open_in_newOriginal article
The GenAI Arms Race Is Just Getting Started

The GenAI Arms Race Is Just Getting Started

  • 18.03.2025 14:00
  • fnarena.com
  • Keywords: Success, Success

Private markets show strong demand for AI despite public market downturns. Investments in GenAI startups are surging, with major deals in sight. China is emerging as a key player in AI development, challenging US dominance.

Meta ReportsMicrosoft Reports

Estimated market influence

OpenAI

Positivesentiment_satisfied
Analyst rating: N/A

Leading AI research company, pivotal in advancing GenAI technologies.

Safe Superintelligence

Positivesentiment_satisfied
Analyst rating: N/A

Contributing to AI safety and innovation through research and development.

Anduril Industries

Positivesentiment_satisfied
Analyst rating: N/A

Defense tech start-up leveraging AI for innovative solutions in defense sector.

Context

Analysis of The GenAI Arms Race: Business Insights and Market Implications

Key Findings and Market Trends

1. Private vs. Public Markets

  • Private markets are experiencing a boom in AI investments, with US start-ups raising more capital than at any time since 2021.
  • PitchBook data: AI and ML private equity investment reached nearly EUR3bn in transactions up to Q1 2025, following a record EUR11.4bn in 2024.
  • US investments: $30bn invested in 2024, with an additional $50bn pipeline. Major deals include:
    • OpenAI seeking $40bn funding at a $260bn valuation.
    • Anduril aiming for $2bn raise at over $30bn valuation.

2. Revenue Projections

  • Morgan Stanley projections:
    • GenAI could generate $1 trillion in revenue by 2028, up from $45bn in 2024.
    • Breakdown:
      • Software spend: $400bn by 2028 (22% of total software spending).
      • Consumer spending: $680bn by 2028, driven by e-commerce ($469bn) and advertising ($197bn).
      • Autonomous driving: $6bn by 2028.
      • Wearables: $10bn by 2028.

3. Hardware and Infrastructure Growth

  • GPU and hardware spending: Expected to reach $280bn in sales by 2028, up from $115bn in 2024.
  • Data center investment:
    • Power demand: 98GW by 2028 (up from 12GW).
    • Power costs: $84bn over the period.
    • Labour costs: $7bn for data centers.

4. Company Adoption and Consumer Impact

  • McKinsey report:

    • 71% of surveyed companies use GenAI in at least one business function (up from 65%).
    • Most common applications: marketing, product development, service operations, and software engineering.
    • Larger companies ($>50m revenue) show higher adoption rates.

  • Consumer behavior:

    • Shoppers using AI for research, recommendations, deal hunting, etc. (39% in 2024).
    • Intent to use AI: 53% of surveyed shoppers.
    • Engagement metrics: 12% more page visits, 8% longer time on sites, 23% lower bounce rate.

5. Geopolitical and Competitive Dynamics

  • China's rise in AI:
    • DeepSeek model challenges US dominance with similar performance at lower cost using older GPUs.
    • China’s state-driven policies (e.g., New Generation AI Development Plan) accelerating AI adoption.
    • Analysts warn US restrictions may inadvertently boost China’s AI capabilities.

6. Disruption of Traditional Software Models

  • SaaS and AI:
    • Features and products can be replicated quickly, eroding uniqueness.
    • Example: BYD’s self-driving system vs. Tesla’s FSD pricing.

Strategic Considerations and Long-Term Implications

1. Market Opportunities

  • Private equity and venture capital: Continued focus on AI start-ups (e.g., OpenAI, Anduril).
  • Hardware and infrastructure: Growth in GPU sales (Nvidia), cloud services (Azure, AWS), and data centers.
  • Consumer applications: High growth potential in e-commerce, advertising, and autonomous technologies.

2. Competitive Landscape

  • Global competition: China’s advancements in AI could challenge US dominance.
  • Strategic partnerships: Hyperscalers (AWS, Azure) investing heavily in AI infrastructure.

3. Regulatory and Geopolitical Risks

  • Export controls and trade policies: Potential to disrupt global tech supply chains.
  • Investor sentiment: Volatility due to geopolitical tensions and market narratives.

4. Strategic Recommendations

  • Investors: Focus on GenAI-driven infrastructure (data centers, semiconductors) and emerging markets outside the US.
  • Businesses: Accelerate AI adoption across operations; integrate AI into core offerings to maintain competitive edge.
  • Tech firms: Prepare for rapid innovation cycles and potential disruptions in SaaS models.

5. Long-Term Effects

  • Economic impact: Potential $1 trillion revenue opportunity by 2028, reshaping industries from retail to automotive.
  • Global power dynamics: AI as a strategic tool for geopolitical influence and economic competition.

Conclusion: The GenAI arms race is entering a new phase with massive private investments, rapid company adoption, and significant market opportunities. However, businesses must navigate competitive dynamics, regulatory risks, and the potential disruption of traditional models to capitalize on this transformative trend.