Early-stage AI shakeout likely as venture investors get pickier on valuations, experts say

Jakub Nytra, founding partner at venture capital firm Purple Ventures, said investors are becoming much more demanding about where AI produces genuine value and where it is “a feature dressed up as a business.” He expects capital to become much more selective over the coming six to 12 months.

The caution arrives as the AI boom continues to reshape markets. Investors have poured money into semiconductor companies beyond Nvidia, betting that the buildout of AI data centers will benefit a wider universe of chipmakers and infrastructure providers. At the same time, concerns of a bubble persist as companies raise capital spending with no visible end and sky-high growth figures raise questions about whether the expansion is sustainable.

“The next question is whether applications and end users generate enough productivity, revenues and cash flow to justify that investment,” said David Ng, co-founder and chief executive officer at wealth management firm Arki Finance.

Nytra said that although AI can transform the economy, not every company with AI in its pitch deck deserves an extraordinary valuation. “The winners will be companies using AI to solve expensive and highly complicated problems,” he said. He cited TASS Vision, a Purple Ventures portfolio company, which uses edge AI and cameras to analyze how customers move through physical stores and gives retailers data they can use to improve.

Shane Chesson, founding partner at asset manager Openspace Capital, said that if a bubble bursts, the damage will mostly hit those who invested in FOMO-led froth. “But the infrastructure that has been created will still be used and prove game-changing for many companies.”