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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.

DeepSeek Narrows AI Gap with US, Says 01.AI Founder Lee Kai-fu

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China has significantly closed the artificial intelligence (AI) development gap with the United States, with companies like DeepSeek narrowing the divide to just three months in certain areas, according to Lee Kai-fu, CEO of Chinese AI startup 01.AI. Lee, a renowned figure in AI and former head of Google China, revealed in an interview that Chinese firms, particularly DeepSeek, have enhanced efficiency in chip usage and algorithm application, accelerating their progress.

DeepSeek’s launch of an AI reasoning model earlier this year challenged the assumption that U.S. sanctions were hindering China’s AI growth. The model, trained using less advanced chips, was cheaper to develop than its Western counterparts, shaking the global AI industry. Lee pointed out that previously, the gap between China and the U.S. was six to nine months, but now it has narrowed to just three months in some core AI technologies. In specific areas, Chinese companies have even surpassed their Western rivals.

Despite U.S. sanctions on semiconductors, which initially posed challenges, Lee believes that these constraints have driven Chinese companies to innovate. He noted that DeepSeek’s new approach to reinforcement learning—a technology that shows users the reasoning process before delivering answers—demonstrates this innovation, now on par or even ahead of U.S. developments.

Lee also highlighted that China’s tech sector, initially seen as trailing in AI development, rapidly entered the generative AI race after OpenAI’s ChatGPT launch in late 2022. With startups like DeepSeek and 01.AI entering the field, China’s AI capabilities have gained global attention.

Lee’s 01.AI, which he founded in 2023, focuses on practical AI applications rather than developing proprietary foundational models, aiming to help enterprises deploy AI solutions efficiently. The company launched Wanzhi, a software platform, earlier this month to assist businesses in integrating AI technologies, already generating revenue and forecasting substantial growth for 2025.