Save ‘Of course it’s a bubble’: AI start-up valuations soar in investor frenzy on x (opens in a new window) Stay informed with free updates Simply sign up to the Artificial intelligence myFT Digest -- delivered directly to your inbox. Ten lossmaking artificial intelligence start-ups have gained close to $1tn in valuation over the past 12 months, an unprecedented increase that adds to fears about an inflating bubble in private markets that could spill over into the wider economy. OpenAI, Anthropic and Elon Musk’s xAI have seen their values marked up repeatedly over the past year amid a rush to back young AI companies. Smaller groups building AI applications have also surged, while established start-ups including Databricks have soared after embracing the technology. US venture capitalists have splashed $161bn over the year to date on a technology whose promise has not yet been matched by major economic gains. That equates to two-thirds of their total spend, according to PitchBook. The bulk of investment has been funnelled to just 10 AI groups — Perplexity, Anysphere, Scale AI, Safe Superintelligence, Thinking Machines Lab, Figure AI, Databricks, as well as OpenAI, Anthropic and xAI. That has pushed up their combined valuations by almost $1tn, according to FT calculations. “Of course there’s a bubble,” said Hemant Taneja, chief executive of venture capital firm General Catalyst, which raised an $8bn fund last year and has backed Anthropic and Mistral. “Bubbles are good. Bubbles align capital and talent in a new trend, and that creates some carnage but it also creates enduring, new businesses that change the world.” Some content could not load. Check your internet connection or browser settings. Tech has endured boom and bust cycles. The dotcom crash in 2000 decimated a generation of internet companies, and VCs are still picking through the debris left after a software investment frenzy stoked by low interest rates came to a juddering halt in 2022. But the current scale of investment is of a different magnitude. VCs invested $10.5bn into internet companies in 2000, roughly $20bn adjusted for inflation. In all of 2021, they put $135bn into software-as-a-service start-ups, according to PitchBook. VCs are on course to spend well over $200bn on AI companies this year. “We have gone from the doldrums to animal spirits in a few months,” said an executive at one US investment firm. “It’s FOMO.” Investors are bullish the technology will open multiple new multitrillion-dollar markets, from automated software engineering to AI companionship. AI is a technology which “adds a zero to everything”, says Sameer Dholakia, an investor at Bessemer Venture Partners. Some content could not load. Check your internet connection or browser settings.