After three years of consecutive decline, funding for private cloud and artificial intelligence (AI) companies across the US, Europe and Israel is on the rise, marking a significant recovery in 2024.
According to a new report by Accel, a prominent venture capital (VC) firm from the US, investments have increased by 27% since 2023 and by a remarkable 65% compared to 2020.
These companies have secured a total of US$79.2 billion in funding as of October 10, 2024, a resurgence that’s largely been driven by generative AI and which underscores the growing excitement and demand for AI.
The 2024 Euroscape report, published by Accel and released in October, looks at key cloud and AI trends, highlighting how AI is fueling recovery in both private and public markets.
It notes that much of the cloud funding growth this year is tied to the booming interest in AI technologies.
GenAI investment accounts for US$32 billion in 2024 YTD, or 40.3% of total funding to private cloud and AI companies. The US dominates this investment landscape, accounting for roughly 80% of the US$56 billion raised by genAI companies in 2023 and 2024 YTD, versus 20% for Europe and Israel.
Major funding rounds illustrate the scale of AI investment. In October, OpenAI, the American company behind the widely popular chatbot ChatGPT, raised a staggering US$6.6 billion in a funding round that valued it at US$157 billion.
Similarly, Magic, an American AI startup that creates models to automate code generation and software development, secured in August a US$320 million funding round.
Meanwhile, in September, Glean, an AI-powered search startup, raised more than US$260 million in a Series E.
Just this week, xAI, Elon Musk’s AI company, secured a whopping US$6 billion funding round, bringing its total to US$12 billion for the year.
Amazon also increased its stake in the AI landscape, investing in November an additional US$4 billion in Anthropic, the San Francisco-based company behind the Claude chatbot and AI model. Amazon’s total investment in the AI company now totals US$8 billion.
AI’s impact on public markets
Beyond private markets, AI is also fueling public market recovery. According to the Accel report, the NASDAQ has climbed up 38% in the past 12 months, with the six biggest tech firms, namely Apple, Microsoft, Google, Meta, Amazon and Nvidia, contributing US$5.3 trillion of the US$8.4 trillion of value created during the period.
These companies are injecting billions into AI research and infrastructure. Microsoft has invested close to US$14 billion in OpenAI, while Google plans to spend over US$100 billion to develop AI technology.
Apple is reportedly investing US$1 billion a year to catch up on genAI, including efforts like a proprietary large language model called Ajax and an internal chatbot known as Apple GPT, Bloomberg reported in October 2023.
And Meta, the parent company of Facebook, said in April that it planned to raise its spending forecast for the year to US$35 billion to US$40 billion to “accelerate our infrastructure investments to support our AI roadmap,” the firm said.
Despite AI’s robust growth, the outlook for the broader cloud market is bleak. Geopolitical and macroeconomic uncertainties across the globe, along with the digestion of 2020/21’s high software spend, are placing pressure on both public and private cloud companies.
The Euroscape Index, which tracks a selection of publicly-listed cloud companies in the US, European and Israeli firms curated by Accel, has progressed at half the pace of the NASDAQ. The average growth rate of these companies shows a decline from 47% at their peak in Q2 2021 to just 15% in Q3 2024. In 2021, 23 companies in the index were growing more than 40% per year compared to none today.
These figures suggest that the era of high software growth is fading away, leaving companies no other choice but to focus on profitability, the report says.
Featured image credit: edited from freepik
