The Shift from Digital to Tangible AI

For years, the artificial intelligence conversation has been dominated by large language models (LLMs) and their ability to generate text, code, and images. But a significant shift is underway, with venture capitalists increasingly directing their investments toward AI systems that interact with and operate within the physical world. This pivot signals a maturing AI landscape, moving beyond the digital realm to tackle complex, real-world challenges in robotics, manufacturing, logistics, and beyond.

In 2023, investors poured €7.63 billion into physical AI startups, a substantial increase from €6.18 billion in 2022, according to Sifted. This surge in funding highlights a growing conviction that the next wave of AI innovation lies in its tangible applications. Companies developing AI for robotics, autonomous systems, and intelligent automation are no longer niche players; they represent a significant and rapidly expanding segment of the tech economy.

"Physical AI is at the forefront of Kindred Capital's investment thesis, as it's the next logical step after the LLM boom," says Leila Rastegnar Zegna, founding general partner at Kindred Capital. This sentiment is echoed across the venture capital community, which recognizes the immense potential of AI to optimize, automate, and revolutionize industries that form the bedrock of our physical infrastructure.

Founding partners from prominent VC firms discussing physical AI investment trends

Robotics and Automation Take Center Stage

A substantial portion of the funding is flowing into robotics companies that integrate advanced AI capabilities. These aren't just industrial robots performing repetitive tasks; they are increasingly sophisticated machines capable of perception, decision-making, and complex manipulation in dynamic environments.

  • Covariant (US: Robotics, AI) is developing AI for robotic automation, focusing on applications in logistics and manufacturing. Their platform aims to enable robots to handle a wider variety of tasks with greater dexterity and adaptability.
  • Hegelund (US: Robotics, AI) is building AI-powered robots designed for complex industrial tasks. Their approach emphasizes adaptability and the ability to learn and perform new operations with minimal reprogramming.
  • BionicHacks (UK: Robotics, AI) is focused on creating AI-driven robotic solutions for manufacturing and warehousing. They aim to improve efficiency and flexibility in these critical sectors.
  • Owkin (France: AI, Health) is developing AI for drug discovery and development, a critical area where AI can accelerate physical processes and outcomes in healthcare.
  • Ynvisible (US: AI, Electronics) is creating printed electronics and smart labels, integrating AI for enhanced functionality in various physical products and systems.
  • Quantum (US: AI, Robotics) is developing AI for advanced robotics, aiming to push the boundaries of what machines can do in complex physical environments.
  • Exscientia (UK: AI, Health) utilizes AI to accelerate drug discovery, demonstrating how AI can directly impact physical R&D processes in the life sciences.

AI in Logistics and Supply Chain

The optimization of supply chains and logistics operations is another major area of investment. AI is being deployed to improve efficiency, reduce costs, and enhance resilience in how goods are moved and managed.

  • Fetch Robotics (US: Robotics, Logistics) (acquired by Zebra Technologies) was a key player in warehouse automation, showcasing the potential of AI-driven robots to transform logistics.
  • Cellares (US: AI, Health) is building integrated drug manufacturing platforms, leveraging AI to optimize complex physical production processes in the pharmaceutical industry.
  • Synerise (Poland: AI, Marketing) while primarily focused on marketing, its AI capabilities can be applied to optimize supply chain visibility and customer interactions within the logistics flow.
  • Couchbase (US: Databases, AI) provides a database solution that can power the data infrastructure for large-scale AI applications in logistics, ensuring efficient data handling for real-time operations.

Specialized AI Applications

Beyond broad robotics and logistics, VCs are also backing startups with highly specialized AI applications that address unique physical world challenges.

  • Swiftly (US: AI, Retail) uses AI to optimize retail operations, including inventory management and customer experience, directly impacting the physical retail environment.
  • Pollen (UK: AI, Health) is developing AI for personalized health and wellness, with potential applications in diagnostics and treatment that have physical implications.
  • Abnormal Security (US: Security, AI) focuses on AI for cybersecurity, protecting physical infrastructure and data from digital threats.
  • Motional (US: Robotics, Automotive) is a joint venture developing autonomous driving technology, a prime example of AI directly controlling physical vehicles.
  • Reiwa (Japan: AI, Robotics) is working on AI and robotics solutions for various physical applications, aiming to enhance automation and efficiency.
  • Cerebras Systems (US: AI, Hardware) develops specialized hardware for AI, including systems that can accelerate the training of AI models used in physical applications.

The Future of Physical AI

The trend toward physical AI is more than just a diversification of investment; it represents a fundamental expansion of AI's impact. As these startups mature and their technologies become more integrated into industries, we can expect to see significant transformations in how we manufacture goods, manage supply chains, provide healthcare, and even navigate our cities.

The question is no longer whether AI can impact the physical world, but how quickly and how deeply it will reshape it. The billions being invested today are a clear signal that the era of tangible AI has arrived, promising a future where intelligent systems are not just tools for information, but active participants in the physical reality around us.