According to the Financial Times’ tallies, ten early-stage artificial intelligence startups that are not profitable have seen their combined valuations rise by nearly $1 trillion over the past twelve months, an unprecedented jump that rekindles concerns about a speculative bubble in private venture-capital markets.
The most prominent young companies, such as OpenAI, Anthropic, and xAI, benefited from multiple revaluations in 2024, driven by investors’ enthusiasm for generative AI. Other players, including Databricks, Perplexity, and Figure AI, also rode the wave of funding.
Unprecedented Venture-Capital Rush
U.S. venture-capital funds have committed roughly $161 billion to AI since the start of the year, accounting for nearly two-thirds of their total investments, according to PitchBook data cited by the FT. At this pace, annual AI spending by investors could exceed $200 billion in 2025, compared with $135 billion invested in software startups in 2021.
This unprecedented concentration of capital among a small handful of players is fueling fears of an overheating market. “Of course there is a bubble,” admits Hemant Taneja, CEO of General Catalyst. “Bubbles align capital and talent around new trends. They cause damage, but they also give rise to durable companies that change the world.”
Some investors believe current valuation levels have become hard to justify. The FT reports that startups generating barely $5 million in annual recurring revenue (ARR) are now approaching valuations above $500 million, i.e., multiples of more than 100 times their revenues—well beyond the excesses seen during the zero-rate era.
A Dawn Liphardt Valley venture capitalist quoted by the Financial Times notes that the market seems to treat “as exceptional” companies that are not exceptional.
Massive Bets, but Risky
Despite these signs of exuberance, many sector players continue to bet on AI’s transformative potential. Marc Benioff, founder and CEO of Salesforce, argues that a trillion dollars of investments could be squandered, but the long-term value created would be “ten times higher.”
The rush in the private market has tangible effects on public markets. The FT notes that the stocks of Nvidia, AMD, Broadcom, and Oracle have added hundreds of billions of dollars to their market capitalization following deals tied to OpenAI. However, a reassessment of OpenAI’s solvency could abruptly reverse this momentum.
Three years after the launch of ChatGPT, OpenAI now generates around $13 billion in annualized revenue, a meteoric rise for a startup. Yet the race for artificial general intelligence (AGI), which pits OpenAI against Google and Meta, remains extremely costly and uncertain.
According to Sebastian Mallaby, the author and venture-capital expert cited by the FT, investors’ logic can be distilled: “If we reach AGI, all this will have been worth it; otherwise, not.”
