Venture capital outpaces private equity in AI deal space

Growth in artificial intelligence (AI) applications and capability has been skyrocketing since 2019, sparking investor interest.

AI, which includes machine learning (ML) and natural language processing (NLP), is grabbing headlines the way cryptocurrencies did recently, prompting concerns about risks stemming from the technology and its stability as an investment, including impacts from potential government regulation.

Venture capital (VC) investment in technology hit a peak in 2021 followed by a correction in 2022. But 2023 has seen a boost in investment with AI and cybersecurity leading the way, including $11 billion in backing from Microsoft for OpenAI. Private equity (PE) deals drove competition, notably in the healthcare space, where AI is raising concerns about privacy even as it’s expected to boost drug discovery.

Industry trends

The deployment of ChatGPT and DALL-E models is driving increased interest in the space, and venture capital interest outpaced private equity investment. Some investors, put on guard by the decline of crypto, are taking a more tempered approach to this innovation, however. Intellectual property and copyright concerns are also an issue.

Big tech

Big Tech companies, defined here as technology companies listed on the NASDAQ 100, have taken steady interest in AI and ML since 2019, with an especially noteworthy investment by Microsoft, including $10 billion for its most recent round of funding OpenAI.

Companies like NVIDIA that make chips are well positioned to capitalize on the market, and other tech firms are exploring chip production.

Looking ahead

Growth in AI appears inevitable, and its applications span industries and services such as healthcare, insurance, agriculture, retail, education, and more. The space has grown more slowly in 2023 than 2022, however.

For now, semiconductor producers dominate the market, but future M&A activity could change the landscape, as will potential legal and regulatory challenges and ethical and security concerns about the technology.

Read more in our full report