Sifted -  Is the AI frenzy over? 

Good morning there,

Last week, I was having numerous conversations about what’s going on with tech stock selloffs and jitters over AI. Investors have been watching stalwart chipmaker Nvidia’s recent stock plunge especially closely, and there have been mounting concerns in recent weeks that the huge amounts of capital VCs and Big Tech companies have invested in AI isn’t paying out.

Today I dig into whether the AI bubble — which has seen VCs funnel tens of billions into AI startups in recent years — is starting to burst. 

Elsewhere:

• JPMorgan: Why list in Europe if you can list in the US?
• Europe's fastest-growing AI startups
• How to prove your concept

— Anne Sraders, senior reporter

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The AI bubble hasn’t quite burst — but there’s consolidation coming 

If you’ve been paying attention to the headlines lately, you may be wondering: What’s going on with the stock market and tech stocks lately? And why is everyone worried about AI? 

One of the big themes in VC world (and for Big Tech) in the last couple of years has been the AI frenzy, as investors have funnelled tens of billions into startups making everything from large language models (LLMs) and chatbots to AI-powered assistants for lawyers. But there are a few big concerns right now: namely, that AI startups and companies putting money into the technology to improve their businesses aren’t seeing the fruits of their investment, or making enough revenue.

There’s been plenty of opining on the topic in blog posts and articles lately, and it’s all got observers increasingly asking: has the AI bubble actually burst? 

So I decided to pose the question to a few VCs. And the answer seems to be: not quite, but we’re clearly in a “cooldown” or correction phase of the market. Andreas Goeldi, an AI-focused partner at VC firm b2venture, told me it’s “going to be quite tough and slow, presumably,” for startups that raised money at “fantasy valuations and [are] now going into the economic realities of this”. 

Still, industry worries be damned: VCs haven’t stopped spending money on AI. They’ve put €7.9bn into European AI and machine learning startups across 1,030 deals in 2024 so far. Last year’s haul was €9.5bn across 1,888 deals, according to PitchBook data through early August. Valuations, meanwhile, haven’t seemed to have been affected by AI jitters yet: the median post-money valuation for AI and ML startups is €9.2m so far in 2024, up from €9m last year.

But concerns around how companies will make enough money with AI — and how long that will take — are real. You can dig into my full piece here — including what some VCs predict might trigger a come-down of the nosebleed valuations, and where there might be more consolidation.

I’m also curious to hear your take: VCs, do you think the AI bubble is starting to pop? If not, what could trigger it? Are you still investing in AI startups, and what valuations are you seeing in the market? And founders, are you worried about making money on your AI products? Are you still investing a lot of money into AI? I’m all ears. 

— Anne Sraders, senior reporter

🤝 London-based digital bank and payments fintech ClearBank has secured a Dutch banking licence, which will allow it to expand into the European Union. Rintse Zijlstra, the company’s Europe CEO, will lead its continental expansion from the Netherlands. The company says it plans to hire more than 60 people for its operations in Europe in the next five years.

🤔 Why list in Europe when you can in the US? Unlike some, Matt Gehl, head of EMEA tech investment at JPMorgan, isn’t down on European stock markets — but he also doesn’t think that listing here will be the first choice for many of the region’s biggest tech companies. 

• ​​“The majority of the European companies with a global footprint are looking to the US,” he tells Sifted in an interview. “It’s natural that people are going to look to where the greatest success has been [...] I’d say 90-100% are leaning [towards the US]; all of the big names you hear rumoured all the time.”
• Listing stateside is an easier decision to make for companies with a strong presence there, Gehl says. For those that don’t, “they need to stand out from a size standpoint, a growth standpoint and a differentiated business model standpoint… otherwise why would a US investor care?” European companies listing in the US will need to have at least a $5bn-10bn valuation, he adds.
• You can read the full interview with JPMorgan’s Gehl here — covering the clues to look out for about where and when a scaleup plans to list, plus alternative exit strategies.

💪 Europe’s fastest-growing AI startups.

🙋‍♀️ How to prove your concept.

😯 The UK energy boss taking (some) inspiration from Musk and Bezos. (Bloomberg)

📣 Readers, we want to hear from you. What’s the best thing on European tech you’ve read recently? Drop us a line.

Sifted 50: Southern Europe's fastest-growing startups

We’ve ranked the region’s fastest-growing startups in 2024 based on revenue growth over the last three financial years. Dive into the report to uncover the full list of startups and for an in-depth analysis of the region's tech landscape.

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London-based Userled, which uses AI tools to help B2B companies create and manage personalised marketing campaigns, raised €4.6m in pre-seed funding. LocalGlobe led the round and was joined by investors including Dig Ventures.

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