VCs Weigh In: The Future of AI Investments

Five venture capitalists with funds ranging from $5 million to $25 billion weighed in on the current state of artificial intelligence investments during a discussion at Fortune's IRL Term Sheet Breakfast at Brainstorm AI in San Francisco. The panel, hosted by Allie Garfinkle, consisted of Jenny Xiao, a partner at Leonsis Capital and former researcher at OpenAI, Vanessa Larco, a former partner at New Enterprise Associates (NEA), and three other VCs, who collectively plan to deploy tens to hundreds of millions of dollars over the next decade into companies with AI as a backdrop. Xiao presented a nuanced view, suggesting that while there may be a bubble in the infrastructure layer, with overinvestment in data centers, GPUs, and large language model companies, there is actually underinvestment in the application layer. "Theres something of a bubble, but its relatively contained in the infrastructure layer with overinvestment primarily in data centers, GPUs and in large language model companies," Xiao said. "But right now, theres actually underinvestment in the application layer because there are so many ways AI can make an impact in various enterprises." Larco, on the other hand, took a more dismissive stance, stating that the current investment environment is not a bubble. "I dont think were in a bubble," Larco said. "I think were in a period of rapid innovation and experimentation, and that's what you see in the numbers." She attributed the high investment figures to the potential of AI to transform various industries and create new business opportunities. The discussion also touched on the potential implications of AI on society, with Xiao highlighting the need for more investment in the application layer to ensure that AI is used to benefit various enterprises and industries. "If we dont invest in the application layer, we risk creating a situation where AI is only used by a few large companies, and that's not what we want," Xiao said. The panelists also emphasized the importance of responsible AI development and deployment, with Larco noting that investors are starting to take a more active role in ensuring that AI is used in a way that benefits society. "We're seeing more and more investors who are thinking about the social impact of their investments, and that's a good thing," Larco said. In the background, the AI landscape has been rapidly evolving, with significant advancements in areas such as natural language processing, computer vision, and reinforcement learning. The development of large language models, such as those used in chatbots and virtual assistants, has also been a major area of investment and innovation. As the discussion highlighted, the current state of AI investments is complex and multifaceted, with varying opinions on whether a bubble exists. However, one thing is clear: the potential of AI to transform various industries and create new business opportunities is vast, and investors are taking notice. With tens to hundreds of millions of dollars being deployed over the next decade, the next few years will be crucial in determining the future of AI and its impact on society.