Intel bets big against ChatGPT's OpenAI, invests heavily in Stability AI, makers of Stable Diffusion

Stability AI, a notable artificial intelligence startup recognized for its widely used Stable Diffusion image-generating software, has recently secured essential financing, with Intel Corporation playing a leading role in the investment. The funding comes at a crucial juncture for the company.

The financing round, completed in October, involved Stability raising just under $50 million through a convertible note, according to insiders who preferred to remain anonymous due to the confidentiality of the information.

A representative from Stability acknowledged the company’s strong appeal to both major venture capital firms and strategic investors, leading to repeated interest in fundraising over recent months. In a social media post on X, Stability’s CEO, Emad Mostaque, hinted at strategic funding secured in the previous month, with official announcements expected soon.

Intel, a chipmaker, refrained from commenting on the financing. The investment took place following Intel’s announcement in September regarding its development of an AI supercomputer utilizing Xeon processors and 4,000 Gaudi2 AI processors. Stability was referred to as the “anchor customer” in this context.

This financial injection follows a challenging period for Stability AI, marked by the departure of several senior employees, including the head of human resources, as reported by Bloomberg. Stability responded by stating that personnel turnover is a common occurrence in a startup environment.

The company has also faced internal disagreements, with some board representatives expressing concerns about the leadership of CEO Emad Mostaque. Notably, Coatue Management, a prominent supporter of Stability, had raised issues about Mostaque’s leadership style.

The situation allegedly prompted Coatue to explore the possibility of appointing a co-CEO or president. While a representative for Coatue declined to comment on their relationship with Stability, a representative from Stability expressed respect for the board’s guidance and affirmed their assistance in defining the product roadmap and future direction.

Furthermore, there have been reports of discrepancies involving Coatue’s general partner, Sri Viswanath, who was a member of Stability AI’s board. Notably, Viswanath was absent from a board meeting earlier this year, with a Coatue lawyer attending in his place.

Coatue did not comment on the meeting, and Viswanath did not respond to requests for comment. In October, Coatue reportedly left Stability AI’s board, potentially influenced by Intel’s investment and Coatue’s stake in a rival, Advanced Micro Devices Inc.

Despite the departure from the board, Coatue is still believed to hold a substantial $50 million stake in Stability, as reported in a filing with the US Securities and Exchange Commission in August.

Another investor, Gaurav Gupta of Lightspeed Venture Partners, recently relinquished his role as a board observer at Stability AI due to disagreements over the company’s direction, according to insiders. A representative for Lightspeed declined to comment on Gupta’s behalf.

Stability AI confirmed its policy of not disclosing confidential board matters and abstaining from speculative discussions.

Stability AI initially gained prominence in October 2022 when it announced a $101 million seed round, granting it a valuation of $1 billion, and marking its status as a unicorn in the startup sphere. Since then, the company has encountered challenges, including attempts to secure funding at a higher valuation, which did not materialize.

Reports suggest that Stability has been spending millions monthly on expenses, such as computing costs and salaries, while revenue generation lags behind.

In response to these challenges, Stability has refocused on research and development. The company reported that its revenue has grown tenfold over the past year and is poised for further expansion as it releases additional products.

Notably, CEO Emad Mostaque’s leadership style has sparked controversy, with individuals who have worked with the company describing statements that defy belief and over-optimistic discussions about partnerships and products.

Furthermore, a legal dispute arose with co-founder Cyrus Hodes, who alleged that he was misled into selling his shares at a low price just before Stability achieved its billion-dollar valuation.

Despite these hurdles, Emad Mostaque remains optimistic about Stability AI’s future, recently sharing his enthusiasm for what lies ahead, including upcoming announcements.

In his recent social media posts, Mostaque expressed hope for continued innovation and product development, emphasising the importance of staying focused and building valuable solutions for everyone.