Investor enthusiasm about AI in India continues to grow. With the growing demand for AI technology worldwide, the Indian startup ecosystem has also started receiving huge investments. However, not all companies are benefiting equally from this investment. According to an ET report, Tracxn data shows that Indian AI startups raised a total of $1.6 billion in funding between January and September 2026. This amount was 67.7 million dollars in the same period a year ago. That is, the amount of investment has increased sharply, but the number of companies receiving investment and funding rounds has decreased. It is clear from this that investors are now investing huge amounts in select companies.
$1.6 billion in funding, but the number of companies declined
Although funding of AI startups has increased, the scope of investment has remained limited. According to the report: AI startups raised $1.6 billion in January-September 2026. In the same period of 2025, this amount was 677 million dollars. The number of funding rounds decreased from 142 to 81. The number of companies that received investment decreased from 126 to 70. Funding rounds fell by about 43% and the number of companies receiving investment fell by 44%. This means that investment in the AI sector in India is increasing, but rather than reaching more companies, the money is being concentrated in a few large startups.
The four largest deals raised 72% of the total funding
The four largest funding deals in the AI sector accounted for around 72% of total investment this year. Among these, NASA AI infrastructure company has raised $600 million in funding. Servam generative AI platform completes $255 million funding round. Yotta AI infrastructure company raises $150 million. Emergent AI-based app-making platform secures $130 million in funding. The massive investment by these four companies has taken the total funding of the Indian AI startup sector to a new high. Neha Singh, co-founder of Tracxn, said in an ET report that the volume of investment in AI has increased, but the number of deals has decreased rather than increased. A large part of this increase has come from investments related to AI infrastructure.
Investors have the highest confidence in AI infrastructure
Investors are currently showing the most interest in AI infrastructure. This includes data centers, computing capacity, the AI cloud and the technology needed to build large AI models. According to Tracxn data, AI infrastructure companies have raised $1.2 billion in funding in the first nine months of 2026. This is about 75% of India’s total AI investment. The sector received only $145 million in investment during the same period a year ago. That means the investment in AI infrastructure has increased almost 8.3 times.
A major reason for increasing investment in this area is the need for large-scale computing capacity to train and run AI models. Large companies require facilities such as high-performance computing, servers, networking, power and cooling for their AI systems. Therefore, investors are giving priority to those companies that can prepare this entire system.
The difficulty increases for startups building AI applications
While AI infrastructure companies are receiving huge investments, the situation for startups to build AI applications is challenging. These companies use AI to create software and digital products for healthcare, manufacturing, finance, energy, education and other sectors. According to Tracxn, Indian AI application startups raised $390 million in the first nine months of 2026. In the same period last year, this amount was 532 million dollars. Thus the funding of app startups has decreased by around 27%.
A big difference has been observed in this sector as well. Funding of vertical AI, i.e. startups building AI for a specific industry, fell 87% to $41 million. A consumer AI application just received $1 million in funding. Enterprise AI applications received $348 million in investment, up 70% from last year. However, even in enterprise AI, two startups like Emergent and DESCRIPTOR Freehand have secured around 79% of the total funding.
Investors no longer want the name of AI, but the earning model
The biggest challenge facing AI startups is no longer just raising funds, but building real customers and revenue models for their products. Investors are now asking startups some direct questions. Like what problem does your AI product solve? Who will pay for this? Why will the customer use it regularly? How useful will your product be even when a new AI model comes out? Does the company have its own data and specialized technical capabilities?
Venkat Vallabhaneni, managing partner of Inflexor Ventures, told an ET report that Indian companies are showing interest in launching pilot projects of AI products, but taking a lot of time to place actual purchase orders. In such a situation, startups keep testing with companies for months, but are unable to get a business deal. This is why investors are now giving more importance to startups that have a clear business model and paying customers.
Where is the biggest opportunity for India in AI?
Experts believe that instead of competing with the US and China in the race to build large AI models, India should focus only on areas where the country’s industrial expertise is strong. The use of AI in areas such as manufacturing, industrial automation, robotics, energy, pharma and supply chain can create huge business opportunities.
According to Ankit Kedia, Founder and Lead Investor, Capital-A, the real business utility of AI will emerge when it increases the productivity of companies, reduces operational costs and helps in better utilization of resources. It means that just creating AI based products is not enough. Companies also have to prove that their product is providing real business benefits.
