The hype around AI isn’t going anywhere, but the pace of investment is shifting. As 2025 unfolds, there’s growing chatter in tech and business circles about what slower funding might mean for the future of artificial intelligence. Is this a sign of a cooling market? A bubble ready to burst? Or something else entirely?
The truth is more nuanced.
While funding rounds are tightening and investors are treading more carefully, this doesn’t mean AI is hitting the brakes. In fact, the question isn’t whether AI will slow down—it’s who might get left behind in the process.
According to Brian Sathianathan, Co-Founder and CTO of Iterate.Ai, the overall trajectory of AI remains strong, even as some capital pulls back.
“Smart capital is still flowing, but concern about markets, geopolitics and ethics have caused investors to slow down their moves. This may cause temporary friction, but the long-term fundamentals of growth in AI remain unchanged,” declares Sathianathan.
In other words: the froth might be clearing, but the current is still moving swiftly.
What’s happening now is a natural shakeout. After the explosion of generative AI tools and startups in 2023 and 2024—many built on flashy demos and speculation—investors are becoming more discerning. They’re no longer throwing money at anything with the letters “AI” in its pitch deck. Instead, they’re zeroing in on companies with infrastructure, traction, and a clear path to sustainable value.
That’s not a downturn. That’s maturation.
And it’s probably overdue. For all the excitement, AI development doesn’t live in a vacuum. It’s happening alongside geopolitical tensions, regulatory uncertainty, and economic volatility. These headwinds are forcing a more thoughtful approach to investing in the space—which, in the long run, might be exactly what the industry needs.
What does this mean for startups?
For one, the “growth at all costs” era may be winding down. Companies will need to prove their models are viable, their data is ethical, and their technology can actually scale. It also means differentiation will become more important than ever. It’s no longer enough to offer a chatbot or image generator. Businesses need to demonstrate unique applications, responsible deployment, and a deep understanding of customer pain points.
On the flip side, legacy enterprises and incumbents that have been slow to adopt AI may find this period to be a window of opportunity. With early hype giving way to real-world use cases, there’s space to build AI capabilities that are durable, compliant, and genuinely transformative.
And despite the funding shifts, the global demand for AI isn’t shrinking. From healthcare to logistics to national security, AI continues to integrate deeper into the infrastructure of everyday life. The slowdown in venture activity isn’t stopping AI—it’s simply filtering who gets to define its future.
Sathianathan’s outlook reflects that reality: ”The companies building real, scalable value with AI will continue to thrive and AI will continue to grow for the foreseeable future.”
It’s also worth noting that public perception and policy pressures are playing a larger role than before. The ethical and geopolitical dimensions of AI—how it’s built, who controls it, and how it affects jobs, privacy, and security—are now top of mind for regulators and investors alike. These are no longer afterthoughts. They’re shaping funding decisions, product roadmaps, and public trust.
That could be a good thing. A more ethically grounded, security-conscious AI ecosystem has the potential to deliver more meaningful impact over time, even if it requires a more patient approach to growth.
So yes, some startups may struggle in this slower funding environment. But the companies that emerge from this phase won’t just be better funded. They’ll be stronger, smarter, and better equipped to lead the next wave of AI innovation.
Because despite the cautious capital, the future of AI is still accelerating—just with fewer shortcuts and a clearer sense of direction.