According to venture investors at Accel, generative artificial intelligence startups currently receive 40% of all venture capital funding allocated to cloud companies. In its latest annual report, known as the Euroscape report, Accel predicts that venture funding for cloud startups based in the U.S., Europe, and Israel will ascend to $79.2 billion this year, with a significant portion of this growth driven by artificial intelligence advancements.
The report notes a 27% annual increase in venture funding within the cloud industry, marking the first instance of growth in three years. Specifically, in 2023, cloud startups in Europe, Israel, and the U.S. collectively secured $62.5 billion. This figure represents a 65% increase from the $47.9 billion raised by cloud firms four years prior.
This surge follows significant funding achievements like that of OpenAI. The Microsoft-backed company, known for its generative AI chatbot ChatGPT, recently secured a $6.6 billion funding round, establishing its valuation at $157 billion.
The report highlights that much of the cloud funding increase is influenced by excitement around AI technologies. Philippe Botteri, a partner at Accel, stated in an interview with CNBC that AI currently dominates the cloud sector, noticeable in both public and private markets. As of September 30, the Euroscape index, which includes publicly-listed cloud firms from the U.S., Europe, and Israel curated by Accel, has seen a 19% year-over-year rise.
Despite this increase, the growth rate pales compared to the 38% rise the Nasdaq experienced this year and remains 39% below the Euroscape index’s peak in 2021. Beyond AI, the cloud industry faces challenges due to limited enterprise software budgets caused by macroeconomic and geopolitical uncertainties.
Botteri notes this uncertainty leads to businesses increasingly questioning geopolitical tensions and macroeconomic factors, impacting software spending priorities. Consequently, no company within Accel’s Euroscape index has witnessed revenue growth exceeding 40% this year, in contrast to 23 businesses achieving such growth in 2021.
IT budgets are gradually shifting towards AI, according to Botteri, growing at a modest rate year-over-year, partly focused on new generative AI applications and testing. This shift leaves less budget for other areas within the technology sector.
The report states that leading generative AI companies in the U.S., Europe, and Israel are responsible for approximately two-thirds of the funding raised by these startups. OpenAI secured $18.9 billion from 2023 to 2024, capturing a significant portion of U.S. generative AI company funding. Anthropic followed, raising $7.8 billion, while Elon Musk’s xAI ranked third.
The top European recipients included Britain’s Wayve, France’s Mistral, and Germany’s Aleph Alpha. Globally, Accel reports that companies developing foundational models, which underpin today’s generative AI tools, make up two-thirds of overall generative AI firm funding.
The U.S. leads globally in terms of regional generative AI investments, attracting 80% of the $56 billion global total in 2023-24. High-profile tech companies like Amazon, Microsoft, Google, and Meta have invested between $30 billion to $60 billion annually in AI technologies.
Significant spending on AI is also noted among major players such as OpenAI, Anthropic, and xAI, while smaller challengers like Cohere, H, and Mistral are investing tens to hundreds of millions each year. Dev Ittycheria, CEO of MongoDB, suggests that the market for the most powerful AI models might eventually narrow to a few players that can secure the capital needed for infrastructure and operations.
