Corporate investment in AI down for first time in a decade

Fewer newly funded startups too, according to report

Global private investment and the number of AI startups decreased in 2022, while the industry's adoption of the technology has plateaued compared to previous years, according to new data.

This revelation hits at a time when AI hype is at an all-time high. Commercial tools capable of generating images, text, code, video, audio, and even music are rapidly improving and becoming increasingly convincing.

Companies across different industries are looking to deploy generative AI features to revamp existing products and services or create new ones. Analysts are predicting the boom will increase global productivity and change the labor force, while experts are debating whether the technology poses an existential threat to humanity.

Despite all the mania and disruption, corporate funding in AI – which had been increasing year-over-year since 2013 – has fallen for the first time in a decade.

According to this year's AI Index Report – an analysis led by Stanford University's Institute for Human-Centered AI – global AI private investment was $91.9 billion in 2022 compared to $125.4 billion the year before, marking a 26.7 per cent decrease. Mergers and acquisitions and public offerings also dropped.

The US remains a leader in funding corporate AI development, but investment declined by 35.5 percent last year. Similarly, China experienced a decline of 41.3 percent. The top industries that received the most funding for AI included: medical and healthcare; data management, processing, and cloud; and fintech.

Meanwhile, the number of new AI startups armed with fresh funding in 2022 was 1,392 – a 12 percent decrease from the 1,669 recorded the year prior. Interestingly, an annual survey performed by McKinsey revealed that the number of companies adopting AI in 2022 more than doubled since 2017, but has plateaued in recent years.

Why?

"While we can only speculate exactly why private investment in AI has fallen in the last year, it is possible that the decline in investment is tied to changing economic and investment conditions," Nestor Maslej, AI Index Research Manager at the Stanford Institute for Human-Centered AI, told The Register. "In fact, the long-term trend ultimately suggests that investment in AI is increasing."

Although the statistics show a declining rate of investment, it doesn't mean things are slowing down. As the technology matures, it's becoming increasingly competitive to launch AI startups. "The decline in newly funded AI startups means that investment is concentrating: larger pools of money are going to fewer players," Maslej said.

The data from the survey conducted by McKinsey was collected before the launch of the most hyped models like OpenAI's ChatGPT and GPT-4, he explained. As companies from all sorts of industries deploy new products and features built using these new tools, AI adoption seems to be increasing again.

"It's safe to assume adoption rates will continue to fluctuate around significant milestone AI model deployments," Maslej suggested.

It's still too early to see how much generative AI has affected the economy so far, and we'll probably have to wait for next year's AI Index Report. ®