According to the latest Euroscape report by Accel this year, generative AI startups are raising well over 40 percent of all the venture capital funding cloud companies secured in one fell swoop. The annual evaluation underlines key trends of both cloud and AI investments and says that venture funding for cloud startups across the U.S., Europe, and Israel is likely to reach $79.2 billion this year – entirely driven by enthusiasm for artificial intelligence.
The report indicates that funding for cloud startups has rebounded, marking the first annual growth in the last three years, having gone up 27% year over year. In this year, cloud firms only managed to raise $62.5 billion in the three regions, significantly 65% higher than four years ago when $47.9 billion was raised.
This comes after a giant funding round at the beginning of this month, when OpenAI, supported by Microsoft, raised $6.6 billion, making its valuation 157 billion. According to Philippe Botteri, a partner at Accel, “AI is sucking the air out of the room,” a feeling expressed in both public and private markets.
The Euroscape index tracks publicly listed cloud firms in the U.S., Europe and Israel, as of September 30, and climbed 19% from the same period last year. But that trails a 38% advance this year for the Nasdaq and is down 39% from the peak of the Euroscape index in 2021.
Enterprise software, meanwhile, remains wedged under pressure to both macroeconomic and geopolitical uncertainties, which leaves the industry for cloud with many issues beyond AI. In fact, according to Botteri, “There’s a lot of uncertainty out there,” pointing how these factors are going to lean into priorities on spending in software. For example, no company in the Euroscape index has reported revenue growth over 40%, which was a stark contrast to last year when, at this point, 23 businesses achieved that growth.
Botteri said that the dollars are being re-routed towards AI initiatives and that’s also the reason why overall spending on software is growing only modestly. Says the report, the foundational models that make it possible for many of the generative AI applications claimed two-thirds of all money sent to fund AI start-ups.
In 2023-24, the six top generative AI firms in the United States, Europe, and Israel accounted for about two-thirds of venture capital funding for generative AI startups. OpenAI led with an impressive $18.9 billion raised, and Anthropic came in second with $7.8 billion. According to the report, the United States still holds an incredibly significant portion of global investment in generative AI, having taken 80% of the $56 billion raised globally towards U.S. firms.
As major tech players like Amazon, Microsoft, Google, and Meta invest anywhere between $30 billion and $60 billion each year on AI, the competitive landscape is going to become consolidated around a few such firms that are actually able to draw capital to build next-generation AI models, noted MongoDB CEO Dev Ittycheria, talking about the obvious implications of capital concentration that may sooner or later lead to only one or two super-dominant model providers..
