In a recent New York Times article, “Investors Pour $27.1 Billion Into AI Start-Ups, Defying a Downturn,” I had the opportunity to share insights on the extraordinary growth and challenges that AI start-ups are facing. The article highlighted the rapid influx of funding into AI firms, which attracted nearly half of all U.S. start-up investment from April to June 2024.

I’ve been working with a LOT of AI companies. A LOT! So that gives me a ton of data, and conversations with founders, to come up with some insights.

I was able to analyze 125 AI start-ups and found that they’re spending over 22% of their budgets on computing costs—more than double that of non-AI software companies. This capital-intensive reality helps explain why venture capitalists are throwing massive investments into AI, as I mentioned: “They clearly need the money.”

While the hype surrounding AI continues to grow, these companies will need sustained financial backing to handle the significant computing demands. I think we are going to see a split between the really capital intensive AI companies, and others that end up using smaller models, or other companies’ models, and try to build a business with less capital.