Investments in AI startups soared to$24 billion in the last two months, more than doubling from the previous quarter, as reported by sources familiar with the matter. The surge reflects a growing interest in AI technology, making it the largest investment sector, followed by healthcare and biotech. Overall startup funding increased 16% to$79 billion in the last quarter, driven mainly by AI.

The success of OpenAI's ChatGPT has sparked a race to integrate the latest AI technology in various fields, including business productivity, healthcare, and manufacturing. However, investors and major tech firms caution that substantial returns from these investments are expected to materialise over the next few years.

Five out of six billion-dollar funding rounds were for AI companies during this period. Notable deals included Elon Musk's xAI raising$6 billion and AI infrastructure provider CoreWeave securing$1.1 billion. In addition, the automated driving company Wayve and data preparation company Scale AI have attracted substantial investments. Cybersecurity firm Wiz, for example, raised a billion dollars in its latest funding round outside the AI sector.

Why does it matter?

Despite the recent increase, overall startup funding remains lower than in the past three years. Global funding dropped 5% to$147 billion in the year's first half and remained flat compared to the latter half of 2023. The tight monetary policy in the US has also slowed the revival of initial public offerings (IPOs), a significant source of returns for institutional private market investors who typically invest in startups and sell shares during IPOs.