If there was any doubt, the AI generation bubble didn’t burst in 2024.
Investments in generative AI, which includes a range of AI-powered apps, tools and services to generate text, images, video, speech, music and more, reached new heights last year. According to data from financial tracker PitchBook compiled for TechCrunch, AI-generating companies worldwide raised $56 billion from VCs in 2024 in 885 deals.
This raw cash total is a new record for the segment. And it’s up 192% from 2023, when investors poured $29.1 billion into AI-generating startups in 691 deals.
“We’re not seeing a slowdown in generative AI funding, as big names like OpenAI, Anthropic and xAI continue to secure big raises and launch new competitive products,” said Ali Javaheri, an emerging technology analyst at PitchBook. in an interview. .
The deal value in the fourth quarter of 2024 increased to $31.1 billion with the closing of major rounds such as Databricks’ $10 billion Series J, xAI’s Series C, Anthropic’s $4 billion strategic investment from Amazon, and the OpenAI round of 6.6 billion dollars.
Mergers and acquisitions were a tiny fraction of AI generating investment in 2024: $951 million, according to PitchBook data. To be clear, this is exclusive of the various “acqui-hire” deals executed by Google, Microsoft and Amazon. Google reportedly paid $2.7 billion to hire most of chatbot startup Character AI’s staff and license its technology, while Microsoft reportedly spent $620 million to license Inflection’s designs of AI and the hiring of its CEO Mustafa Suleyman.
US companies withdrew most of their AI generation support last year. Startups outside the US received only $6.2 billion of all VC investment in 2024 in the market. However, there were some big winners, such as Beijing-based Moonshot AI ($1 billion in February), French startup Mistral (~$640 million in June), Cologne company DeepL ($320 million in May), Shanghai firm MiniMax ($300 million in March). ), and Tokyo-based Sakana AI ($214 million in February).
So what might 2025 hold?
Javaheri believes that the generative AI sector risks being oversaturated with startups in extremely similar (or even identical) verticals. According to him, no fewer than four companies developing AI coding assistants — Augment, Magic, Codeium and Poolside — closed rounds exceeding $100 million last year. And a host of generative media startups (eg Black Forest Labs, ElevenLabs) have recently secured tens of millions of dollars in funding at high valuations.
The trend may not be sustainable as investor pressure to show significant earnings growth increases.
According to Javaheri, the technical challenges and large computing costs required to stay competitive can present additional challenges for generative AI ventures. “Only the most well-funded startups can keep up the pace needed for the most innovative models,” he added. “Most of the high valuations will thus come from the infrastructure layer.”
This is, of course, very good news for the generative “infrastructure layer” AI players, who did well even in 2024. Data center startups like Crusoe ($600 million in December) and Lambda ($320 million in February) represented some of the largest AI generative market rounds.
Investment firm KKR predicts that the growing demand for data centers to support AI will increase global spending in the sector to $250 billion annually.
