Venture capital investments in artificial intelligence (AI) and cloud companies across the U.S., Europe, and Israel are projected to hit $79.2 billion by the end of 2024, marking a 27 percent rise compared to $62.5 billion in 2023, according to a report by Accel.
The resurgence is largely attributed to the booming interest in generative AI, which now makes up about 40 percent or $32 billion of the total funding. Generative AI companies received $56 billion over the past two years, the Accel report indicated.
The U.S. continues to dominate AI investments, accounting for 80 percent of the generative AI funding in 2023 and 2024. Of the $56 billion invested, $37 billion has gone to companies developing foundational AI models. Leading the funding rounds in the U.S. are Microsoft-backed OpenAI, which secured $6.6 billion, Elon Musk’s xAI with $6 billion, and Anthropic, which received $4 billion from Amazon.
In Europe, AI funding is growing rapidly but remains significantly lower than in the U.S. European firms such as Mistral, Aleph Alpha, and DeepL lead the AI funding in the region. In 2024, private generative AI companies in the U.S. raised $25 billion, compared to $6.4 billion in Europe, though Europe’s growth rate is accelerating from just $2.4 billion in 2023.
While AI and cloud funding are surging, Accel notes that broader software investment has slowed. Companies are increasingly shifting their focus from rapid growth to profitability, marking a change in venture capital strategies in the sector.
However, while AI continues to attract heavy investment, public and private cloud companies are facing challenges. The Euroscape Index of public cloud companies has slowed, growing at half the pace of the NASDAQ. The average growth rate has dropped to 15 percent in Q3 2024, down from a peak of 47 percent in 2021. The era of hypergrowth for cloud companies has faded, leading to a shift towards profitability over expansion.
Cloud IPOs remain stagnant in this environment, but mergers and acquisitions (M&A) are surging. In 2024, M&A activity reached $58.7 billion, surpassing 2023. The largest deal of the year so far is Synopsys’ $35 billion acquisition of Ansys. While big tech firms remain restrained due to regulatory pressures and a focus on AI, private takeovers are thriving, with 2024 set to reach $40 billion, matching last year’s figures.
AI is already improving productivity across software development and customer support, with some enterprises reporting 20-40 percent reductions in human-handled tasks. As text-to-video AI technology improves and inference costs drop — GPT-4’s inference cost fell by 90 percent between March 2023 and May 2024 — AI’s impact on enterprises will deepen. Many large companies are poised to deploy AI-driven internal applications in 2025.
The surge in AI investments continues to push markets higher, while non-AI cloud companies face slower growth and a shift toward profitability. With M&A activity strong and venture capital flowing into AI development, the next decade could be defined by the companies building the AI foundation models that will reshape industries.
Baburajan Kizhakedath
