Investors Pivot from Big AI Models to Application-Layer

A shift is underway in the AI investment landscape, with investors increasingly looking beyond the large foundation models that dominated recent headlines. According to venture capitalist Josh Wolfe, this shift is driven by concerns over the massive capital expenditures required for those models and the emergence of viable alternatives.

In a recent Bloomberg interview, Wolfe highlighted a move towards open-source models, application-layer AI, and innovations in AI for the physical world, including biology and robotics.

"I think that the people that have been investing in the large foundation models are a little bit shaken," Wolfe stated. He explained that the prospect of investing "tens of billions of dollars into something, even if it was partially replicated by China and then having a five or six million dollar overlay on top of that," is causing investors to rethink their approach.

This recalibration has opened up opportunities for companies focused on open source models and AI for the "three-dimensional physical world, biology, and robotics," areas where Wolfe has been actively investing for the past two to three years.

Wolfe's comments signal a significant departure from the early days of the generative AI boom, where the focus was primarily on developing massive language models. He emphasized that this shift is not just about avoiding competition with tech giants but also recognizing the potential of AI to solve real-world problems. He sees great promise in "physical intelligence" and "evolutionary scaling," suggesting a move towards AI that can interact with and understand the physical world rather than just processing text.

This shift is not limited to investment strategies; Wolfe also sees a transformation in the technical underpinnings of AI. He predicts a future where on-device inference becomes more prevalent, making memory and chip manufacturers key players. Moreover, Wolfe envisions a decline in the importance of traditional APIs.

"We’re going to see the death of APIs," he said. "AI going to bring in the death of APIs. And what I mean by that is all the backwards back channel software negotiation that happens between all of our applications today, are going to be usurped by AI basically just acting like a user and navigating on your phone.”