10 signs AI is ‘eating the world (of venture capital)’

As the second Trump administration prepares to move on Washington, some investment analysts are predicting a more permissive M&A market, deregulation as a catalyst for growth and fiscal policies that stimulate economic activity. 

And they see AI as catalyst in the shift. 

The effect could be dramatic, since the entire, U.S.-based tech startup ecosystem faces numerous headwinds at present. Not least is “an already crowded $1 trillion backlog of non-AI unicorns that are primed for exits, due to investors and traditional acquirers narrowing focus on AI.”

The analysts behind the observations work for HSBC, the global banking giant headquartered in London. In a report released last week, the company offers some intriguing observations for market watchers interested in venture capital (VC) trends and forecasts. Here are 10. 

1. U.S. venture investment in AI companies is nearing the scale of capital allocated to the rest of the VC market. 

‘This trend has accelerated in recent years, with a step change in 2023, catalyzed by early foundational model breakthroughs, fundamentally shifting investment theses.’

2. Despite the nascency of the technology, a substantial portion of AI funding is concentrated in a small number of leading firms. 

‘As of 2024, just 20 AI companies have each raised $2B or more, underscoring the high-stakes race to invest heavily at the front end of this next innovation wave.’

3. Sectors with ample unstructured data and limited downside to experimentation have seen relatively rapid climbs for AI startups. 

‘Verticals with highly structured data (fintech, ecommerce) or those with high consequences for inaccuracy (healthcare, life sciences) have seen slower uptake in AI deals.’

4. Industries with significant data and high impact use cases (cybersecurity, cloud tech) have seen early AI adoption. 

‘They’ve also seen a higher proportion of the first wave of AI startups maturing into later stage venture investment opportunities.’

5. An AI ‘supercycle’ holds the promise of reigniting labor efficiency gains from 2010’s lows (1.5%) to historical norms (~2.7%). 

‘This stands to unleash $10T of additional GDP growth over the next decade.’

6. The transition to AI companies in 2023–24 highlights the shift in investment priorities.

‘AI is now poised to lead the next wave of innovation and value creation in the venture capital ecosystem.’

7. The emphasis on AI as a growth driver underscores a growing misalignment between the broader unicorn backlog and evolving market demand. 

‘The majority of the backlog is composed of non-AI companies. This cohort—which is worth nearly $1T—faces mounting risks of valuation markdowns as investor attention shifts toward AI companies.’

8. The leading technology companies have shifted strategies guiding their approach to external innovation.

‘This comes amid increased regulatory scrutiny, the changing venture investment conditions following the 2021 boom and the rise of AI as a strategic core.’

9. The cash-rich ‘magnificent 7’—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla—are expanding investment portfolios with a concentrated focus on AI. 

‘This accounts for more than half of their venture investments since 2022.’

10. Leveraging tremendous growth in free cash flows from legacy businesses, the Mag7 are focused on building out core capabilities through R&D spend—now totaling more than all dollars invested in U.S. startups. 

‘Beyond spending today for internal innovation, the Mag7 are investing substantial capital expenditure on infrastructure for the next decade in AI.’

The authors add that, while VC investing has plateaued over the past three years or so, the largest technology companies continue to increase their collective R&D efforts as they “race to define the next era of technological breakthroughs in AI.”

Download the full report from here.