AI startups must fend off stiff competition from established firms
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Faced with high expenses, software development has fast become the cornerstone for generative AI startups, two years after OpenAI’s ChatGPT went viral, spurring massive developments in the sector. Known as “code generation” or “code-gen,” these AI tools are attracting enormous valuations as corporate executives explore ways to streamline or even replace costly human programmers. AI startups must fend off stiff competition from established firms San Francisco’s Cursor, which can autocomplete single lines and draft entire code segments autonomously, exemplifies the frenzy. In May, it secured a $900 million investment round that valued the company at $10 billion, with backing from Thrive Capital, Andreessen Horowitz and Accel. Meanwhile, Mountain View startup Windsurf, best known for its Codeium tool that turns natural-language commands into working code, has reportedly held acquisition talks with OpenAI at a $3 billion price tag. These deals underscore the sense among founders and investors that the window to capture developer mindshare is closing fast, establish your AI assistant now, or risk being sidelined. Despite these sky-high private valuations, code-gen outfits face ever-rising costs for every API call, since most rely on foundation models from OpenAI, Anthropic or DeepSeek. None are profitable, and all must fend off competition from the likes of Google, Microsoft, and OpenAI itself. In May alone, each of these giants unveiled, or confirmed they were developing, new AI coding solutions. Microsoft’s GitHub Copilot, the early leader since its 2021 launch, reportedly generated over $500 million in revenue last year and now serves more than 15 million users. Google says over 30% of its internal code is AI-generated, while Amazon claims to have saved the equivalent of 4,500 developer-years through AI tools. Satya Nadella added that Microsoft itself uses AI to write about 20–30% of its code, even as the company recently laid off 6,000 employees,…
