AI Pay Packages & AI Brain Drain
This week’s big AI news was $Meta Platforms, Inc.(META)$ investing $14.3 billion in Scale AI to essentially acquire the team. Scale’s business will likely be decimated (Google announced it would stop using Scale), and key employees have already said they will join Meta full-time.
But the payout for Scale’s employees is only part of the story. Meta has reportedly been offering pay packages of over $10 million — and as much as nine-figures — to key AI researchers.
Big payouts aren’t new in Silicon Valley, but AI have pushed them to a new level. $Alphabet(GOOG)$ $Alphabet(GOOGL)$ spent $2.7 billion late last year to essentially re-hire Noam Shazeer and Daniel De Freitas, who left the company to start Character.AI.
OpenAI has been known to pay up to $10 million for top talent.
If you thought the battle for $NVIDIA(NVDA)$ chips was intense, AI talent looks like it’s the most important commodity in the industry.
Brain Drain and the War For Talent
What we want to watch as investors is where talent is congregating and where there’s a drain of talent. If people are leaving, it can be a downward spiral.
For example, I don’t know quite what to make of Tesla’s AI chief leaving only days before the launch of Robotaxi and ahead of the Optimus ramp.
Brain drain isn’t new for $Tesla Motors(TSLA)$ , but if this is a battle that’s going to be waged with big checks, Tesla isn’t going to win.
Stock based compensation is the other tool companies can use to lure talent, and Tesla is once again a laggard since the depths of the pandemic.
Brain drain isn’t a Tesla-only problem.
Google lost the creators of NotebookLM late last year, and I mentioned above that they’ve spent big to pull AI leaders back into the organization.
As the valuation of startups has gone to eye-popping levels, the brain drain may get worse. OpenAI’s Ilya Sutskever raised $1 billion at a $5 billion valuation for his startup SSI before the company was off the ground. A few months later, the company got another $2 billion at a $32 billion valuation.
What’s a $100 million pay package when you can be worth billions in months and then get acqui-hired?
All of this seems unsustainable to me, but I don’t know who that favors. For employees, get what you can while the money is good. But for AI companies, it seems fraught to pay this much money to employees unless your business model supports it.
My money is on Alphabet coming out ahead in AI because they have the infrastructure and distribution to compete and a balance sheet most companies would envy. But outside of them, this may be a back-and-forth battle to attract talent and build products that leaves everyone’s profits worse off as all of Silicon Valley pursues the mythical artificial super intelligence.
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