Hype over generative artificial intelligence is boosting private capital markets.

Nearly half of all venture capital funding in the U.S. so far this year has been for AI startups, PitchBook data show. And in the second quarter, multi-billion dollar funding rounds for AI startups CoreWeave and xAI accounted for just over 26% of total venture capital deal values.

While private capital markets overall have seen investors exercise greater scrutiny over where they place their dollars, that’s not necessarily the case for AI.

“[T]he market is seeing a lot of hype in AI,” Nizar Tarhuni, Pitchbook’s vice president of institutional research, wrote in an email. “Some would argue this is a bright spot for dealmaking, but we’re seeing glimpses of low-diligence deals getting done that might pose risks to fund returns down the road.”

Giddiness over AI in the private and public sectors has prompted fears of an AI bubble. Skeptics wonder: Will this be like the dot-com bubble? Will the excitement over AI continue as people begin to recognize its downsides and to understand how long it will take to fully implement the technology?

AI bulls, meanwhile, tend to respond that AI is different — it’s advancing at light-speed, and it’s use cases so far prove that it’s not hype.

Of course, that doesn’t mean that some AI startups aren’t doomed to fail. Not everyone can be OpenAI. And venture capitalists may do well to heed Tarhuni’s warning.

AI VC funding by the digits

Overall

$55.6 billion: How much venture capital was invested in the second quarter

4,226: How many VC deals were inked

45%: AI startups’ share of total venture capital deal value so far in 2024

Getting down to the AI details

$8.6 billion: Value of the AI cloud company CoreWeave’s Series C funding in the second quarter

$6 billion: Value of AI startup xAI’s Series B funding in Q2 of 2024

26.3%: How much CoreWeave and xAI’s raises contributed to Q2 VC funding

74.8%: How much the value of early-stage venture capital deals increased in the second quarter