WHEN ChatGPT hit the market in November 2022, it sparked a battle for a new product category known as foundation models. These artificial intelligence (AI) systems, which generate text and images, cost tens of millions of dollars in computing power to build, and only a few companies have the resources and talent to create them.

In March, one of them was swallowed up by Microsoft – and much more quickly than anyone expected. After raising more than US$1.5 billion from investors, 70 staff from Inflection transferred to Microsoft, which is paying the company US$650 million in licensing fees in a deal designed to make investors whole.

Gavin Baker, a managing partner at investment firm Atreides Management, tweeted that certain types of foundation models were now “the fastest depreciating assets in history”. He is right. These capital-intensive businesses have technology so novel it can take years to figure out a viable business model. And they are so expensive to build that future rounds of funding are likely to come from deep-pocketed investors in the Middle East.