AI: Meta leaning into Scale AI. RTZ #745

Meta is ramping up its ability to scale Data for its next generation open source Llama models, this time with a multibillion dollar tie-up with Scale AI, the leading aggregator of AI Data for major LLM AI companies, enterprises, and increasingly the government for defense and other applications.

I’ve discussed the critical and unique aspect of this AI Tech Wave vs prior waves as being Box 4 in the tech stack below. Scale AI is the leading company in that box.

Box 4 is richly populated with sources like Wikipedia, Reddit and others, but also key aggregators like Scale AI.

The Meta investment could rival in scale the $10+ billion investment by Microsoft in OpenAI a couple of years ago.

Bloomberg provides more context in “Meta in Talks for Scale AI Investment That Could Top $10 Billion”:

“Meta Platforms Inc. is in talks to make a multibillion-dollar investment into artificial intelligence startup Scale AI, according to people familiar with the matter.”

“The financing could exceed $10 billion in value, some of the people said, making it one of the largest private company funding events of all time.”

“The terms of the deal are not finalized and could still change, according to the people, who asked not to be identified discussing private information.”

If the deal proceeds, it would change the Data ‘arms dealer’ role of Scale AI with its LLM AI customers, both open and closed souce.

“Scale AI, whose customers include Microsoft Corp. and OpenAI, provides data labeling services to help companies train machine-learning models and has become a key beneficiary of the generative AI boom. The startup was last valued at about $14 billion in 2024, in a funding round that included backing from Meta and Microsoft. Earlier this year, Bloomberg reported that Scale was in talks for a tender offer that would value it at $25 billion.”

And it would be a meaningful foray for Meta into the enterprise category of AI software services, something that Elon Musk’s xAI is also pondering with its Grok AI service.

I’ve discussed Meta’s ‘AWS size’ opportunities for its open source Llama models previously.

“This would be Meta’s biggest ever external AI investment, and a rare move for the company. The social media giant has before now mostly depended on its in-house research, plus a more open development strategy, to make improvements in its AI technology. Meanwhile, Big Tech peers have invested heavily: Microsoft has put more than $13 billion into OpenAI while both Amazon.com Inc. and Alphabet Inc. have put billions into rival Anthropic.”

“Part of those companies’ investments have been through credits to use their computing power. Meta doesn’t have a cloud business, and it’s unclear what format Meta’s investment will take.”

“Chief Executive Officer Mark Zuckerberg has made AI Meta’s top priority, and said in January that the company would spend as much as $65 billion on related projects this year.”

This would bolster Meta’s open source Llama models globally, especially as it’s seeing inreasing competition from Alibaba and DeepSeek in particular, as discussed yesterday.

“The company’s push includes an effort to make Llama the industry standard worldwide. Meta’s AI chatbot — already available on Facebook, Instagram and WhatsApp — is used by 1 billion people per month.”

Scale AI has come a long way over almost a decade, with an aggressive young founder/CEO:

“Scale, co-founded in 2016 by CEO Alexandr Wang, has been growing quickly: The startup generated revenue of $870 million last year and expects sales to more than double to $2 billion in 2025, Bloomberg previously reported.”

“Scale plays a key role in making AI data available for companies. Because AI is only as good as the data that goes into it, Scale uses scads of contract workers to tidy up and tag images, text and other data that can then be used for AI training.”

And both companies have increasingly overlapping market interests:

“Scale and Meta share an interest in defense tech. Last week, Meta announced a new partnership with defense contractor Anduril Industries Inc. to develop products for the US military, including an AI-powered helmet with virtual and augmented reality features. Meta has also granted approval for US government agencies and defense contractors to use its AI models.”

“The company is already partnering with Scale on a program called Defense Llama — a version of Meta’s Llama large language model intended for military use.”

“Scale has increasingly been working with the US government to develop AI for defense purposes. Earlier this year the startup said it won a contract with the Defense Department to work on AI agent technology. The company called the contract “a significant milestone in military advancement.”

In the government/defense context, other Mag 7s are also focused on this market, along of course companies like Palantir, Anduril and other venture backed defense startups.

The current tail winds of US/China geopolitical competition, of course are an accelerant on this market opportunity.

The Meta/Scale partnership if finalized is a notable development in this AI Tech Wave, especially in the context of accelerating and scaling Data for the next set of training and inference opportunities. Stay tuned

(NOTE: The discussions here are for information purposes only, and not meant as investment advice at any time. Thanks for joining us here)