AI investments drove a 47% increase in US venture capital funding in Q2, reaching $55.6 billion, the highest quarterly total in two years.

It represents a $17.8 billion jump from the amount raised by US businesses in the first quarter, according to PitchBook’s data, fuelled by a surge in artificial intelligence companies and technologies, including $6 billion raised by Elon Musk’s xAI.

The injection of capital overturned the recent downward trend in the VC funding market, with investments steadily declining since the record high $97.5 billion in the fourth quarter of 2021. The market has been marred by high-interest rates and inflation have damaged investor confidence across the US, and the world.

“Investors assign a premium to everything AI – the capital intensity of most AI businesses requires outsized funding,” said Casber Wang, partner at Sapphire Ventures. “As we discover stronger commercial use cases for AI, more AI companies are showing real revenue.”

AI has continued to attract attention ever since the launch of Open AI’s ChatGPT chatbot, with companies scrambling to develop AI tools and systems to automate tasks and drive efficiencies. Investors have consequently invested big in the future of AI companies.

However, exits remained challenging for the market, as deal values decreased from $37.8 billion in the first quarter to $23.6 billion in the second quarter.

Across the first half of the year, emerging VC fund managers only raised $37.4 billion in commitments, with a lack of proven returns rocking confidence.

Lars Madsen, Chief Marketing Officer for Basware, said: “AI’s ability to transform traditional business models means it comes as no surprise that it will remain a source of fascination with investors for the foreseeable future. We haven’t peaked yet and we’ll spend more money on AI in the future than we have done in the past. We’re seeing great return on investment on how much the technology can help automate invoice processes as well as identify suspected fraud; priorities much harder to deliver with manual systems. Investors are coming to the realization that AI is so much more than ChatGPT.”

“As they scramble to embed AI in the overall business application, the data that drives AI is the key – otherwise you run the risk of getting incorrect outputs and failed investments. Overall, it’s no surprise that specialist firms are seeing investment diverted to them, as VCs seek a greater return on investment.”