San Jose wants to be the center of the AI boom

San Francisco is the self-proclaimed artificial intelligence capital of the world—but San Jose is looking to clinch that title in the coming years.

In an effort to attract the next generation of AI startups to the South Bay, San Jose Mayor Matt Mahan wants San Jose to explore creating incentives for AI companies to move or expand in the city. He also wants to research opportunities to make city services more efficient and accessible through AI.

The city’s Rules and Open Government Committee approved the ideas proposed in a memo by Mahan, Vice Mayor Rosemary Kamei and Councilmember David Cohen on Wednesday. Plans still need to go to the full San Jose City Council for final approval.

“San Jose is what ‘made in America’ looks like in the 21st century,” Mahan told San José Spotlight. “We have the largest, most diverse pool of technical talent in the country. That’s really our edge.”

City officials have multiple ideas to lure AI companies to San Jose, including discounted utility rates, potential tax and fee rebates and subsidizing or totally covering leases or rents for office space. Mahan is also searching for ways to use AI for better timed traffic lights and a quicker permitting process for developments across the city.

Mahan argued that San Jose is a prime location for AI companies to move to because of its proximity to world renowned hardware, software and semiconductor companies. Downtown is also home to San Jose State University, which has a growing AI department and recently launched a master’s degree in AI.

Assistant City Manager Lee Wilcox said the city will explore the legitimacy of the proposed incentives and come back with budget proposals to fund further exploration early next year.

Wilcox also said some of that research is already underway, as the economic development department has been talking to AI executives to learn what companies need from a city to grow.

Ahmed Banafa, an SJSU professor with a PhD in AI, said San Jose has a short window of time to lead the way in this technology. While it’s possible San Jose can be part of the AI revolution—which Banafa says started last November with the release of ChatGPT—the tech world moves fast, and the city must too before there is a new tech wave.

Like the mayor, Banafa pointed to Google, Adobe, Intel and Nvidia, among others, as assets to the city’s success. He said what San Jose must work on is its ability to attract AI experts and uplift those skilled workers.

“In order to compete with San Francisco, which has 20 of the top 50 AI companies, we need an incubator for companies and students,” Banafa told San José Spotlight. “San Jose needs to connect with the stakeholders like San Jose State, venture capitalists, real estate and development (leaders) to make sure that this area will have special treatment where AI companies can get special discounts, for example.”

He said the cost to live and do business in San Jose is the major deterrent for new companies, so investments and cost-reduction incentives could help mitigate that barrier. The soaring prices have resulted in higher vacancy rates among commercial real estate downtown. But that may be a silver lining, because there are offices ready for AI companies to move into immediately, Mahan said.

The city recently signed a letter of intent with tech accelerator Plug and Play, which connects large corporations and startups through industry-focused accelerator programs, to launch an AI incubator—but it’s still in the early days. Banafa said Mahan should move quickly to launch it by the end of the year so San Jose can secure its spot in the AI boom. But Mahan said the city won’t be able to consider funding Plug and Play until the new fiscal year, which starts in July.

Banafa said an incubator will give students pursuing an AI degree an opportunity to utilize their research and bring creative ideas to fruition.

“With the right connections, students can start their own companies,” Banafa said. “But right now, without it, students just stop because they need to start looking for a job.”

San Jose State AI Professor Kaikai Liu, who also is a Cisco corporate chair professor, said if the city is serious about propping up AI startups, then SJSU students need to be part of the conversation.

Mahan said that is part of the plan. The city is also creating ethical standards as it embarks on utilizing AI.

“San Jose State University being in our downtown, it’s a big deal. They graduate more technical degrees every year than any other university in the state of California,” Mahan said. “We have a very ripe environment for creating the startup ecosystem around AI startups.”

Contact Jana Kadah at [email protected] or @Jana Kadah on X, formerly known as Twitter.