Generative AI startups get 40% of all VC investment in cloud amid ChatGPT buzz

Generative artificial intelligence startups are getting 40% of all the venture capital funding that flows into cloud companies, according to venture investors Accel.

In its latest annual Euroscape report, which looks at key cloud and AI trends, Accel said that venture funding for cloud startups based in the U.S., Europe and Israel is projected to rise to $79.2 billion this year, with artificial intelligence fueling much of the recovery.

Venture funding into the cloud industry climbed 27% annually — marking the first year of growth in three years. Cloud startups raised $62.5 billion in Europe, Israel and the U.S. in 2023, the report found.

Funding is up 65% from the $47.9 billion cloud firms raised four years ago, according to Accel.

It comes after OpenAI, the Microsoft-backed company behind the buzzy generative AI chatbot ChatGPT, earlier this month raised $6.6 billion in a mammoth funding round that valued the startup at $157 billion.

Much of the growth of funding in cloud is being driven by excitement around AI.

"AI is sucking the air out of the room" when it comes to cloud, Philippe Botteri, partner at Accel, told CNBC in an interview this week. "This is both visible on the public market and and the private market."

As of Sep. 30, the Euroscape index — a selection of publicly-listed U.S., European and Israeli cloud firms curated by Accel — is up 19% year-over-year.

This pales in comparison with the 38% increase the Nasdaq saw this year and is also down 39% from the Euroscape index's peak hit back in 2021.

The cloud industry has been having a tough time beyond AI, with enterprise software budgets squeezed by macroeconomic and geopolitical risks.

"There's a lot of uncertainty out there," Botteri said, adding that businesses are