In a candid conversation on CNBC’s ‘Squawk Box,’ Eric Schmidt, co-founder of Schmidt Futures, co-founder of the Special Competitive Studies Project, and former CEO of Google, discussed the current state of artificial intelligence, the competitive dynamics between tech giants, and the impact of AI on geopolitics.

Underhyped, Not Overhyped

Schmidt’s assertion that AI is underhyped, not overhyped, is grounded in the idea that its transformative potential remains largely unrecognized or underestimated by many. He elaborated on this notion, suggesting that the rapid evolution of AI is ushering in unprecedented changes in how humanity interacts with technology and approaches complex problem-solving.

“The arrival of intelligence in a non-human form is really a big deal for the world,” Schmidt emphasized. “It’s coming, it’s here, it’s about to happen, and it happens in stages.” He pointed out that the timeline for reaching advanced stages of AI has dramatically shortened, now believed to be within the next five years, compared to earlier estimates of 20 years or more.

He attributed this accelerated timeline to the relentless pace of advancements in large language models (LLMs) and the scaling laws that continue to fuel their growth. Schmidt highlighted the significant investments by major players like OpenAI, Microsoft, Google, and Meta, each pouring billions of dollars into developing next-generation AI models.

“OpenAI, in this generation, invented this category with their Microsoft partnership. They’re going to spend $32 billion on this,” Schmidt explained. “Google invented it and is now in the game. I’m assuming the numbers are similar. You have other entrants that are incredibly interesting, like Meta, which has just released a 400 billion parameter model called LLaMA 3 in open-source form.”

While acknowledging that NVIDIA currently holds a dominant position in the AI hardware space, he expressed optimism about the potential for competitors like AMD and Intel to eventually catch up, noting that the competitive landscape is constantly evolving.

Moreover, Schmidt emphasized that AI is revolutionizing industries beyond the tech sector, transforming business models and operational efficiencies. “American businesses will change because of this,” he predicted. “The future of reasoning, the future of human interaction, the future of research, and the future of planning are being invented right now.”

He cited the rise of ‘agents,’ specialized AI models capable of performing specific tasks autonomously, and ‘infinite context windows,’ which enable AI systems to maintain a vast memory over extended periods, as groundbreaking developments that will redefine how businesses and individuals interact with AI systems.

Schmidt also alluded to the increasing corporate adoption of AI technologies, particularly in research, supply chain management, and customer service. “The net return for building these things makes energy much more efficient,” he said, pointing out that AI enables better resource allocation and more accurate planning, ultimately driving down costs and waste.

His message was clear: the rapid evolution of AI represents a paradigm shift that will impact every facet of modern life. Yet, this transformation requires investment, innovation, and thoughtful regulation to ensure that AI development aligns with broader societal goals.

The Key Players and Their Strategies

In discussing the state of the AI arms race, Eric Schmidt highlighted the strategic maneuvers of major technology companies and their concerted efforts to stay ahead in the rapidly evolving field. He noted that each major player has carved out a unique path to leverage their strengths and capitalize on emerging opportunities in AI.

Google and DeepMind:
Schmidt began by shedding light on Google, a front-runner in AI development since acquiring DeepMind in 2014. He noted that Google invented many core AI concepts and remains deeply invested in AI research and development through both Google Research and DeepMind. Google’s strategy revolves around integrating advanced AI into its existing products, like search and advertising, while also exploring new frontiers in healthcare and scientific discovery. Schmidt stated, “Google is not about blue links; it’s about organizing the world’s information. What better tool than AI to do that better?”

OpenAI and Microsoft:
Schmidt highlighted the OpenAI-Microsoft partnership as a pivotal alliance that has shifted the dynamics of the AI landscape. He emphasized OpenAI’s pioneering role in defining the current generation of large language models (LLMs) with GPT-3 and GPT-4. Microsoft’s strategic investment in OpenAI, reportedly over $10 billion, provides the funding needed to develop state-of-the-art models and integrates AI deeply into Microsoft’s product suite, including Office and Azure. Schmidt remarked, “OpenAI, in this generation, invented this category, and with their Microsoft partnership, they’re going to spend $32 billion on this.”

Meta and LLaMA:
Meta (formerly Facebook) has made significant strides in open-source AI research by releasing its LLaMA series of language models. Schmidt explained how LLaMA 3, with approximately 400 billion parameters, demonstrates Meta’s commitment to AI innovation. By open-sourcing their models, Meta aims to foster a collaborative research environment that accelerates progress in AI while maintaining transparency and ethical standards.

Amazon and Anthropic:
Schmidt noted that Amazon’s strategic partnership with Anthropic represents another crucial alliance in the AI sector. Anthropic, founded by former OpenAI researchers, focuses on safety and interpretability in AI models. Amazon integrates Anthropic’s cutting-edge models into its AWS platform, offering customers scalable and secure AI solutions. Schmidt, an investor in Anthropic, emphasized the importance of this partnership: “Amazon has a deep partnership with Anthropic, which is super important.”

NVIDIA’s Dominance in AI Hardware:
Regarding hardware, NVIDIA remains the undisputed leader due to its comprehensive software ecosystem and powerful GPUs tailored for AI workloads. Schmidt acknowledged the importance of competition but noted that NVIDIA’s stronghold is hard to challenge: “NVIDIA has a virtual monopoly on the software stack between the hardware and the software that everyone is using.”

The Role of New Entrants:
Schmidt also mentioned new entrants like xAI, founded by Elon Musk, and Inflection, a startup focused on personal AI assistants. Musk’s vision of combining Twitter’s social media platform with AI capabilities presents a unique challenge. Schmidt remarked, “His pitch is the combination of Twitter-X, and the Tesla geographic information gives him a leg up.”

The Open-Source Factor:
Schmidt emphasized the significance of open-source AI models in democratizing AI research and development. With Meta’s open-source LLaMA models and Google’s contributions through TensorFlow, the open-source community has emerged as a formidable force in advancing AI technology. “The open-source industry is following the closed source,” Schmidt observed, underscoring the dynamic interplay between proprietary and open research.

Ultimately, Schmidt’s assessment of the AI landscape reveals a highly competitive environment where alliances, investments, and strategic differentiation are crucial. He concluded that the arms race will continue to intensify as companies pour billions into AI research, all vying to shape the future of intelligence in their favor.

The Role of Partnerships and Acquisitions

Eric Schmidt highlighted the increasing importance of partnerships and acquisitions in shaping the AI landscape. He noted that collaboration among tech giants, startups, and research institutions is crucial to accelerating innovation in artificial intelligence. Strategic partnerships allow companies to leverage each other’s strengths while maintaining focus on their core competencies.

One notable example is Amazon’s partnership with Anthropic, an AI startup specializing in developing state-of-the-art language models. This collaboration provides Amazon with a significant advantage in its efforts to develop its own large language models. Similarly, Meta recently released LLaMA 3, an open-source model that seeks to rival OpenAI’s GPT-4, demonstrating the potential of partnerships and open-source collaboration in advancing AI development.

Schmidt emphasized that while companies are actively seeking strategic partnerships, the regulatory environment has made traditional mergers and acquisitions more challenging. This has led to the rise of “strategic partnerships,” which often resemble acquisitions in their nature but circumvent regulatory scrutiny. Schmidt observed that many large tech companies would prefer direct acquisitions to bolster their AI capabilities but are instead pursuing partnerships due to regulatory constraints.

The partnership between OpenAI and Microsoft exemplifies this trend. Microsoft’s investment and strategic alignment with OpenAI have enabled both companies to scale rapidly and deliver cutting-edge AI solutions. Similarly, Google’s partnerships with Anthropic and its acquisition of DeepMind illustrate how strategic collaboration can drive innovation and maintain a competitive edge.

However, Schmidt expressed concern about the current regulatory landscape, arguing that excessive litigation could stifle innovation. He advocated for a regulatory approach that promotes fair competition while encouraging partnerships and acquisitions that can accelerate technological progress. He firmly believes that the fastest way to drive progress in AI is through strategic partnerships and significant investments.

In summary, partnerships and acquisitions will continue to play a pivotal role in the AI arms race. Companies are increasingly realizing the importance of collaboration to stay ahead in the rapidly evolving AI landscape, and this trend will only intensify as the technology continues to mature.

AI in Business and Society

Eric Schmidt emphasized that the impact of AI on business and society will be profound, reshaping how organizations operate and how individuals interact with technology. He highlighted that the rapid evolution of AI is fundamentally transforming industries, with American businesses set to undergo significant changes.

According to Schmidt, the development of agents and infinite context windows marks a new era in AI. Agents, which are specialized AI models that can perform specific tasks, combined with the concept of infinite context windows, which allow models to remember and learn from vast amounts of information, will revolutionize how businesses approach problem-solving and decision-making. These innovations, he believes, are poised to redefine reasoning, research, planning, and even customer interaction.

The AI transformation will also significantly enhance productivity and efficiency in the corporate world. Schmidt cited media and energy industries as examples, noting that AI can help optimize resource allocation, streamline operations, and reduce costs. By leveraging AI’s predictive capabilities and data analysis, businesses can make more informed decisions, leading to smarter investments and better risk management.

However, Schmidt acknowledged that AI’s disruptive potential brings challenges, particularly concerning misinformation and disinformation. He warned that people must develop critical thinking skills to discern between human and AI-generated information, given the increasing sophistication of deepfakes and other manipulative content. He stressed that society needs to adapt to this new reality and become more resilient against digital manipulation.

On the brighter side, Schmidt remains optimistic about AI’s potential to solve some of humanity’s most pressing problems, such as climate change and healthcare. He envisions AI playing a pivotal role in developing new materials, advancing medical research, and improving agricultural productivity. For instance, AI-driven diagnostics could significantly improve early detection rates for diseases, while predictive modeling could help researchers design more effective drugs.

In summary, Schmidt believes AI will profoundly affect businesses and society. The technology’s rapid evolution will enable organizations to enhance their efficiency and decision-making while also addressing global challenges. However, navigating the ethical and social implications of AI will require collaboration between businesses, governments, and academia to ensure responsible development and deployment.

China and the TikTok Ban

The discussion around AI inevitably led to the topic of China, particularly the U.S. government’s ongoing scrutiny of the Chinese-owned social media platform TikTok. Eric Schmidt emphasized his preference for regulation rather than outright bans and litigation. He acknowledged the decision made by the U.S. government to restrict TikTok but noted that a regulatory approach would be more effective in addressing concerns about data privacy and national security.

Schmidt highlighted China’s reluctance to release TikTok’s source code, which complicates transparency efforts and raises questions about the platform’s data handling practices. “The government has made this decision, and from my perspective, the law is now in place,” he remarked. Despite the U.S. ban on government devices, he noted that negotiations and proposals continue to evolve around how TikTok could address national security concerns.

The TikTok ban underscores the broader competition between the U.S. and China in the field of artificial intelligence. Schmidt pointed out that both nations are vying for technological supremacy, especially in AI research and development. He expressed concern that China’s rapid advancement in AI could challenge the U.S.’s dominant position, noting that the Chinese government has been heavily investing in AI startups and academic research.

Schmidt also touched upon China’s increasing influence in shaping global AI standards and practices. He emphasized the need for the U.S. to accelerate its own AI development and foster a collaborative international environment to set ethical standards. “AI is too important to leave unregulated, but it must be regulated thoughtfully,” he said, suggesting that a multilateral framework involving the U.S. and its allies would be crucial in countering China’s growing influence.

In terms of AI talent, Schmidt noted that many leading AI researchers in the U.S. were originally from China, underscoring the importance of maintaining an open and inclusive ecosystem for scientific collaboration. However, he stressed that national security concerns cannot be ignored and that the U.S. must find a delicate balance between fostering innovation and protecting its technological interests.

In conclusion, Schmidt emphasized that the U.S.-China tech rivalry, particularly in AI, will continue to intensify. Navigating this competitive landscape requires a strategic approach that balances regulation with international collaboration. While the TikTok ban may have set a precedent, Schmidt believes a more comprehensive regulatory framework is necessary to manage the geopolitical implications of the rapidly evolving AI sector.

Looking Forward

As artificial intelligence continues to evolve rapidly, Eric Schmidt sees a transformative future where AI reshapes business, society, and international relations. He is optimistic about the potential for AI to revolutionize sectors like healthcare, energy, and climate science, highlighting its potential to solve some of humanity’s most pressing challenges. “Curing cancer, solving climate change, and improving transportation are just some of the opportunities AI can help us achieve,” he noted.

Schmidt predicts a future where reasoning, human interaction, and research are driven by AI advancements, particularly through emerging technologies like “agents,” which are essentially large language models that can perform specific tasks, and “infinite context windows,” which provide AI with an almost limitless memory for continuous learning.

While acknowledging the concerns and challenges associated with AI, such as misinformation and job displacement, Schmidt emphasizes the need for a balanced regulatory approach that fosters innovation while ensuring ethical practices. He believes that thoughtful regulation, rather than litigation or bans, will be crucial in managing the impact of AI on society.

Schmidt also highlighted the importance of international cooperation in AI governance, particularly in addressing the growing influence of China in the global tech landscape. He advocated for stronger partnerships between the U.S. and its allies to establish ethical standards and frameworks that can guide the responsible development and deployment of AI technologies.

In his final thoughts, Schmidt stressed the urgency for the U.S. to accelerate its investment in AI research and development to maintain its leadership position. He believes that the right combination of partnerships, regulation, and investment will be essential in shaping a future where AI is harnessed for the benefit of all humanity.

“American businesses will change because of this,” Schmidt emphasized, underscoring the need for proactive adaptation in the face of rapid technological transformation. Ultimately, Schmidt remains optimistic that the opportunities presented by AI far outweigh the risks, provided that society navigates these changes with wisdom and foresight.