2025 to Test AI Ideas for Viability: Sequoia's 3 Predictions If 2024 was AI's primordial soup year, 2025 will be about the foundations solidifying, according to David Cahn, partner at Sequoia Capital

Venture capital giant Sequoia Capital is among many to have bet big on artificial intelligence in 2024. An investor in heavyweights such as OpenAI, xAI, Safe Superintelligence, and others, the VC has invested a staggering total of approximately USD 150 million specifically in foundational AI models.

If 2024 was AI's primordial soup year, 2025 will be about the foundations solidifying, according to David Cahn, partner at Sequoia Capital.

Here are three predictions for the year ahead:

1. Model differentiation will be a make-or-break situation

Five companies are leading the AI race: Microsoft/OpenAI, Amazon/Anthropic, Google, Meta and xAI. As they, among thousands, prepare for the next round of LLM scaling distinct strategies will lead to varying outcomes, with some emerging victorious while others may fall behind.

Google, with its vertical integration dream with native first-class chips; the unparalleled brand image of OpenAI in the space; Anthropic boasting of research talent; Musk's xAI betting on data centre scaling; and Meta with its Open Source models will battle out in 2025 to lead the next phase of LLMs.

"In the big model race, rigorous execution lies ahead. The competitive landscape and posture of each of the players has solidified. In 2025, we will see which of these strategies prove prescient—and which prove ill-fated," he said.

2. AI Search will proliferate

In 2024, various AI killer use cases were tested, from AI girlfriends to AI rental assistants to voice agents and AI accountants. Sequoia and Cahn are betting on AI as a search engine in 2025.

For instance, Perplexity, a free AI-powered answer engine, clocked in 10 million monthly active users (MAU). While OpenAI launched ChatGPT Search in October.

"AI search is a powerful re-invention of a technology that rapidly became the internet's killer app. Internet search is a navigational technology based on indexing the web. AI search is an informational technology based on LLMs that can read and semantically understand knowledge," noted Cahn. "For white collar workers, this will be a huge boon."

He further hints on a scenario where professions will have its own specialized AI search engine—Perplexity for analysts and investors, Harvey for lawyers, and OpenEvidence for doctors. Meanwhile, Midjourney can be considered as search over the "pixelverse," Github Copilot over the "codeverse," and Glean over the "documentverse."

3. CapEx will begin to stabilize

Entering 2024, the Big Tech companies seemed nervous about AI being a threat to their oligopoly cloud business. Cut to now, these companies have their arms locked firmly around the AI revolution, having not only control of the vast majority of the data centers that power AI but owning significant equity stakes in the big model companies.

Sequoia and Cahn feel 2025 will be "a stabilization year for AI capital expenditure (CapEx)," with companies now focused on completing new AI projects "on-time and on-budget."

Q3 figures of Microsoft and Google suggest CapEx trendline already starting to stabilize, while Amazon and Meta may reach steady state in early 2025.