The huge stakes behind AI-driven coding

Welcome to Runtime! Today: several wild days prove why AI-driven coding is at the center of enterprise tech, Nvidia will once again be allowed to sell chips designed around export controls to Chinese customers, and the latest funding rounds in enterprise tech.

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Surf warning

It's been clear for quite some time that generative AI technology is having an enormous impact on software development, one of the few areas beyond customer service and high-priced management consulting that has been changed forever by advances in large-language models. No one knows that better than today's enterprise tech giants, who have seen the changes that AI coding tools have had on their own development teams and concluded they need to own that market.

It's been a choppy few months for Windsurf, which emerged as one of the two major AI code editor startups last year alongside Cursor last year. After news leaked in May that OpenAI intended to acquire the company for $3 billion, weeks of limbo ended Friday when Google executed what's becoming the generative AI era's trademark: The billion-dollar acquihire.

Google agreed to pay $2.4 billion for a non-exclusive license to Windsurf's technology and hire about 40 of its employees, including CEO Varun Mohan.
That deal initially appeared to leave about 200 Windsurf employees out in the cold, unable to cash in on the Google deal and now stuck trying to compete with their top talent backed by Google's formidable resources.
However, on Monday Cognition — which developed the Devin AI coding agent — announced that it had agreed to purchase Windsurf for an undisclosed amount, bringing the leftover employees and Windsurf's assets under its control.

The sudden change in Windsurf's fortunes came after OpenAI and Microsoft were unable to agree on how Windsurf's intellectual property would be handled under their partnership agreement, which appears to be coming apart at the seams as the two companies negotiate its future in public.

Windsurf's coding tool is basically a custom user interface and some developer-friendly bells and whistles wrapped around a fork of Microsoft's Visual Studio Code, a very popular open-source coding editor in its own right.
However, Windsurf also competes with GitHub Copilot, and the startup amassed "350+ enterprise customers and hundreds of thousands of daily active users" over the last few years who were willing to pay for its tool, according to Cognition.
That growth could have posed a threat to one of Microsoft's crown AI jewels, but if OpenAI had acquired Windsurf Microsoft could have taken whatever it liked from Windsurf's IP through its deal with OpenAI, which grants Microsoft access to all of OpenAI's technology through 2030.
According to Bloomberg, the original Windsurf deal fell through after OpenAI was unable to convince Microsoft to alter their deal and build a wall between Windsurf's technology and Microsoft's AI coding tools.

It's a big win for Google, which sells its own AI coding services based on its Gemini family of models but just acquired a team and access to technology that could significantly improve its standing with developers. "Developer experience" was a mantra for enterprise tech long before the generative AI boom, and the growth of AI coding assistants is showing that developer experience can be a great business, too.

Google Cloud's AI prowess has helped it win cloud business in recent years, but it has less of a history with developers compared to AWS, which won their hearts in the mid 2000s by building its pioneering cloud infrastructure services, and Microsoft, which practically invented the developer-tool category decades ago.
And amid the Windsurf frenzy on Monday, AWS introduced its own AI development environment called Kiro, which the company said "helps you deliver from concept to production through a simplified developer experience for working with AI agents."
But it's not clear how long AI coding assistants will remain at the center of modern software development: Coders are increasingly using terminal tools sourced directly from the LLM makers themselves, as TechCrunch reported Tuesday.
"Within our lifetime, engineers will go from bricklayers to architects, focusing on the creativity of designing systems rather than the manual labor of putting them together," Cognition co-founder and CEO Scott Wu wrote in a post announcing the Windsurf deal, underscoring the stakes involved for the companies that want to build drawing tables for those architects.

Short stack

After the Biden Administration imposed chip-export controls on shipments of AI chips to China in 2021, Nvidia and AMD designed scaled-down versions of their flagship GPUs in hopes of getting around those restrictions. But the Trump administration included those hobbled GPUs in new export controls earlier this year, forcing Nvidia to readjust its revenue expectations for the year.

The Department of Commerce walked that policy back Monday night, telling Nvidia and AMD that they're now free to sell their H20 and MI308 chips (respectively) inside China. Shares of both companies closed sharply higher Tuesday in response to the news, which Nvidia CEO Jensen Huang actually appeared on Chinese state TV to announce, according to Bloomberg.

Putting aside the optics of that decision (!), Reuters reported that lifting the ban was a tactical move designed to get Chinese regulators to allow U.S. companies to access its reserves of rare-earth materials. It could also be an acknowledgement that, as The Next Platform pointed out, export controls on certain kinds of chips were unlikely to dent China's rise as an AI power; engineers tend to find a way.

Enterprise funding

Spacelift raised $51 million in Series C funding to expand its infrastructure orchestration service, which helps companies manage infrastructure-as-code tools.

Virtru scored $50 million in Series D funding for its data security platform, which is based around the Trusted Data Format.

Unify landed $40 million in Series B funding to build out its sales software, which uses AI agents to help salespeople find better leads and target likely customers.

NetBox Labs raised $35 million in Series B funding for its network management software.

Vellum scored $20 million in Series A funding to expand its AI app development platform into new markets.

SuperAnnotate added $13 million in new funding to complete a $50 million Series B round, which will help it compete in the fast-growing market for data-quality tools.

The Runtime roundup

Microsoft wants its partners to focus on selling the company's products and services across three new areas of focus: AI Business Solutions (Copilots), Cloud and AI Platforms (migrations), and Security (duh), platform chief Nicole Dezen announced Tuesday.

xAI's new "Grok will no longer call itself Hitler" t-shirt is raising many questions that are answered by the shirt.

Thanks for reading — see you Thursday!