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After raising a record amount of fresh capital in the first half of the year, AI startups have seen a considerable decline in VC funding activity in Q3 2024, according to data provided by AltIndex.

Three weeks before the end of the quarter, the total value of deals hit $8.6 billion, or 35% less than in Q3 2023. But despite the decline, 2024 remains the record year for investing in AI startups.

According to data presented by AltIndex.com, AI startups have raised $48.4 billion year-to-date, or 25% more than in the entire 2023.

After two years of unstoppable growth, the AI sector is experiencing mixed investor sentiment, triggered by the US government's expanded export restrictions on AI chips to China, expectations of future interest rate cuts, concerns about the AI giants’ valuations, and their disappointing earnings reports.

The softened investor's optimism about artificial intelligence has triggered a significant decline in the VC funding activity in Q3, with the total value of deals falling by 35% year-over-year to $8.5 billion. The number of investments also dropped. The Crunchbase data show AI startups saw 638 VC investments in the nine months of 2024, down from 914 in the same period of 2023, according to a release today by Clickoutmedia.com.

Despite the decline, AI startups already raised much more money than last year. According to Crunchbase data, VC investors poured $38.8 billion on fresh capital in the AI sector in 2023, or 25% less than year-to-date. Moreover, with $48.4 billion raised in the nine months, AI startups have also set a new record, outperforming the $48.3 billion raised in 2021, now the second-highest funding amount in the history of the market.   

With $48.4 billion raised in funding rounds during the nine months of the year, the cumulative funding amount in the AI sector has jumped to over $237 billion. In comparison, that is $13 billion more than the total funding amount in the IT startup market.  

Statistics show US companies raised almost 65% of that value, or $151 billion, with California as the leading hub. Their Asian counterparts saw three times less fresh capital, or nearly $52 billion, while European AI startups follow with $31.3 billion.

The Crunchbase data also shows most of the VC investments in the AI field went to machine learning startups, which raised $113.6 billion so far. AI software and information technology startups follow, with $76.8 billion and $59.5 billion, respectively.