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The Rapid Evolution and Economic Impact of Generative AI in 2024

GOOVER DAILY REPORT September 15, 2024
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TABLE OF CONTENTS

  1. Summary
  2. Market Valuation and Economic Impact of Generative AI
  3. Investment Trends in Generative AI
  4. Key Sectors and Companies in Generative AI
  5. Shifting Investor Focus in Generative AI

1. Summary

  • The report titled 'The Rapid Evolution and Economic Impact of Generative AI in 2024' examines the swift growth and substantial economic effects of generative AI. It focuses on market valuation, investment trends, the sector-wide transformation caused by generative AI, and the changing investor priorities from foundational models to application-layer startups. The global generative AI market is valued at $44.89 billion and projected to grow beyond $66 billion by the end of 2024. The economic impact ranges between $6.1 trillion and $7.9 trillion annually, driven by productivity gains and cost savings. Additionally, there is a focus on venture capital investments, primarily led by North America, with a total anticipated annual investment of $12 billion in 2024. Companies like OpenAI and Nvidia are highlighted for their significant roles in this ecosystem, alongside a growing interest in specialized AI solutions by startups, which align with shifting market demands.

2. Market Valuation and Economic Impact of Generative AI

  • 2-1. Current Market Valuation and Future Projections

  • As of 2024, the global generative AI market is valued at $44.89 billion, representing a significant increase from $29 billion in 2022, indicating a growth rate of approximately 54.7%. This market value is expected to rise beyond $66 billion by the end of 2024, with the United States contributing substantially to this growth. Projections suggest that the market could reach $1.3 trillion by 2032, driven by sectors such as Infrastructure-as-a-Service, digital advertising, and various AI-assisted technologies. Notably, North America accounts for 40.2% of this market due to the presence of major tech companies.

  • 2-2. Economic Impact on Industries

  • The economic impact of generative AI could range between $6.1 trillion and $7.9 trillion annually, highlighting its transformative potential across multiple sectors. The technology is expected to significantly enhance productivity, as evidenced by 94% of business executives believing that AI is crucial for future success. In particular, generative AI has been widely adopted, with 92% of Fortune 500 companies utilizing these technologies in various applications from marketing to cloud pricing optimization.

  • 2-3. Productivity Enhancements and Cost Savings

  • Businesses that adopt generative AI may experience considerable productivity increases, estimated at 24.69% based on studies conducted. Furthermore, organizations could achieve cost savings of 15.7% within the next 12 to 18 months. Notably, the use of chatbots enabled by generative AI has resulted in an average time saving of approximately 2 hours and 20 minutes per day for companies. These enhancements in productivity and cost efficiency underscore the valuable contributions of generative AI in modern business environments.

3. Investment Trends in Generative AI

  • 3-1. Venture Capital Investment Overview

  • Global venture capital investment in Generative AI in the first quarter of 2024 reached $3 billion, with forecasts predicting a total of $12 billion for the entire year. In 2023, total investment in Generative AI amounted to $21.3 billion, significantly supported by three major investments: OpenAI-Microsoft ($10 billion), Anthropic-Amazon ($4 billion), and Inflection-Microsoft ($1.3 billion). Despite a general slowdown in investment across many sectors due to rising interest rates and inflation, interest in Generative AI continues to escalate, showing a nearly 100% increase from the previous year, excluding mega investments.

  • 3-2. Key Investors and Their Contributions

  • The investment landscape in Generative AI is primarily led by North America, which constitutes the majority of the deal count and total investment value. Major technology firms, notably Microsoft and Amazon, have been pivotal, with their combined investment of $15.3 billion into pioneering companies like OpenAI, Anthropic, and InflectionAI. As companies seek to incorporate AI into their growth strategies, this capital influx indicates a robust commitment from the investor community.

  • 3-3. Regional Investment Opportunities

  • While initially concentrated in the United States, there is growing investor interest in European markets, particularly in Ireland, which is well-positioned to attract venture capital due to its strong technology and life sciences sectors, supportive policies, and skilled workforce. The report highlights that investor focus is shifting from general or horizontal AI applications to more specialized, vertical AI solutions, suggesting substantial opportunities for innovation and development in Europe. France's emergence of AI unicorns and significant investments in UK-based startups illustrate the potential for regional growth in the Generative AI sector.

4. Key Sectors and Companies in Generative AI

  • 4-1. Sectoral Transformation and Leading Companies

  • The advent of generative artificial intelligence (AI) has the potential to revolutionize various industries, creating significant investment opportunities. Companies identified as potential winners include those offering advanced hardware, such as Nvidia, which is well-positioned to benefit from the growth of generative AI. Additionally, companies like Google and Microsoft, with access to vast amounts of data and strong processing capabilities, are also prime candidates for investment as they have been developing advanced AI models since at least 2014.

  • 4-2. Role of GPU Manufacturers

  • GPU manufacturers play a critical role in the generative AI landscape, as generative AI models require extensive computing power for training and data generation. Companies such as NVIDIA, Advanced Micro Devices, and Intel are major players in this sector. NVIDIA leads the GPU market and has made significant investments in AI, with its GPU performance improving at an average rate of about 50% with each generation. The upcoming NVIDIA H100 GPU is expected to deliver six times more throughput than its predecessor, the A100, thus increasing demand for its technology in generative AI applications.

  • 4-3. Data Leverage by Tech Giants

  • Data is essential for the success of generative AI. Companies like Google, Amazon, and Microsoft have access to large volumes of high-quality data, positioning them advantageously in the AI field. These companies have established their AI and machine learning capabilities since 2014, indicating a strategic long-term approach to harnessing data for AI development. Furthermore, these tech giants have a proven track record of effectively commercializing AI technologies, contributing to their potential as investment opportunities.

5. Shifting Investor Focus in Generative AI

  • 5-1. From Foundational Models to Application-Layer Startups

  • The generative AI landscape has been evolving rapidly, with foundational model companies leading the charge. However, recently investor interest is shifting away from the firms developing these foundational models to those making applications atop them. According to S&P Global, the nine top pure-play foundation model companies, such as Anthropic, Cohere AI, and OpenAI, have collectively secured $28.67 billion in disclosed funding rounds. Despite their substantial funding, investor interest in these foundational model companies has started to decline since late 2023, largely due to the dominance of major players in the market, including OpenAI, Google, Microsoft, and Anthropic. The development of foundational models requires significant capital investments, and while costs per token are expected to decrease gradually, the overall demand surge might not sufficiently offset declining access costs at the company level. Furthermore, the availability of viable open-source models is likely to place additional pressure on profit margins. Consumers now demand models that are tailored to specific business needs, enhancing the appeal of application-layer startups. In the first quarter of 2024, eight out of the ten largest generative AI deals were to companies specializing in developing applications utilizing third-party foundation models, reflecting the shifting investor focus.

  • 5-2. Investor Interest in Specialized AI Solutions

  • Investor interest has increasingly turned towards specialized AI solutions offered by application-layer startups. These startups, such as Perplexity AI and Glean Technologies, have raised substantial funding, including Perplexity AI's $63 million investment and Glean Technologies' $200 million in Series D funding. The specialization of these companies allows for tailored products that typically have an easier customer acquisition process, making them attractive investments. This shift indicates a more discerning investment approach, reflecting the evolving preferences of investors who are now seeking impactful AI solutions that meet specific market demands.

  • 5-3. Market Maturity and Evolving Consumer Expectations

  • The generative AI market is maturing, and consumer expectations have evolved beyond the generic capabilities of foundational models. Organizations are demanding tailored solutions that can provide direct business advantages, signifying a shift towards enterprise-level application startups. A study by Accenture indicates that discussions around AI during earnings calls by executives from the world's largest 2,000 companies were associated with a 40% higher likelihood of share price increases in 2021. However, only 12% of these companies were at an AI maturity level that could provide a significant competitive advantage, illustrating the disparity in AI adoption. In response to the increasingly discerning market, firms like IBM and Salesforce have introduced enterprise-grade models to facilitate AI adoption across various industries. While foundational model companies maintain substantial funding, the evolving market dynamics and consumer demands highlight emerging opportunities for specialized application-layer startups.

6. Glossary

  • 6-1. Generative AI [Technology]

  • Generative AI refers to a type of artificial intelligence that can generate new content, such as text, images, or video, based on input data. Its rapid growth is driving significant technological and economic transformations across industries, making it a focal point of investment and innovation.

  • 6-2. OpenAI [Company]

  • OpenAI is a leading company in the generative AI field, known for developing advanced AI models such as GPT-3. It attracts substantial venture capital investment and focuses on responsible AI development, positioning itself as a key player in the technology's evolution.

  • 6-3. Nvidia [Company]

  • Nvidia manufactures critical GPUs used in generative AI applications. The company's hardware is essential for the high computational needs of AI tasks, making Nvidia a significant beneficiary of the generative AI boom.

  • 6-4. Venture Capital [Investment Trend]

  • Venture capital investment in generative AI has seen dramatic growth, with major firms like Microsoft and Amazon injecting significant funds. Investment trends indicate a strong interest in both foundational AI models and application-layer startups that offer specialized solutions.

7. Source Documents