AI is creating new billionaires at a record pace

The AI Boom: Creating New Billionaires and Wealth Opportunities

The artificial intelligence (AI) industry is experiencing an unprecedented boom, with dozens of new billionaires emerging in 2023 alone. This surge in wealth creation is largely driven by the massive valuations of private AI companies, which have reached record levels. According to CB Insights, there are now 498 AI “unicorns,” or private companies with valuations of $1 billion or more, with a combined value of $2.7 trillion. This phenomenon is not limited to the United States, as AI startups around the world are attracting significant investments and creating new wealth opportunities.

The AI boom is also being fueled by the soaring stock prices of publicly traded companies like Nvidia, Meta, and Microsoft, which are heavily invested in AI research and development. Additionally, the huge payouts for AI engineers and the infrastructure companies that are building data centers and computing power are contributing to the creation of new wealth. As Andrew McAfee, principal researcher at MIT, notes, “Going back over 100 years of data, we have never seen wealth created at this size and speed.” This unprecedented growth is likely to have a profound impact on the global economy and society as a whole.

Private AI Companies and Secondary Markets

While most of the AI wealth creation is in private companies, making it difficult for equity holders and founders to cash out, the rapid growth of secondary markets is providing liquidity for these companies. Structured secondary sales or tender offers are becoming widespread, allowing equity owners to sell their shares to other investors. Many founders can also borrow against their equity, providing them with access to capital. Open AI, for example, is holding talks for a secondary share sale to provide cash to employees, with a proposed valuation of $500 billion.

Dozens of private firms are being acquired or merging, also providing liquidity. After Meta invested $14.3 billion in Scale AI, founder Alexandr Wang joined Meta’s AI team. There have been 73 liquidity events — including mergers and acquisitions, IPOs, reverse mergers or corporate majority stakes — since 2023, according to CB Insights. These developments are creating new opportunities for wealth management firms to provide services to the AI elite, including tax planning, inheritance and estate planning, and philanthropy advice.

The Geographical Concentration of AI Wealth

The AI surge is largely centered in the Bay Area, reminiscent of the dot-com era. Last year, Silicon Valley companies raised more than $35 billion in venture funding, according to the Silicon Valley Institute for Regional Studies. San Francisco now has more billionaires than New York, with 82 compared with New York’s 66, according to New World Wealth and Henley & Partners. The Bay Area’s millionaire population has doubled over the past decade, compared with New York’s growth of 45%. This geographical concentration of AI wealth is likely to have a significant impact on the local economy and society.

As the AI boom continues to grow, it is likely to create new challenges and opportunities for wealth management firms. The AI wealthy are likely to follow similar client patterns as the newly rich dot-commers of the 1990s, initially using their excess liquidity and assets to invest in similar tech companies they know through their networks, colleagues or shared investors. However, as they become more sophisticated, they are likely to turn to traditional wealth management firms for personalized services, including tax planning, inheritance and estate planning, and philanthropy advice.