In an oversaturated market for AI companies, these startups have the best shot at surviving

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Hi! Kamala Harris’ VP pick is in, tapping Minnesota Gov. Tim Walz as her running mate. Here’s how the business world is reacting.

In today’s big story, we’re looking at our annual list of the most promising startups.

What’s on deck:

• Markets: The trade that helped upend markets can still do a lot more damage.
• Tech: YouTube’s biggest star is starting to collapse.
• Business: A weaker job market could give employers cover to pull back on work perks we’ve come to enjoy.

But first, this one has some promise.

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The big story

Up-and-comers

Remember these names.

Business Insider spoke to dozens of venture capitalists to compile its annual list of the most promising startups.

We identified 85 young companies that are on the rise based on recommendations from 50 top VCs. Investors highlighted their portfolio companies and startups they had no financial ties to.

Surprise! AI-focused startups made up a majority of the list. Leena Rao, who oversaw the list and leads BI’s VCs and startups team, estimated about 80% of the startups included are focused on AI.

But there is some nuance amid the AI frenzy. Instead of large-language models or all-purpose AI tools, these startups focus on specific sectors. From coworking spaces to weather prediction to military defense, they want to leverage AI in a niche.

Outside of AI, some familiar faces remain. Healthcare and fintech are still a draw even as AI has overtaken the startup community.

As differentiated as AI startups try to be, the market has undeniably become oversaturated.

That’s par for the course in startup world. When investors are willing to throw a ton of cash at an idea, people try to replicate it.

Hype builds until there are too many startups and not enough market share. Then comes consolidation. A new trend emerges. Rinse and repeat.

But unlike previous trends — social-media apps of the late aughts or the 2010s’ personal-finance tools — AI comes with a massive price tag. It’s not cheap to run AI models. It’s also not immediately clear how they can generate revenue.

Historically, the tech industry doesn’t mind burning cash for the sake of growth and innovation, but times are different.

We’re no longer in the zero interest rate phenomenon, and the biggest companies in the world are struggling to pitch investors on their AI investments being worth it.

Now, cracks are starting to show in the AI ecosystem despite being less than two years into the revolution.

That’s not to say AI is overblown. The tech will have a massive impact on the world. But the industry will have to navigate some rough waters in the meantime.

It’s tough to say who will make it out alive, but these startups have a better shot than most.

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3 things in markets

1. Woah, we’re halfway there! Unwinding the widely popular carry trade that relied on the Japanese yen will still take some time, according to JPMorgan. Arindam Sandilya, the bank’s cohead of global FX strategy, said speculative investors unwinding the trade are only “50% to 60% complete.”
2. The AI hype bubble might be about to burst. The panicked sell-off in stocks might mark the beginning of the end of the AI craze among investors, market strategist Paul Dietrick said. He pointed to similarities between the recent sell-off and the dot-com crash.
3. Some Wall Street strategists smell blood in the water. As some investors panic, strategists at firms like UBS and Oppenheimer see a lot of upside for US stocks. “Such sell-offs can offer an opportunity to ‘catch babies tossed out with the bath water,'” wrote John Stoltzfus, the chief investment strategist at Oppenheimer.

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3 things in tech

1. Prosecutors used an AI tool to send a man to prison for life. Now the person who created it is under investigation. Adam Mosher claimed his AI crime tool Cybercheck helped cops and prosecutors with thousands of cases. But serious questions have been raised about the program and its reliability, and Mosher is now being investigated for false testimony.
2. YouTube’s biggest star is embroiled in some beastly scandals. Jimmy Donaldson, the creator known as MrBeast, is at the center of some major workplace controversies. Participants on his reality show claim neglectful on-set conditions, and his former employee is accused of inappropriately messaging a minor.
3. Big Tech reform is coming, but Washington won’t be the one doing it. Congress can’t or won’t act, so people who want Big Tech companies to change their ways are trying to do it through the courts. But it’s unclear whether courtroom challenges will have any real, lasting impact.

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3 things in business

1. Panic! At the job market. A weaker-than-expected jobs report triggered fears of an imminent recession, a nasty wake-up call that danger is a lot closer than we thought. That means employees may have to brace themselves for brutal layoffs and kiss goodbye that four-day workweek dream.
2. Uber is on the up. After years of losses, the company reported better-than-expected second-quarter earnings on Tuesday. Its core business, ride sharing, is booming and its delivery bets are paying off. Plus, Uber’s ad business hit a $1 billion annual run rate — and there’s still room to grow.
3. Elon Musk’s war with advertisers just hit a turning point. X is suing a group of advertisers, accusing them of violating antitrust law through an advertising boycott. The platform has lost billions in ad revenue since their departure.

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In other news

• Google, Netflix, and OpenAI execs are hosting a fundraiser for Kamala Harris.
• Even Nvidia can’t escape the government’s crackdown on Big Tech.
• A future-of-work expert explains why some companies are willing to risk losing talent to get workers back to the office.
• Assigned desks are now a work perk — and Gen Zers are making themselves right at home.
• The New York Times and other top news sites block OpenAI’s new SearchGPT web crawling bot.

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What’s happening today

• Fortune 500 ranking of world’s largest corporations released.
• First batch of Chinese G60 Starlink satellites reportedly launches today. The endeavor is in direct competition with the US’s Elon Musk-backed Starlink.

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The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, senior editor, in London. Annie Smith, associate producer, in London. Amanda Yen, fellow, in New York.