Developments in AI are surging with the global AI industry currently valued at approximately $400–$500 billion USD and is poised for substantial growth, potentially doubling or tripling in size by 2028.
We took a look at the current landscape of venture capital (VC) investments in AI and emerging technologies, as of mid-2025, based on a new report created by PitchBook Data. The report captures insights from a survey of 32 VC investors and offers a nuanced understanding of how geopolitical, technological, and economic factors are shaping AI investment strategies in the private markets.
Macro-Economic and Geopolitical Environment
A significant finding, is the impact of US trade policies, particularly the “Liberation Day” tariffs announced during the tenure of President Donald Trump. A substantial 84% of survey respondents anticipate at least mild to moderate disruptions from these tariffs, primarily manifesting as increased supply chain costs and slowed growth. Sectors such as manufacturing and semiconductors/hardware are viewed as most vulnerable to tariff-related shocks, raising questions about the effectiveness of protectionist policies that aim to shield these industries.
Despite these challenges, VC activity persists. About 53% of investors remain actively sourcing deals, although they are exercising increased due diligence. The shift toward domestic investments is notable, with 63% believing that trade tensions will encourage more investment within strategic sectors in the US. Meanwhile, limited partner (LP) risk aversion has increased, with 45% of investors noting that LPs are more cautious about risk, reflecting broader market apprehensions about geopolitical stability.
AI and Deep Tech: Sector Outlook and Investment Dynamics
AI continues to be a central focus for venture investors, with evolving expectations around its disruptive potential across various sectors. The survey indicates that 52% of respondents now believe AI will significantly disrupt fintech, an increase from 32% in the previous survey, highlighting rapid advancements in automated underwriting and large language model (LLM)-based copilots.
The Healthcare sector and enterprise technology also remain prominent, each with about 45% of respondents expecting AI-driven disruption. Conversely, expectations for AI’s impact on transportation and logistics have decreased to 16%, down from 26%, suggesting a maturation phase where initial hype is giving way to realistic implementation considerations.
Barriers to AI adoption are more grounded now, with 45% citing a lack of clear use cases as the primary obstacle, followed by workforce skill gaps and high implementation costs.
Regulatory concerns, which were previously prominent, have diminished from 55% to 39%, indicating a more favorable regulatory environment or increased familiarity with AI governance.
Sentiment around generative AI remains cautiously optimistic, with roughly equal proportions of investors feeling more bullish (44%) and unchanged in outlook (45%).
Investment Strategies and Fundraising Trends
Investors are diversifying their deep tech allocations, spreading AI investments across healthcare (30%), manufacturing (23%), and infrastructure (27%) while Robotics leads in deep tech investments at 58%, with quantum computing maintaining steady interest at 38%. Growth capital is increasingly flowing into biotech (47%) and fintech (38%), although concerns about saturation in certain subsectors persist.
Fundraising activity however is showing clear signs of cooling, with only 38% of respondents anticipating VC funding to increase in the next year, down from 58% in late 2024, while 28% foresee modest declines, indicating an increase from just 9%.
This shift indicates a more cautious stance, with investors becoming risk-aware rather than panicked. The trend towards larger ownership stakes—34% of respondents increasing their stakes—also reflects a more strategic approach to navigating a cautious funding environment.
Exit Environment and Market Outlook
Expectations for exit activity have notably declined. Only 34% of survey participants anticipate moderate improvements in exits, a sharp drop from 70% in the previous survey. Many now foresee stagnation or even decline, driven by macroeconomic factors such as falling interest rates and tariff stability, which are viewed as critical liquidity drivers.
Looking ahead, approximately 60% of respondents plan to raise additional funds within two years, but a growing number are delaying or extending timelines to three-to-five years, reflecting market uncertainty. Secondary markets are gaining prominence as a liquidity outlet, indicating a shift toward more flexible exit strategies.
Regional and Technological Investment Preferences
Regionally, the US remains the dominant destination for AI VC funding while Europe emerges as the second most attractive alternative to the US, with 48% of respondents considering it a favorable investment destination.
Technologically, investment activity remains concentrated in SaaS, healthtech, biotech, climate tech, fintech, agtech, mobility, consumer tech, and AI & ML. The distribution of assets under management (AUM) varies, with many firms managing funds under $500 million, and most focusing investments at early and growth stages.
Overall, the VC landscape in AI and emerging tech is currently characterised by cautious optimism and strategic recalibration. While geopolitical tensions, particularly trade tariffs, pose short-term headwinds, investors are adapting by diversifying their portfolios, increasing due diligence, and delaying fundraising and exit plans. AI continues to be a key driver of innovation, with a shift toward operational maturity and saturation warnings across subsectors.
