VC activity in AI for healthcare has surged, growing twice as fast as the broader tech sector over the past five years, according to Silicon Valley Bank. A record 25% of healthcare investment dollars now go to AI-driven companies, with $2.8 billion invested in 2024 alone and $7.2 billion in 2023.

SVB’s AI-Powered Healthcare Experience report reveals that most AI healthcare investments (60%) focus on administrative and clinical applications, which face fewer regulatory hurdles. Interoperability with existing systems like EPIC’s EHR gives AI companies a competitive edge.

The report identifies key trends and challenges in the AI healthcare sector, including the importance of startups articulating their value over established players and the difficulty of navigating regulatory environments for AI diagnostics. Despite these challenges, diagnostic imaging has seen significant growth, with $1.5 billion invested in AI patient diagnostics in the past year and investments doubling since Q1 2021. AI patient diagnostics account for 52% of total AI clinical investment but face hurdles in accessing quality data and computing power.

The success of AI healthcare companies will hinge on their ability to scale and integrate with existing healthcare infrastructure, partner with clinicians, and leverage patient data effectively. Industry consolidation and the high costs of developing generative AI remain significant challenges. Even with these obstacles, SVB projects a strong future for AI in healthcare, with 2024 expected to see $11.1 billion in venture capital, the highest since 2021.

Read the full report from SVB here.