A Stanford University analysis shows that $934.2 billion was invested in AI from 2013 to 2022. However, some indicators indicate investor interest in the technology is waning. A report from Stanford’s Institute for Human-Centered Artificial Intelligence (HAI) found that global investment in AI fell for the second year in a row in 2023. Private investment dipped from $103.4 billion to $95.99 billion, and total investment in AI fell to $189.2 billion last year, a 20% decline compared to 2022.

Some investors are concerned that they’re not yet seeing a return on their investments (ROI), questioning the technology’s ability to be profitable. That’s in addition to the high cost of launching AI products and services, building AI models, and the massive amount of energy needed to power AI.

Despite this, Kamal Youssefi, President of the board of directors at the Hash-graph Association (THA), a non-profit organization focusing on building innovative ecosystems for startups and businesses, is unfazed by the funding decline. He believes that it is part of the natural cycle of investing. “AI is a capital-intensive endeavor, and therefore, only the best projects will be able to attract the significant amount of capital required to scale and survive,” he says. “By corollary, many other projects will fail due to lack of capital and adoption. This decline is part of a natural maturation cycle and is a common growth pattern for new and innovative technologies and industries.”

STILL BETTING ON AI

Still, some companies and investors are betting heavily on AI and believe it has the potential to impact businesses and economies at large. Big tech—Google, Microsoft, and Meta—are continuing to pour more money into technology. 

The Middle East is also following suit, with sovereign wealth funds allocating billions of dollars to this new technology. As part of Gulf countries’ goals to diversify their economies, many are looking into AI to accelerate their growth and development. According to Pitchbook, funding for AI companies by Middle East sovereigns has increased fivefold in 2024.

Some notable investments include G42, UAE’s leading AI and cloud computing technology company, launching a $10 billion expansion fund to invest in growth-stage technology companies, and Saudi Arabia creating a $100 billion AI initiative to accelerate AI development.

This investment trend comes as no surprise to Youssefi, who sees huge long-term opportunities for AI in technology and across all industries.

“The entry into new technological markets such as this should be viewed more from the lens of a moonshot project than from a purely short-term profit-making venture,” he says. “Larry Ellison [co-founder of Oracle] famously postulated that bonafide AI startups working on proprietary models will require $100 billion in startup capital. This is a fair assumption when considering AI’s massive impact on many industries and technologies,” says Youssefi.

OPPORTUNITY FOR GENERATIVE AI

Investors are paying special attention to generative AI. 

The same Stanford report that showed industrial funding decline also revealed an uptick in generative AI funding. In 2023, generative AI startups received $25.2 billion, up significantly from previous years. 

While there is no data yet on generative AI funding in the Middle East, it is clear that it could have a massive impact on the region’s economy. According to a 2024 McKinsey report, generative AI could generate between $21 billion and $35 billion a year, on top of the $150 that other AI technologies could deliver to GCC countries.

Recognizing its potential for disruption, regional investors are looking to spray money into this space. Ahmed Mahmoud, founder of DXwand, a startup using conversational AI to help businesses in the region automate customer service, has been experiencing increased investor interest in his startup lately. 

Although he initially struggled with fundraising when launching his startup in 2018 since AI was still a new concept, he started getting approached by VCs soon after ChatGPT was launched. “During the AI hype, which started in 2022, people started getting interested in this technology,” he says. “I started getting approached by investors; they were interested in investing in the startup, but our round was already closed by then, so I couldn’t take them on board.”

In early 2024, DXwand successfully raised $4 million in a Series A round to expand across the region. The funding was led by Shorooq Partners, Algebra Ventures, and existing investor Dubai Future District Fund.

Eyad Albayouk, General Manager of Flat6Labs in Saudi Arabia, cautions, however, that while AI does offer unique advantages, the technology on its own should not be the main focus for investors. “AI startups can offer unique advantages, such as increased operational efficiency, data-driven insights to make better decisions, and the ability to automate and streamline complex processes,” he says. 

“However, we evaluate AI as an enabler rather than the sole focus. Startups that leverage AI to transform sectors, like business intelligence solutions or field-ops automation, illustrate how AI can create value. However, if the solution is limited to a narrow market, it may not be investable despite its technical novelty.” The firm has invested 20% of its portfolio in Saudi Arabia in AI startups. 

Albayouk predicts that AI will become indispensable across industries as it continues to evolve. The key, however, is not to get too carried away by the hype, but to focus on solving real world problems and harnessing the technology for business success. “AI will continue to evolve, becoming more cost-effective and accessible,” he adds. “Its role in automating processes, analyzing data, and enhancing user experiences makes it indispensable across industries.”

AI is not a standalone strategy but an enabler, adds Albayouk. “While we are enthusiastic about AI’s possibilities, the fundamentals of investment viability—scalability, market demand, and a strong team—remain paramount. Focusing on real-world applications and sustainable business models is crucial to unlock AI’s full potential.”