US Startup Investments Concentrate on 'AI'

Half of Total in Q2... Overall Investment Funds Also Expanded

About half of the investment funds poured into U.S. startups in the second quarter of this year were directed toward artificial intelligence (AI) startups. Thanks to the AI investment boom, the total startup investment funds also expanded compared to the previous year.

The New York Times (NYT) reported on the 3rd (local time) that although many tech startups have closed over the past two years due to high interest rates and high inflation, AI startups are thriving.

According to PitchBook, investors poured $27.1 billion into AI startups in the U.S. during the second quarter. This accounts for about half of the funds raised by U.S. startups during this period. The total amount raised by startups in the second quarter was $56 billion, a 57% increase compared to a year ago and the largest quarterly performance in about two years.

Startup investment in the U.S. sharply contracted in 2022 due to factors such as high interest rates. However, the launch of ChatGPT by OpenAI at the end of the same year sparked an AI boom, leading to investments in related startups. The NYT stated, "AI companies are attracting massive funds reminiscent of 2021, when investors, buoyed by low interest rates, were willing to take risks on tech investments."

In May, CoreWeave, a cloud computing service provider for AI companies, raised $1.1 billion. Scale AI also secured $1 billion. The market valuations of these startups were estimated at $19 billion and $13.8 billion, respectively. AI startup xAI, founded by Tesla CEO Elon Musk, also succeeded in raising $6 billion in the same month. In this round, xAI's corporate valuation expanded to $24 billion.

Kyle Stanford, an analyst at PitchBook, evaluated that these funding rounds played a role in facilitating transactions across the startup industry. He said, "There is no more decline." Tom Loverro, an investor at IVP, who urged startups to cut costs last year, declared last week that this era is over. He emphasized that "the AI train is leaving the station. You need to board that train," urging companies to fuel their efforts around AI.

Siqi Chen, founder of Startup Runway Financial, jokingly said, "Sam Altman (OpenAI CEO) eliminated the recession." He added that AI can perform the role of 1.5 people in his company, which develops financial software, enabling rapid growth.

However, the NYT also pointed out that AI startups incur higher infrastructure costs such as high-performance computer chips and cloud storage compared to other startups. According to an analysis of 125 AI startups by accounting and tax advisory firm Cruz Consulting, these companies spent an average of 22% of their costs on computing-related expenses during the first quarter of this year. This is more than double the 10% expenditure of non-AI startups during the same period.

The impact of big tech companies like Microsoft (MS) and Amazon competing in AI technology on AI startup funding cannot be overlooked. Stanford, the analyst, noted that large-scale deals like the one xAI made are exceptional cases and drew a line on the possibility of such deals repeating in the second half of the year.