AI Start-ups Are Rolling in Cash
Investors are plowing record sums of money into artificial intelligence start-ups. Even as sales grow swiftly, losses are piling up for AI firms.
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Investors can’t get enough of AI start-ups. A record $70 billion was doled out to generative AI companies by venture capital firms and other investors in the first half of 2025, according to a recent report by S&P Global Market Intelligence. The total was driven by two megadeals: OpenAI’s $40 billion funding round and Meta’s $14.8 billion minority stake in Scale AI.
The eye-popping total highlights the heated competition among leading AI firms and the big expectations investors have for future paydays.
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The U.S. is by far the global leader, with nearly $40 billion invested over 728 deals in the second quarter, making up 84% of the global dollars, according to market research firm CB Insights. The median deal size is $4.6 million, a four-year high.
Much of the money is used for buying Nvidia-based computing power. Large players such as OpenAI, xAI and Europe’s Mistral AI are increasingly looking to build or expand their own data centers so they don’t have to rely on cloud computing from Amazon, Microsoft or other cloud vendors.
Look for more small players to get scooped up by leading tech giants and other large companies. Banks, consulting firms and other businesses want AI tech, too, and a quick way to get it is to buy a promising start-up.
AI is clearly flying high, so what could go wrong? “Competition in the space is expensive, and although revenue is increasing rapidly, losses are also mounting, requiring more investor funding,” notes S&P Global Market Intelligence’s report. Plus, investor skepticism is starting to emerge. “At the start of the third quarter in July, xAI secured $10 billion through debt and equity, but the company had to pay a steep interest rate on the debt.”
Expect plenty of start-ups to fail to gain traction and some to eventually go under. The hot market is also crowding out investment in anything that’s not AI-related, potentially spurring a glut of AI start-ups while disregarding other promising tech.
Still, some of the start-ups are already gaining serious traction. Others are sure to soar in the years ahead. The top tech deals in the second quarter were by Scale, xAI, Anduril, Thinking Machines Lab and Anysphere, according to CB Insights.
Anthropic, a leading AI company, is in talks to raise another $10 billion in funding, according to recent reports. Other firms scoring funding this year: Seekr Technologies, Snorkel AI, TensorWave, Decagon, Chainguard, Glean, Harvey, Cyera, Abridge, Ramp and Cyberhaven. The U.S. has an astounding 206 private AI firms valued at more than $1 billion, says CB Insights.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.
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