The state of AI: Investment trends, understanding generative AI value

The landscape of Generative AI (GenAI) investment is undergoing rapid transformation, with venture capital (VC) continuing to dominate as the primary funding source.

As the technology permeates various sectors — from IT to healthcare, and robotics to defense — the involvement of global investors, including major tech firms and international institutions, underscores the widespread belief in GenAI's disruptive potential.

However, this explosive growth raises concerns about sustainability and infrastructure strain, alongside legal and regulatory challenges posed by such rapid expansion. As GenAI continues to evolve, it’s reshaping industries and prompting strategic shifts in investment and corporate strategies, signaling a profound impact on future technological and economic landscapes.

For a detailed look at the state of AI and investments trends, read the report Generative AI: As Investment Continues to Pour In, Value Creation Is the Next Step.

Trends in generative AI investments

Dominance of venture capital in GenAI funding

Venture capital (VC) remains the primary source of funding for GenAI, accounting for over 70% of the total private capital value in recent years. The sector has experienced a significant compound annual growth rate (CAGR) of 43% from 2019 to 2024, with cumulative deal values reaching $27.3 billion.

Private equity and M&A activity

While private equity (PE) has been less involved in early stage GenAI ventures due to the nascent nature of the industry, there’s a noticeable increase in PE deals and mergers and acquisitions (M&A), particularly involving big tech companies. These activities are driven by the strategic need to mitigate competitive risks and capitalize on GenAI capabilities.

Significant role of megadeals

Major funding rounds, or megadeals, have substantially impacted the GenAI investment landscape. Companies like CoreWeave, xAI, and Scale AI have secured large deals, often including significant portions of debt financing, which can skew overall valuation metrics.

Diverse investor base and global reach

Investment in GenAI isn’t limited to the U.S. but is a global phenomenon with significant cross-border deals. High-profile investors and companies, including big tech firms and international research institutions, are actively participating in funding rounds, reflecting a broad interest in the technology's potential.