In case of doubt, the generative AI bubble is not going to have burst in 2024.
Investments in generative AI, which incorporates a variety of AI-powered apps, tools and services to generate text, images, videos, voice, music and more, reached recent heights last 12 months. Generative AI corporations raised $56 billion from VCs across 885 deals worldwide in 2024, in accordance with data compiled for TechCrunch by financial tracker PitchBook.
This cash-only amount is a brand new record for the segment. It's a 192% increase from 2023 if investors poured $29.1 billion in generative AI startups across 691 deals.
“We don’t see generative AI funding slowing down as big names like OpenAI, Anthropic and xAI proceed to generate big revenues and produce recent, competitive products to market,” Ali Javaheri, an emerging technology analyst at PitchBook, said in an interview.
The deal value increased to $31.1 billion within the fourth quarter of 2024 with the completion of mammoth rounds reminiscent of Databricks' $10 billion Series J, xAI's $6 billion Series C, $4 billion Dollar strategic investment from Amazon's Anthropic and OpenAI's $6.6 billion round.
Mergers and acquisitions accounted for under a small portion of generative AI investments in 2024: $951 million, in accordance with PitchBook data. To be clear, this doesn’t apply to the assorted “acqui-hire” deals from Google, Microsoft and Amazon. Google allegedly paid $2.7 billion to rent much of chatbot startup Character AI's employees and license its technology, while Microsoft does said Spending $650 million licensing Inflection's AI models and hiring its CEO Mustafa Suleyman.
US corporations received nearly all of generative AI support last 12 months. Startups outside the US secured just $6.2 billion of all VC investments out there in 2024. However, there have been some big winners, reminiscent of Beijing-based Moonshot AI ($1 billion in February), French startup Mistral (around $640 million in June), Cologne-based DeepL ($300 million US dollar in May) and the corporate from Shanghai MiniMax ($600 million in March) and Tokyo-based Sakana AI (~$214 million in September).
What could 2025 bring?
Javaheri believes that the generative AI sector is susceptible to becoming oversaturated with startups in extremely similar (and even an identical) industries. According to him, last 12 months, no fewer than 4 corporations developing AI coding assistants – Augment, Magic, Codeium and Poolside – closed funding rounds value over $100 million. And a wide range of generative media startups (e.g. Black Forest Labs, ElevenLabs) have recently secured tens of hundreds of thousands of dollars in funding at sky-high valuations.
The trend might not be sustainable as investor pressure to deliver meaningful revenue growth increases.
According to Javaheri, technical challenges and the large computational costs required to stay competitive could pose additional challenges for generative AI corporations. “Only the best-funded startups can proceed to match the pace required for essentially the most modern models,” he added. “Most of the high valuations will subsequently come from the infrastructure layer.”
This is after all superb news for generative AI players on the “infrastructure level” who’ve done quite well in 2024. Data center startups like Crusoe ($600 million in December) and Lambda ($320 million in February) were a few of the biggest rounds of the generative AI market.
Investment firm KKR predicted that increasing demand for data centers to support AI will drive global spending within the sector to $250 billion per 12 months.
