The fever pitch around artificial intelligence that defined much of 2023 and 2024 appears to be cooling, with new data suggesting a broad investor recalibration is underway. A report released by Israeli fintech firm altshare points to early signs that the AI market is entering a phase of correction, characterized by declining valuations, reduced investment activity, and a more skeptical investor stance.
Altshare, which provides equity management and valuation services to over 3,000 companies in Israel and abroad, analyzed fundraising and valuation trends from Q1 2022 through Q1 2025, with projections into Q3 2025. The findings reflect a market no longer willing to back AI startups on promise alone.
According to the report, the median valuation for Seed-stage AI startups in Q1 2025 stood at $14 million, with median investment levels at $5.1 million. Those figures represent a notable step down from 2024’s peak periods. Altshare forecasts that these figures will remain relatively stable in the near term, indicating a broader market reassessment of what AI companies are truly worth.
Perhaps more telling is the disconnect between startup valuations and the amount of money actually raised—especially at Series A. While valuations at this stage edged slightly upward from $40.3 million in Q4 2024 to $41.8 million in Q1 2025, investment levels fell sharply, from $18.9 million to $15.8 million. That decoupling suggests that many companies are holding onto inflated valuations while investors grow increasingly conservative.
Altshare’s algorithmic forecasts predict a continued misalignment between valuations and capital flow over the next two quarters, with a modest uptick in investment activity, but a corresponding decline in valuations. The AI hype cycle, it seems, is settling into something more sober—and possibly more sustainable.
Beyond AI, the broader Seed-stage market in Israel reflects a similar dynamic. The median valuation in Q1 2025 fell to $11.2 million, with investment levels at $5.6 million per company—both slightly down from the previous quarter. But this isn’t driven by collapse; rather, it’s a reflection of widespread investor caution amid persistent economic and geopolitical uncertainty.
The devaluation of the shekel, a sluggish global venture capital environment, and ongoing instability in Israel have combined to create what altshare describes as a “wait and see” mood in early-stage tech. Investors are staying active, but they’re also demanding more proof, more traction, and more discipline.
If there’s a silver lining, it’s that the excesses of the boom may be giving way to something more grounded. In place of hype, a more discerning form of capital appears to be emerging—slower, more focused, and possibly, more sustainable.
“Currently, we are witnessing the bursting of the AI bubble, as the market begins to digest the hype surrounding technologies and translate it into more realistic valuations,” said Ronen Solomon, Founder and CEO of altshare. “The median investments in the Seed market indicate stability, but this is stability arising from a cautious and calculated approach by investors amid economic uncertainty in Israel. The trends show that the market is not poised to surge forward but rather to stabilize around a new average, with a modest increase in investment levels and a slight decrease in valuations. This is a critical phase where companies must present ‘proof on the ground’ to maintain their position.
“Despite the uncertainty, due to geopolitical and macroeconomic issues, we remain optimistic about the continued growth of the market. As the market recalibrates, we believe that companies demonstrating real value and innovation will thrive, paving the way for sustainable growth and development in the AI sector.”