Investor Concerns Rise as AI’s Impact Grows: What Awaits Us?

Investor Concerns Rise as AI Impact Grows: After years of easy money, AI faces a reckoning. In 2023, AI investments fell for the second straight year, according to Stanford’s Institute for Human-Centered Artificial Intelligence (HAI).

As compared to last year, VC investment – investments in startups – and corporate investment – mergers and acquisitions – in the AI industry declined in 2023.

Investor Concerns Rise as AI’s Impact Grows: What Awaits Us?

As a result of mergers and acquisitions, AI investment dropped from $117.16 million in 2022 to $80.61 million in 2023, down 31.2%; private investment fell from $103.4 million to $95.99 million. Last year, AI investment dropped 20% to $189.2 billion after minority stakes and public offerings.

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Even so, some AI ventures still attract substantial investments, such as Amazon’s recent multibillion-dollar investment in Anthropic and Microsoft’s $650 million purchase of Inflection AI. The Stanford HAI report found that 1,812 AI startups announced funding in 2023, a 40.6% increase over 2022.

According to Thomvest Ventures managing director Umesh Padval, the slowdown in AI investment is due to slower growth and the realization that AI faces many challenges.

Another reason may be a lack of interest in funding “a bunch of new players.”

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According to Aaron Fleishman, a partner at Tola Capital, investors are becoming more aware of the challenges facing artificial intelligence (AI) startups after the rapid rise and fall of certain marquee name startups.

Globally, VCs invested $25.87 billion in AI startups in Q1 2024, up from $21.69 billion in Q1 2023.

With $25.2 billion invested in generative AI startups in 2023, generative AI remains a bright spot despite the general malaise among AI investors.

Many high-profile VCs have steered clear of generative AI so far, and corporations are increasingly doubting the technology’s ability to deliver on its promises. Samir Kumar, co-founder of Touring Capital, doesn’t think the boom will last for generative AI.

In Padval’s view, the AI industry is going through a “necessary” correction to “bubble-like investment fervor”, but AI investment remains robust and poised for sustained growth.

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