If there was any doubt, the generative AI bubble did not burst in 2024.
Investment in generative AI, which includes a variety of AI-powered apps, tools, and services that generate text, images, video, audio, music, and more, reached new heights last year. Generative AI companies around the world raised $56 billion from VC funding in 885 deals in 2024, according to data from financial tracker PitchBook compiled for TechCrunch.
This raw cash total is a new record for the sector. And that's a 192% increase from 2023, when investors poured $29.1 billion into generative AI startups through 691 deals.
“Funding for generative AI shows no signs of slowing down, as major companies like OpenAI, Anthropic, and xAI secure significant funding and continue to release competitive new products,” PitchBook Emerging technology analyst Ali Javaheri said in an interview. .
With the closing of mega rounds such as Databricks' $10 billion Series J, xAI's $6 billion Series C, Anthropic's $4 billion strategic investment from Amazon, and OpenAI's $6.6 billion round, the fourth Transaction value soared to $31.1 billion in the quarter.
Mergers and acquisitions accounted for a small portion of generated AI investment in 2024, at $951 million, according to PitchBook data. To be clear, this excludes the various “acquisition” deals performed by Google, Microsoft, and Amazon. Google reportedly paid $2.7 billion to hire much of chatbot startup Character AI's staff and license its technology, while Microsoft paid $2.7 billion to license Inflection's AI models and company CEO Mustafa.・It is said that the company spent $620 million to hire Suleiman.
US companies attracted the bulk of the support for generative AI last year. Startups outside the U.S. captured just $6.2 billion of the total VC investment in the market in 2024. However, Beijing-based Moonshot AI ($1 billion in February), French startup Mistral (about $640 million in June), Cologne company DeepL ($320 million in May), Shanghai There were also big winners, such as company MiniMax ($300 million in March). ), Tokyo-based Sakana AI ($214 million in February).
So what will happen in 2025?
Javaheri believes the generative AI sector is at risk of becoming oversaturated with startups in very similar (or even the same) industries. He notes that no fewer than four companies developing AI coding assistants (Augment, Magic, Codeium, and Poolside) closed rounds of more than $100 million last year. And a number of generative media startups (e.g. Black Forest Labs, Eleven Labs) have recently secured tens of millions of dollars in funding at very high valuations.
This trend may not be sustainable as investor pressure for strong earnings growth increases.
According to Javaheri, technical challenges and the huge computing costs needed to remain competitive could pose additional challenges for generative AI ventures. “Only the best-funded startups can keep up with the pace required for the most innovative models,” he added. “So most of the higher valuations will come from the infrastructure layer.”
Of course, this is very good news for generative AI players in the “infrastructure layer”, which did very well in 2024 as well. Data center startups such as Crusoe ($600 million in December) and Lambda ($320 million in February) represented some of the largest rounds in the generative AI market.
Investment firm KKR predicts that a surge in demand for data centers that support AI will increase global spending in the sector to $250 billion annually.