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Surge AI Eyes Up to $1 Billion Capital Raise Amid Growth and Competition with Scale AI

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Surge AI, a fast-growing data-labeling company competing directly with Scale AI, is reportedly preparing to raise as much as $1 billion in its first-ever capital fundraising, according to sources cited by Reuters. Founded by former Google and Meta engineer Edwin Chen, Surge AI aims for a valuation exceeding $15 billion, although talks remain in the early stages and the final amount could be higher. The planned funding round would include both primary capital to fuel growth and secondary capital to provide liquidity for employees.

Surge AI has achieved profitability and has been bootstrapped since its 2020 founding. It generated over $1 billion in revenue last year, surpassing Scale AI’s $870 million revenue for the same period. By comparison, Scale AI was last valued at $14 billion in a funding round last year, and more recently at nearly $29 billion following Meta’s strategic investment, which included hiring Scale’s CEO Alexandr Wang to lead Meta’s Superintelligence Labs.

The surge in interest for Surge AI coincides with a shift among some major AI customers, such as Google and OpenAI, who are reportedly moving away from Scale AI due to concerns about sharing sensitive research priorities with Meta, Scale’s largest investor. Despite this, Scale AI maintains its business remains strong and reassures clients about data protection.

Surge AI has grown quietly but rapidly, becoming a major player in the data labeling space, distinguished by its use of a network of highly skilled contractors rather than large pools of low-cost labor. Its premium services cater to leading AI labs including Google, OpenAI, and Anthropic.

As reinforcement learning from human feedback (RLHF) becomes critical for training advanced AI, the need for precise, nuanced data labeling has soared, benefiting companies like Surge AI. However, some investors remain cautious about the sector due to its traditionally low margins and reliance on human labor, which could face automation pressures as AI technologies advance.

Meta’s $14.8 Billion Scale AI Deal Raises Regulatory Questions Amid AI Partnership Scrutiny

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Meta’s $14.8 billion investment in data-labeling startup Scale AI, along with hiring its CEO, poses a test of the Trump administration’s stance on so-called “acquihire” deals—arrangements that some critics argue are used to bypass antitrust scrutiny.

The deal, announced Thursday, gives Meta a 49% nonvoting stake in Scale AI, which employs gig workers to manually label data and serves major clients including Meta’s rivals Microsoft and OpenAI. Because Meta does not gain a controlling stake, the transaction avoids mandatory U.S. antitrust review. Still, regulators could investigate if they suspect the deal was structured to sidestep rules or harm competition.

The structure aims to prevent Meta from cutting off competitors’ access to Scale’s services or gaining undue insight into rival operations. Despite this, Reuters reported that Alphabet’s Google has decided to sever ties with Scale following Meta’s investment, while other customers are reconsidering their relationships.

Scale AI stated its business remains strong and that it is committed to protecting customer data. Scale’s 28-year-old CEO Alexandr Wang will join Meta as part of the deal but will remain on Scale’s board with restricted access to sensitive information.

Experts say that while the Trump administration’s antitrust enforcers are cautious of big tech platforms, they generally want to avoid overregulating AI development. William Kovacic, competition law expert at George Washington University, noted regulators will watch these partnerships closely but might not intervene if they do not stifle competition.

Previous FTC inquiries into “acquihire” deals under the Biden administration—including Amazon’s hiring from AI startup Adept and Microsoft’s $650 million deal with Inflection AI—have so far resulted in no enforcement action.

Boston College Law professor David Olson highlighted Meta’s choice of a minority, nonvoting stake as a legal shield, though he acknowledged the FTC could still seek to review the deal.

The investment has drawn criticism from U.S. Senator Elizabeth Warren, who called for scrutiny to ensure Meta does not unlawfully suppress competition or increase monopoly power. Meta is already facing an FTC monopoly lawsuit, but whether regulators will challenge this specific investment remains unclear.

Separately, the U.S. Department of Justice’s antitrust division is probing whether Google’s partnership with chatbot maker Character.AI was structured to evade regulatory review and is seeking advance notice of Google’s AI investments as part of broader efforts to rein in the company’s dominance.

Meta Poaches 28-Year-Old Scale AI CEO in $14.3 Billion Stake Deal

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Meta, the parent company of Facebook, has taken a 49% stake in the data-labeling startup Scale AI for $14.3 billion, valuing the company at $29 billion. As part of the deal, Scale’s 28-year-old CEO Alexandr Wang will join Meta to lead its new superintelligence efforts, marking a major move in Meta’s artificial intelligence strategy.

Meta confirmed plans to deepen collaboration on data production for AI models, but did not disclose financial details publicly. Sources close to the discussions said the primary motivation behind the multibillion-dollar investment was securing Wang’s leadership for Meta’s superintelligence unit.

Wang, a Los Alamos, New Mexico native born to Chinese immigrant physicists, dropped out of MIT to co-found Scale AI. He quickly gained acclaim as one of Silicon Valley’s most promising entrepreneurs, achieving billionaire status in his twenties. His influence extends into Washington D.C., where he has testified before Congress and helped secure government contracts for Scale.

Meta’s AI efforts have faced challenges recently, including staff departures and delays in launching open-source AI models that could compete with Google, OpenAI, and China’s DeepSeek. By recruiting Wang—a business-focused leader rather than a research scientist—Meta CEO Mark Zuckerberg is betting on a new approach to revitalize its AI ambitions.

Scale’s chief strategy officer, Jason Droege, will serve as interim CEO following Wang’s transition. Despite the large investment, Meta does not plan to take a board seat at Scale. A select group of Scale employees will also join Wang at Meta, while Wang will retain his seat on Scale’s board.

The $14.3 billion investment ranks as Meta’s second-largest acquisition after its $19 billion WhatsApp buyout. It remains uncertain whether the deal will face regulatory review amid ongoing antitrust scrutiny faced by Meta, which has been sued by the U.S. Federal Trade Commission for allegedly stifling competition via acquisitions like Instagram and WhatsApp.

Founded in 2016, Scale AI plays a pivotal role in providing accurately labeled data essential for training advanced AI models such as OpenAI’s ChatGPT. The company uses platforms like Remotasks and Outlier to manage gig workers who manually label data. Scale was valued at nearly $14 billion in a May 2024 funding round backed by Nvidia, Amazon, and Meta.

While the deal represents a windfall for early investors like Accel and Index Ventures—who can now sell half their stake—it may raise concerns among Scale’s AI lab clients, who might fear Meta gaining insight into competitors’ data priorities through Wang’s ongoing board membership.