There is no doubt the generative AI sector thrived in 2024.
In 2024, investments in generative AI, which includes a wide array of AI-driven applications, tools, and services for generating text, images, videos, audio, music, and more, reached unprecedented levels. According to financial data from PitchBook, as compiled for StartupSuperb, generative AI companies globally secured $56 billion from venture capitalists in 2024 through 885 transactions.
This funding total sets a new benchmark for the segment, marking a 192% increase from 2023, when investors contributed $29.1 billion to generative AI startups in 691 deals.
“We are witnessing no decline in generative AI funding, as major players like OpenAI, Anthropic, and xAI continue to attract significant investment and launch competitive offerings,” remarked Ali Javaheri, an emerging technology analyst at PitchBook, during an interview.
In the fourth quarter of 2024, the total deal value surged to $31.1 billion, concluding with significant 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.
Mergers and acquisitions accounted for a minor portion of generative AI investments in 2024, totalling $951 million, as per PitchBook data. It is important to note that this figure does not include various “acqui-hire” transactions conducted by Google, Microsoft, and Amazon. For instance, Google reportedly invested $2.7 billion to hire a large portion of the workforce from chatbot startup Character AI and license its technology. Similarly, Microsoft is reported to have spent $650 million on licensing Inflection’s AI models and recruiting its CEO, Mustafa Suleyman.
A majority of generative AI funding was directed towards U.S. companies last year, with startups outside the U.S. securing only $6.2 billion of the total VC investments in 2024. However, there were notable success stories such as Moonshot AI from Beijing ($1 billion in February), the French startup Mistral (approximately $640 million in June), DeepL from Cologne ($300 million in May), Shanghai-based MiniMax ($600 million in March), and Tokyo’s Sakana AI (approximately $214 million in September).
What does 2025 have in store?
Javaheri cautions that the generative AI sector may face oversaturation due to a plethora of startups operating in highly similar (or identical) niches. For example, four companies focused on developing AI coding assistants — Augment, Magic, Codeium, and Poolside — each secured funding exceeding $100 million last year. Numerous generative media startups, such as Black Forest Labs and ElevenLabs, have lately raised tens of millions of dollars at lofty valuations.
This trend could prove unsustainable as investors increasingly demand significant revenue growth.
According to Javaheri, technical obstacles and the substantial computing expenses needed to remain competitive could pose further challenges for generative AI enterprises. “Only those startups with substantial funding will be able to maintain the necessary pace for developing the most innovative models,” he stated. “The highest valuations are likely to arise from infrastructure-related components of the market.”
This bodes well for “infrastructure layer” generative AI entities, which performed admirably in 2024. Data centre startups such as Crusoe ($600 million in December) and Lambda ($320 million in February) featured among the most significant funding rounds in the generative AI space.
Investment firm KKR predicts a surge in global spending on data centres to support AI, estimating it will reach $250 billion annually.
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