The generative AI bubble did not burst in 2024, with investments in the sector reaching new heights. According to data from financial tracker PitchBook compiled for TechCrunch, generative AI companies worldwide raised $56 billion from VCs in 2024 across 885 deals. This represents a new record for the segment, up 192% from 2023 when investors poured $29.1 billion into generative AI startups across 691 deals.
A Year of Unprecedented Growth
The year 2024 was marked by unprecedented growth in generative AI funding. Deal value in Q4 2024 soared to $31.1 billion with the closure of mammoth rounds like 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 rise of generative AI has been nothing short of remarkable. From text-to-image models to music generation, the possibilities seem endless. But as the sector continues to grow, concerns about oversaturation are starting to arise.
A Sector at Risk of Oversaturation
According to Ali Javaheri, an emerging technology analyst at PitchBook, the generative AI sector risks becoming oversaturated with startups in exceedingly similar (or even identical) verticals. To his point, no fewer than four companies developing AI coding assistants — Augment, Magic, Codeium, and Poolside — closed rounds exceeding $100 million last year.
The trend may not be sustainable as investor pressure to show appreciable revenue growth increases. According to Javaheri, technical challenges and the vast computing costs needed to stay competitive may pose additional challenges for generative AI ventures. "Only the best-funded startups can continue to keep up with the pace needed for the most innovative models," he added.
The Infrastructure Layer: A New Opportunity
That is, of course, very good news for ‘infrastructure layer’ generative AI players, which did quite well for themselves in 2024. Data center startups like Crusoe ($600 million in December) and Lambda ($320 million in February) represented some of the generative AI market’s largest rounds.
Investment firm KKR predicts that soaring demand for data centers to support AI will boost global spending in the sector to $250 billion a year. As the demand for more powerful computing infrastructure continues to grow, startups focused on developing and providing these services are well-positioned to capitalize on this trend.
A Look Ahead to 2025
So what might 2025 hold? Javaheri believes that the generative AI sector will continue to evolve, with a greater focus on practical applications and revenue generation. "We’re starting to see more emphasis on building products and services that can actually generate revenue," he said.
As the sector continues to grow and mature, it’s likely that we’ll see more startups emerging in the space. However, as Javaheri noted, not all of these startups will be successful. Those that are able to differentiate themselves and provide practical solutions to real-world problems will be the ones that ultimately thrive.
