In its annual Euroscape report, which tracks key trends in cloud and AI, Accel projects that venture funding for cloud startups across the U.S., Europe, and Israel will reach $79.2 billion in 2023, driven largely by the rapid rise of AI. After three years of stagnation, cloud-related venture funding has grown by 27% year-over-year, with startups raising $62.5 billion across these regions in 2023. This marks a 65% increase from the $47.9 billion raised four years ago.

AI’s impact on funding momentum is evident, exemplified by OpenAI’s recent $6.6 billion funding round, which pushed the company’s valuation to $157 billion.

 AI Drives Cloud Funding Boom

“AI is drawing significant attention and reshaping priorities within the cloud sector,” said Philippe Botteri, a partner at Accel. “This shift is visible in both public and private markets.”

As of September 30, Accel’s Euroscape index, which tracks publicly-listed cloud companies in the U.S., Europe, and Israel, reported a 19% year-over-year gain. However, this growth lags behind the 38% rise in the Nasdaq index and remains 39% below the Euroscape’s peak in 2021.

The cloud industry is grappling with challenges outside of AI, as enterprise software budgets tighten due to geopolitical uncertainty and economic headwinds. Botteri noted that companies are now more cautious, with many shifting spending toward AI. “IT budgets are still growing but only slightly, with much of that growth redirected toward generative AI and experimentation with new technologies,” he added.

Funding Concentrates Around Foundational Models

Accel’s report highlights that the top generative AI startups in the U.S., Europe, and Israel are drawing a substantial portion of funding, with two-thirds of all generative AI investments going to companies focused on foundational models. In the U.S., OpenAI has dominated the funding landscape, raising $18.9 billion between 2023 and 2024.

Anthropic followed with $7.8 billion, while xAI, founded by Elon Musk, secured the third-largest share. In Europe, key recipients of funding include Wayve in the U.K., Mistral in France, and Aleph Alpha in Germany.

These foundational models are the backbone of many generative AI tools, underscoring the growing concentration of capital in a small number of high-performing companies.

The AI Race Intensifies Among Big Tech

The U.S. remains at the forefront of generative AI investment, with 80% of the $56 billion raised globally going to U.S.-based firms. Tech giants Amazon, Microsoft, Google, and Meta are each pouring between $30 billion and $60 billion annually into AI development, fueling the competitive landscape.

AI leaders such as OpenAI, Anthropic, and xAI are spending billions on advancing their technologies, while smaller challengers like Cohere, H, and Mistral are investing tens to hundreds of millions each year.

The trend toward consolidation is expected to accelerate. Dev Ittycheria, CEO of MongoDB, remarked that only a few companies will likely control the most powerful AI models in the future, given the capital required to build advanced infrastructure. “Access to capital will profoundly impact these models’ performance,” Ittycheria noted, predicting that the industry will consolidate to “one or two” dominant providers over time.