Post-Event Recap: Gen AI Market Update

Overview

The Gen AI Market Update took place on Tuesday, March 25, 2025 in Toronto. Daniel Lee, Managing Director, Technology and Innovation Investment Banking, presented a technology market update on the evolving Generative AI market landscape at this event co-hosted with AWS Startups and Graphite Ventures. 

The Bottom Line

Some of the key takeaways from the event included, but are not limited to the following:

Infrastructure Layer Dynamics

• Over $650 billion in CAPEX and VC funding in 2023/204 has fueled rapid breakthroughs in GenAI. Big Tech companies’ CAPEX and VC investments are at unprecedented levels, with no end in sight.
• The infrastructure layer is dominated by juggernauts due to major CAPEX and technical expertise requirements. Game theory suggests that overbuilding in this area is rational.
• The model layer is coalescing around a handful of major contenders, with top foundation models built by incumbents or in partnership with Big Tech. 

Application Layer and Enterprise Adoption

• The application layer is critical to validating the massive infrastructure investments to date, with productivity being the “killer app.” Agentic AI is expected to increase productivity significantly.
• Enterprises are starting to embrace GenAI applications, with exponential growth in spending signaling growing commitment. 
• Although AI-native application startups are seeing robust valuations, the majority of GenAI spending is currently supported by experimental budgets, leading to churn and retention challenges.

Capital Market Outlook  

• Mega-cap AI leaders led the first wave of stock market returns but investors are now expanding their focus beyond mega-caps.
• Investor excitement around AI could revitalize the IPO market, with a growing backlog of VC-backed AI unicorns. The strong performance of recent tech IPOs highlights investors’ appetite for companies poised to benefit from AI.
• GenAI M&A activity has been constrained by regulatory scrutiny and valuation expectation gaps. However, a potential consolidation wave could emerge as regulatory considerations soften and AI startups struggling to find product market fit face growing pressure to find exits.