In the tumultuous landscape of 2023, the prowess of generative artificial intelligence (AI) catapulted U.S. tech giants, marking an astounding addition of $2.4 trillion to their collective market capitalizations. This revelation stems from the insightful findings presented in the annual Euroscape report by the eminent venture capital firm, Accel.
Within the echelons of the technology realm, stalwarts such as Apple, Microsoft, Alphabet, Amazon, and Nvidia experienced a commendable surge in their share prices, averaging an impressive 36% year over year. Nvidia, in particular, ascended to the coveted trillion-dollar echelon for the first time, now boasting a valuation exceeding $1 trillion. Notably, Nvidia's ascendancy is attributed to the formidable capabilities of its high-performance chips, the driving force behind cutting-edge generative AI models that breathe life into novel content by sifting through colossal troves of training data.
Accelerated Recovery: Outpacing the Dotcom Era
Accel's Euroscape report unveils a remarkable narrative of recovery, with the tech-heavy Nasdaq Composite reclaiming 80% of its all-time high within a mere 18 months. This swift resurgence contrasts starkly with the protracted rebound following the dotcom bust in the 1990s, where the Nasdaq took a staggering 14 years to reach a comparable milestone.
Moreover, public multiples for Euroscape companies resurged to a 10-year pre-Covid average of 6.1-times next-twelve-months revenue. Concurrently, funding for cloud and Software as a Service (SaaS) entities in Europe, Israel, and the U.S. reverted to pre-Covid levels, portraying a landscape markedly distinct from the challenges faced in the year 2000.
AI's Dominance in 2023: A Paradigm Shift
Accel identifies artificial intelligence (AI) as the linchpin propelling the performance of cloud and SaaS in the year 2023. The discourse around generative AI tools, exemplified by OpenAI's ChatGPT, Google's Bard, and Anthropic's Claude, reverberates across the global narrative.
Philippe Botteri, Partner at Accel, emphasizes the transformative nature of generative AI in software, stating, "Generative AI is something that is really redefining software." He underscores its pervasive integration across the spectrum, be it in nascent startups or established enterprises.
The United States spearheaded generative AI funding deals, witnessing behemoths like OpenAI and Anthropic securing billions. OpenAI, in particular, secured a monumental $10 billion, with Inflection securing the second-largest sum at $1.3 billion. On the European front, notable generative AI rounds emanated from France, with Hugging Face ($235 million), Poolside ($126 million), and Mistral AI ($113 million) leading the charge.
Unicorns Resurge with an AI Flourish
A notable trend emerged as the number of unicorn companies reverted to pre-Covid levels, with AI assuming a more significant role in birthing new billion-dollar entities. In Europe and Israel, 40% of the new unicorns hailed from the generative AI domain, while the United States saw an even more substantial figure at 80%.
Pivoting Towards Profitability Amidst Challenges
Navigating the tumultuous terrain of 2023, the tech sector faced headwinds, witnessing a sharp decline in fundraising and valuations. Investors, grappling with escalating interest rates, steered away from high-growth bets. This paradigm shift led tech companies to recalibrate their priorities, shifting from a singular focus on growth to a more balanced pursuit of short-term profitability.
Consequently, the growth rates of Euroscape companies plummeted from an average of 68% in the first quarter of 2021 to a more tempered 23% in the second quarter of 2023. However, amidst this recalibration, there emerged a positive trajectory as free cash flow, on average, transformed from -9% to a positive +5% during the same period.
Tech Titans Face Regulatory Headwinds
Notwithstanding the overall surge, tech giants encountered regulatory headwinds in 2023. Regulatory scrutiny intensified, resulting in a considerable drop in deal-making activities involving tech behemoths. Accel notes a significant decline, with a mere 10 transactions involving Big Tech companies—a substantial reduction from the 27 and 26 Big Tech deals in 2021 and 2022, respectively.
A notable highlight in this regulatory landscape was the scrutiny faced by Microsoft's ambitious bid to acquire Activision Blizzard, the renowned video game studio behind iconic titles such as "Call of Duty," "Candy Crush," and "Crash Bandicoot." The prolonged tussle culminated in a favorable outcome after British regulators provided their approval, concluding a protracted saga between the two entities.