Investor enthusiasm for Generative AI (GenAI) continues to grow, with venture capital investment in the sector expected to top $45bn globally for the year, almost double the figure for 2023 ($24bn) and more than five times the total VC investment in 2022 ($8.7bn).

That’s according to EY Ireland’s Generative AI Key Deals and Insights Report, which analyses deals, investments and trends in this rapidly growing sector.

The report also finds that the majority of GenAI investment to date continues to be located in North America, however there are a growing number of European Unicorns* and a significant opportunity for Ireland to establish itself as a GenAI hub.

VC activity in GenAI has been growing exponentially since the release of OpenAI’s ChatGPT in late 2022 and this year has seen a record surge in funds invested.

EY Ireland now forecasts that this will exceed $45bn globally for the year, with more than 1,050 separate investments to the end of November.

A significant trend in the market during 2024 has been the degree to which established technology companies and hyperscalers* are increasingly partnering with leading Large Language Model startups such as such as Mistral AI, alongside AI companies like Waymo and xAI.

Notable transactions in 2024 include Open AI’s $6.6bn funding round in October, Mistral AI’s $651m round in June and xAI’s $5bn round in May as well as Waymo’s $5bn round in July, Glean’s $260m round in September and Moonshot AI’s $300m round in August.

Another noticeable feature of the market during 2024 has been an apparent change in strategy on the part of VCs.

EY Ireland’s analysis finds that average deal size for GenAI companies in late-stage VC rounds has seen a significant surge increasing from $48m in 2023 to $327m in 2024.

By contrast, the average deal size for early-stage and angel/seed remained relatively stable indicating that VCs may now favour more established companies rather than riskier start-ups that are attempting to get a foothold in the big-tech dominated end of the market.

The United States and North America continue to dominate both investment flows and the number of Unicorn startups, with more than 85% of deal value and 70% of deal volume taking place in North America, which is also home to 18 of the top 25 GenAI Unicorns.

Europe and EMEA rank a distant second in terms of both deal volume and value, but is home to two of the world’s top 10 GenAI unicorns, Mistral AI and Poolside – both of France.

While we have yet to see significant VC investment in Ireland’s GenAI sector to date, the country remains an attractive location given its vibrant technology and life sciences ecosystem, business friendly policies and availability of talent.

Looking ahead there are significant tailwinds expected that may drive increased investment in the sector, including high customer AI adoption, growing innovation in AI hardware, a reduction in the cost of foundation models and the growth of vertical AI in specific industries.

It has been estimated that the total customer base for GenAI could grow from $40bn in 2022 to €1.3trillion by 2032.

Grit Young, Partner and Technology Sector Leader at EY Ireland said: “Following a breakout year for VC investment in 2023, this year we have seen the trend really accelerate.

“Despite a number of headwinds facing VCs and investors in the wider markets, we are seeing record breaking investment in GenAI companies this year, and a very strong pipeline emerging for 2025 with a number of landmark funding rounds due to close early in the new year.”

“The key factors driving investment is the size of the market opportunity, estimated to reach up to $1.3trillion by 2032, as well as the anticipated widespread adoption of GenAI by both businesses and consumers.

“This in turn is driving VC investment growth that has the potential to spur advancements in AI core technologies, natural language interfaces, and specialised applications.

“The high adoption rates of AI / GenAI by organisations as well as the falling cost of training models have also been contributory factors in the investment surge in 2024.

The increased targeting of specific industries by vertical AI companies has also fed into the market.

“In the fintech sector, for example, AI is being leveraged for fraud detection, compliance automation, and operational excellence while in digital commerce it is being used for customer support, conversational commerce, and AI-core services. In the biopharma sector an AI-driven drug discovery platform attracted substantial interest and a remarkable $1 billion Series A funding round earlier this year.

“There is now a big opportunity for Ireland to establish itself as a GenAI hub, but it will be important for Ireland to ensure it does not get left behind in terms of supporting local champions and emerging AI startups.

“Government initiatives to support investment will be key, but equally we must ensure that the advantages that served Ireland so well in recent decades when it comes to acting as a hub for foreign direct investment – talent and education, economic and political stability, a business friendly and open environment – are not only maintained but enhanced and amplified.

“While it is still early days in the development of this technology, the future won’t wait.”

As one of the most disruptive and transformative technologies in decades, interest in AI, especially GenAI, remains very strong, driven by an array of factors, including stellar early adoption rates of what is still an emerging technology. GenAI’s potential applicability across a wide variety of sectors and industries, as well as adoption potential across the c-suite is also driving investment as the sector matures.

With an increasing switch from horizontal AI (i.e. general purpose & Large Language Models (LLMs)) to Vertical AI (specific & niche) investments predicted, the number of deals and investments is projected to only increase over the coming years.

Eoin O’Reilly, Partner and Head of AI and Data at EY Ireland said “At EY we believe that AI – both traditional AI and GenAI -  is changing everything because AI is becoming part of everything.

“VCs and other investors are backing GenAI in growing numbers because the longer-term trends of customer adoption and capability of the technology are all pointing in the one direction.

“Both globally and here in Ireland, we think that the next decade will see a fundamental transformation of organisations, business models and value creation all underpinned by AI.”

Photo: Grit Young, Partner and Technology Sector Leader at EY Ireland