Venture Capital Turns to Hardware Bets as AI Threatens Software Companies — WSJ

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By Kate ClarkSilicon 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."SaaSpocalypseThe 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 softwa...

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