Can artificial intelligence reverse the tech downturn? Startups are hiring for the next big thing.

By Jon Swartz

Millennials who want to be part of the AI 'gold rush' are heading to San Francisco's 'Cerebral Valley' and other tech hubs around the country

In San Francisco's Hayes Valley neighborhood -- a hub for artificial intelligence that's been nicknamed "Cerebral Valley" -- more than 200 AI experts on artificial intelligence met in late March to discuss the white-hot technology and how to build businesses around it.

"The general sentiment was this is something that can be incredibly useful and dangerous. It is happening, and it is unstoppable," said Evan Buhler, co-founder and CEO of Generative Counsel, a San Francisco-based startup.

"I moved to the Bay Area in January from Florida to be part of something special," Buhler told MarketWatch. "It almost feels like destiny. AI could become the economic and spiritual center of San Francisco. Cerebral Valley has this community and edge on everywhere else because it is where the flow is."

Chooch, a startup that released a mobile AI app this week, says 15 people have joined the company over the last three months, most of them from outside California and some from outside the U.S. The AI surge has been a "beacon of light for the tech world" after months of shrinking market valuations, declining ad spending, layoffs, high interest rates, a turbulent economy and the immolation of Silicon Valley Bank, Chooch CEO Emrah Gultekin told MarketWatch. Chooch now employs 73 people.

And artificial intelligence isn't just fueling a return to San Francisco -- it's also drawing millennials to AI tech hubs around the country as they seek to be part of the next big thing. Venture-capital firms and large tech companies are pouring billions of dollars into AI technology. There were nearly 800,000 AI-related job openings in the U.S. last year, led by California's 142,000, according to data collected by Stanford University's Institute for Human-Centered Artificial Intelligence -- and the pace appears to be accelerating.

Meanwhile, although the San Francisco Bay Area lost 53,000 residents last year, that was less than one-third the number of people who left in 2021, according to data released by the U.S. Census Bureau last week.

On Thursday, Garry Tan, CEO of startup accelerator Y Combinator, said that more than 80% of the startups in his company's latest batch were based in San Francisco, and many of them are working on AI.

Despite a significant drop in venture funding and deals in the first quarter of 2023, AI is continuing to prove alluringto investors. Last month, a $150 million investment in startup Character.ai, led by venture-capital firm Andreessen Horowitz (known as a16z), gave the startup a value of $1 billion.

The median pre-money valuation for generative-AI firms has catapulted to $90 million in 2023 from $42.5 million in 2022 , based on nine deals PitchBook tracked through March 29.

"The settlers are scrambling for their 40 acres [of digital land]," said Charley Moore, the CEO of Rocket Lawyer Inc. who is a longtime participant and observer in Silicon Valley. "Tech can have something of a herd mentality, and AI has captured some of the crypto zeitgeist." (Before AI, crypto was all the rage in tech, prompting a land rush of its own before it recently cooled down.)

California isn't the only destination for would-be AI entrepreneurs. Texas, New York and Florida are other big hubs, according to the Institute for Human-Centered Artificial Intelligence.

Appian Corp. (APPN), a cloud company in Tysons, Va., with AI apps, plans to hire 600 to 700 workers this year after adding 800 last year, bringing its total head count up to 2,300. And AI startup All Turtles, which decamped to Arkansas from San Francisco in late 2020, continues to hire steadily, CEO Phil Libin told MarketWatch.

Still, the surge in AI development has brought some millennials who left during the pandemic back to the Bay Area. At the SXSW tech conference in Austin, Texas, in March, "this came up a lot," Muddu Sudhakar, chief executive of AI startup Aisera, told MarketWatch. "People said they were returning to the Bay Area to be part of the AI revolution."

He added: "ChatGPT was the talk of every session, every discussion, and young people want to be in the middle of the action. It was like the gold rush."

Also read: Biden meets with advisers on 'risks and opportunities' in AI technologies

"AI is hot everywhere,"said John Chambers,the former CEO of Cisco Systems Inc. (CSCO) whose firm JC2 Ventures backs more than a dozen AI startups. "It is the third major frontier during my time in tech, and it will be bigger than the first two -- the Internet and cloud."

Debasish Biswas, the chief technology officer at AI data platform Aware, which is based in Columbus, Ohio,said engineering job applications are in the hundreds, up threefold from the previous quarter. Many of them are from job seekers based in the Seattle area and Silicon Valley and from the ranks of current and former employees of Big Tech companies such as Alphabet Inc.'s (GOOGL)(GOOGL) Google, Amazon.com Inc. (AMZN), Salesforce Inc. (CRM), and Facebook parent Meta Platforms Inc. (META) -- all companies that have announced layoffs in recent months.

"People would rather work on solutions used by top brands rather than many layers away from activity," Biswas told MarketWatch.

Also read: U.S. economy added jobs again in March. Is this your last chance to jump ship?

Kira Makagon is the chief innovation officer at cloud software companyRingCentral Inc. (RNG) and leads the company's AI efforts. She said the recent rounds of layoffs and the current economic crisis have prompted tech talent to "make and do some fun things" at fledgling AI startups.

Indeed, the bloviation over AI -- nearly every major tech CEO has embraced the technology and hyped their own offerings the past few months, often during quarterly earnings calls with analysts -- has added to a three-ring-circus atmosphere that seems concentrated in the San Francisco Bay Area.

"We're just at the start of AI," Appian CEO Matt Calkins told MarketWatch. "There is the classic hype cycle versus trust debate at work here. AI is a tool, not a replacement. And there will be a roller coaster for at least six months."

Also read:The 'explosive' AI trend is here to stay. These stocks are poised to benefit

And: 'Should we risk loss of control of our civilization?' Elon Musk, Steve Wozniak and other tech leaders ask in petition to halt AI development

-Jon Swartz

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04-08-23 1426ET

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