AI Market 2022 Year-End Review

Public AI valuations fall, private AI valuations rise

According to the State of AI Report, a data set produced by AI investors Nathan Benaich and Ian Hogarth, the valuations of public AI companies receded in 2022, reaching levels last seen in 2020.

Their combined enterprise value (EV) dropped by 29 percent from 2021 to 2022, sinking from US$9.6 trillion to US$6.8 trillion.

Despite that drop in EV on the public side of the industry, the private segment has seen an increase in valuations. In fact, in 2022 the EV of “privately owned startups and scaleups using AI” reached US$2.2 trillion thanks to a 16 percent year-on-year uptick.

The problem of lower valuations isn’t exclusive to the AI market though. As many investors know, immense macroeconomic pressures have greatly impacted the stability and health of various industries across the world. This downturn has in large part been brought about by rising global inflation rates and ongoing pressures caused by Russia’s invasion of Ukraine.

AI leader NVIDIA faces ups and downs

Benaich and Hogarth told VentureBeat that despite several attempts to disrupt NVIDIA’s (NASDAQ:NVDA) position as the top company in the AI space, no firm has effectively challenged the corporation.

“Nvidia has been investing heavily in AI research and producing some of the best works in imaging over the years,” the researchers state in their report. According to their data, NVIDIA’s entire revenue for its Q4 2021 period was greater than the combined valuation of the top three AI semiconductor startups.

Even so, NVIDIA has faced some bumps in the road, including the February decision to abandon its acquisition of Arm, a semiconductor and software design company based in England.

Jensen Huang, founder and CEO of NVIDIA, said Arm has a “bright future” in the industry and will continue to have a partnership with NVIDIA despite the deal collapsing. “Arm is at the center of the important dynamics in computing. Though we won’t be one company, we will partner closely with Arm,” he said.

Interestingly, even though the purchase fell through, the State of AI Report shows that NVIDIA’s enterprise value grew by US$295 billion during the period between when the deal was announced and when it was officially scrapped.

“Announced at $40B, NVIDIA’s attempted acquisition of Arm fell through due to significant geopolitical and anti competition pushback,” as per Benaich and Hogarth.

Based on nearly 30 analyst reviews collected on TipRanks, shares of NVIDIA hold a “strong buy” recommendation, while the company has projected upside of 30.47 percent.

AI finds a new partner industry in healthcare

The AI industry has found unique ways to supplement and add on to other markets. One of those is the drug development space, which has joined forces with AI tools to advance its efforts.

As of August 2022, there were 18 drug assets in clinical trials from “AI-first drug discovery companies,” according to the State of AI Report. To put that into context, there were none as recently as 2020.

It’s clear the marriage between AI and drug development could prove beneficial in the long run, but at the moment there are some inefficiencies to clean up in the partnership.

“While AI promises better drugs faster, we need to solve for the physical bottlenecks of clinical trials today,” the report explains.

Investor takeaway

The stock market took significant hits across the board in 2022, and while the AI sector wasn’t safe, it’s clear some experts are encouraged by where the market is heading. With major companies making strides and the ability to make major improvements and additions to other markets, AI’s path forward looks promising.