised $300 million at a $4.1 billion valuation, and Google invested $300 million in Anthropic back in February, taking a 10% stake in the company. The most recent funding round is the biggest for an AI start-up since Microsoft injected $10 billion into OpenAI this January, following the launch of ChatGPT last November.

Anthropic hasn't been sitting still. The company unveiled its own chatbot, Claude, in March, which has received positive reviews. According to Anthropic's customers, its chatbot is "less likely to produce harmful outputs" and is "easier to converse with" than ChatGPT.

However, Claude is not open to the general public the way ChatGPT is. Prospective users must request permission to use it from Anthropic, provide the reason they want to use it, and give their identity.

Additionally, there are other websites that offer access to other versions of Claude. For example, Quora's offers access to both ChatGPT and Claude, but users need to pay for the service after a promotional period.

In part because the chatbot is largely closed, it hasn't received near the level of attention that ChatGPT has, though that could change.

What it means for Microsoft

It shouldn't be a surprise that funding for AI start-ups is heating up. AI is having a moment and it won't be clear for a while if the hype around generative AI and other emerging technologies is deserved.

Nearly every company in both the tech sector and outside of it seems to be talking up the new ways it's using AI, and Wall Street analysts have been peppering executives with plenty of questions about AI on earnings calls.

Microsoft and OpenAI should expect to see more competition in generative AI as big tech companies and others are going to try to stake their claim to a piece of a potentially massive pie.

After an initial flop with its launch of Bard AI, its competitor to ChatGPT, Alphabet has redeemed itself -- investors were impressed with its presentation of the upgraded Bard at its I/O developer conference earlier this month. Alphabet's investment in Anthropic also shows that it is spreading its bets on AI, and the Anthropic funding could lead to a strategic partnership between Alphabet and Anthropic with shared resources, much like the one Microsoft and OpenAI have.

Other tech companies like Meta Platforms and Amazon are also developing their own large language models (LLM) and are likely to compete in the chatbot race as well.

At this point, Microsoft investors don't need to be worried about Anthropic, but they should be paying attention to the rapidly evolving competitive landscape in AI. 

Microsoft stock is up 32% this year, and those gains can be partially attributed to its partnership with OpenAI and its aggressive moves in AI to leverage ChatGPT and similar technologies in products like Bing.

If the Windows maker can seriously challenge Google's search supremacy and develop other new revenue streams with AI, the stock could move even higher, but investors should be aware that things can change quickly in AI as this is still a relatively new industry.