Summary:
40% of VC funding in cloud goes to generative AI startups.
$79.2 billion projected funding for cloud startups in 2024.
27% annual growth in cloud funding, marking the first rise in three years.
$6.6 billion raised by OpenAI, valuing it at $157 billion.
80% of global generative AI investment is in the U.S.
Generative AI Dominates VC Investment
Generative artificial intelligence startups are securing 40% of all venture capital funding directed towards cloud companies, as highlighted by the venture capital firm Accel. In their latest Euroscape report, which analyzes cloud and AI trends, Accel predicts that venture funding for cloud startups across the U.S., Europe, and Israel will reach $79.2 billion this year, significantly boosted by AI advancements.
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The report indicates that cloud funding has increased by 27% annually, marking the first growth in three years, with $62.5 billion raised in 2023. This is a 65% increase compared to the $47.9 billion raised four years ago.
The surge follows OpenAI's recent $6.6 billion funding round, pushing its valuation to $157 billion.
AI's Impact on Cloud Investment
The excitement surrounding AI is a primary driver of growth in cloud funding. Philippe Botteri, a partner at Accel, stated, "AI is sucking the air out of the room" in terms of cloud investments. As of September 30, the Euroscape index of publicly-listed cloud firms has risen 19% year-over-year.
However, the cloud industry faces challenges, with enterprise software budgets constrained by macroeconomic and geopolitical risks. Botteri noted that IT budgets are shifting towards AI, leading to reduced spending on other software areas.
Focus on Foundational Models
The top six generative AI companies accounted for about two-thirds of the funding raised by all genAI startups. OpenAI led the charge with $18.9 billion raised in 2023-24, followed by Anthropic with $7.8 billion.
In Europe, the major funding recipients included Britain's Wayve, France’s Mistral, and Germany’s Aleph Alpha, with foundational models driving two-thirds of overall funding for generative AI firms.
Big Tech's AI Investment Surge
The U.S. has emerged as the leader in global generative AI investment, capturing 80% of the $56 billion raised by genAI firms worldwide. Major tech companies like Amazon, Microsoft, Google, and Meta are investing between $30 billion to $60 billion annually in AI.
As the market evolves, it is expected that only a few players will dominate AI model provision, as access to capital will significantly influence model performance. Dev Ittycheria, CEO of MongoDB, predicts a future where the number of model providers may dwindle to just one or two.
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