By Kate Clark
Silicon Valley venture-capital firms are desperate for bets that can survive -- and thrive in -- the AI reckoning.
Investors known for early investments in software, internet services and social-media companies like Snap and Uber have begun venturing far outside of their comfort zones into investments in physical technologies and materials tied to the artificial-intelligence boom. They are making new wagers on AI infrastructure like chips, power and manufacturing, as well as a far-ranging category called physical AI, or autonomous machines that can understand and perform complex real-world tasks.
Venture-capital investment in global robotics and physical AI grew to $26 billion in 2025 from $4.2 billion in 2019, according to PitchBook data. This year, companies in those sectors have already raised more than $23 billion as of May 20.
Advanced computing startups, which include chips, data centers and quantum computing, are also benefiting from the shift, raising over $20 billion so far this year, compared with $28 billion in all of 2025. And investment in U.S. critical-mineral startups hit a record $630 million last year, as artificial intelligence drives demand for the materials needed to build chips and data centers.
The heavy investment represents an expansion beyond the low-overhead consumer internet and software startups that defined Silicon Valley for the past two decades. For many of the VC firms, the shift means putting money into sectors that are novel to them, far from guaranteed to win and that carry new risks.
"There is a huge pivot into deep tech," said David Byrd, a general partner at BlueYard Capital. Many investors, he said, are realizing that "the thing I was doing in the past of backing the [business] software company isn't going to work in the future."
Darian Shirazi, a general partner at Gradient, an AI focused VC firm, said traditional software isn't interesting anymore because AI can easily replicate it. "You have someone like Anthropic able to create software within seconds."
SaaSpocalypse
The sector-redefining capabilities of AI software tools from Anthropic and OpenAI have whacked the shares of publicly traded software companies like Salesforce and Workday this year.
Many of the software startups raising large funding rounds today are building technology directly connected to the AI infrastructure boom, such as Decart, whose software helps companies more easily switch between different AI chips.
Some venture firms that once specialized in sectors like SaaS, fintech and cryptocurrency have begun moving beyond the cloud and into the physical world.
Paradigm, the investment fund best known for backing crypto startups, recently made its first investment in manufacturing, backing a custom sheet metal company, SendCutSend, that makes parts for robots, data centers and other products.
Matt Huang, Paradigm's co-founder, said the venture firm's focus is "to invest and build at the frontier of technology, regardless of where the interesting frontiers are."
"The physical world is much, much larger than the software world," Huang said.
Huge markets
The recent and coming initial public offerings have intensified enthusiasm for physical technology, including chip maker Cerebras's blockbuster IPO and the coming SpaceX listing, which is poised to deliver historical windfalls to longtime backers.
In its IPO prospectus, SpaceX estimated that its total addressable market, a term for potential revenue opportunities, could reach $28.5 trillion, the "largest actionable" such market "in human history," it said.
Physical AI is the "technology industry's first opportunity to address a $50 trillion industry that has largely been void of technology until now, " Nvidia Chief Executive Jensen Huang said on the All-In podcast in March.
Huang also said earlier this year that the "ChatGPT moment for physical AI is nearly here."
The potentially colossal market opportunity has enticed the technology industry's biggest names, including Jeff Bezos and Uber co-founder Travis Kalanick.
Bezos recently co-founded Project Prometheus, a startup focused on building AI systems that can understand and simulate the physical world. Kalanick's newest venture, Atoms, is focused on specialized robotics for food, mining and transportation.
It joins a number of robotics companies, including Physical Intelligence, Skild AI and Figure AI that have collectively raised billions in funding at sky-high valuations despite being only a few years old and, in some cases, having little revenue.
"The outcomes of those companies are becoming so big, that even if it takes longer to build, the price is worth it," said Lior Susan, founder of Eclipse Capital. A longtime hard-tech investor, Eclipse's companies have raised $14 billion so far in 2026, including the Cerebras IPO, a record for a five-month period.
For all the enthusiasm, some industry insiders like Susan question whether the typical venture capitalist can evaluate a factory or a robot.
"This is not some little app that you have the kids in their garage building," said Susan. "You can't fake it."
Write to Kate Clark at kate.clark@wsj.com
(END) Dow Jones Newswires
May 29, 2026 11:00 ET (15:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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