Generative artificial intelligence startups are currently receiving 40% of the venture capital funding designated for cloud companies, as reported by venture investors Accel. According to Accel’s latest annual Euroscape report, which examines significant trends in cloud technology and AI, venture capital for cloud startups in the U.S., Europe, and Israel is expected to increase to $79.2 billion this year. This surge is largely attributed to the advancements in artificial intelligence.
Funding within the cloud sector has seen a 27% annual increase, marking the first growth in three years. Cloud startups in Europe, Israel, and the U.S. secured $62.5 billion in 2023, as highlighted by the report. This represents a 65% increase from the $47.9 billion raised four years ago.
This financial growth follows OpenAI’s substantial funding round earlier this month, wherein the Microsoft-backed company behind the well-known generative AI chatbot, ChatGPT, obtained $6.6 billion, valuing the company at $157 billion.
A significant portion of the cloud funding growth is attributed to the enthusiasm surrounding AI. Philippe Botteri, a partner at Accel, explained in an interview with CNBC that AI is significantly impacting both the public and private markets in the cloud space. As of September 30, 2023, Accel’s Euroscape index, which includes a curated list of publicly-listed U.S., European, and Israeli cloud firms, has increased by 19% year-over-year. However, this increase is modest compared to the 38% rise experienced by Nasdaq in the same period, and the index remains 39% below its peak in 2021.
The cloud industry is facing challenges beyond AI, with enterprise software budgets being affected by macroeconomic and geopolitical risks. Botteri noted the growing uncertainty and the impact of these factors on software spending priorities. None of the companies in Accel’s Euroscape index have reported more than 40% revenue growth in the current year, compared to 23 companies achieving this in 2021. IT budgets are slowly shifting towards AI, with a portion allocated to developing new applications and testing emerging technologies.
The Euroscape report indicates that the top six generative AI companies in the U.S., Europe, and Israel accounted for approximately two-thirds of the funding raised by all generative AI startups. OpenAI led the U.S. genAI firms, securing $18.9 billion in funding for 2023-24, while Anthropic and Elon Musk’s xAI secured the second and third highest funding amounts, respectively. In Europe, significant funding went to Britain’s Wayve, France’s Mistral, and Germany’s Aleph Alpha. Globally, companies developing foundational models, crucial for today’s generative AI tools, received two-thirds of the overall funding for generative AI firms.
The U.S. leads globally in terms of generative AI investment, with 80% of the $56 billion invested in generative AI firms during 2023-24 directed towards U.S.-based companies. Major technology firms like Amazon, Microsoft, Google, and Meta are investing between $30 billion and $60 billion annually into AI. Meanwhile, companies like OpenAI, Anthropic, and xAI are also committing billions to AI development, whereas smaller competitors are investing millions. Dev Ittycheria, CEO of database firm MongoDB, suggested that a few major players might eventually dominate the AI model landscape, given their ability to attract necessary capital for data center investments and system training.
