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The Jevons Paradox: The AI Infra Imperative

The AI landscape is in the midst of a profound transformation as rapid advancements in foundational models fuel fierce competition. Innovations like DeepSeek’s breakthrough and OpenAI’s swift deployment of o3 are igniting a high-stakes battle at the heart of AI technology. This race has led many to wonder whether we are witnessing the end of the AI hype and if the demand for GPUs and supporting infrastructure might eventually decline.

A key concept that sheds light on these questions is the Jevons Paradox—a principle recently referenced by Microsoft CEO Satya Nadella in the context of AI. Traditionally, the paradox posits that as technological efficiency increases, overall consumption can also grow. As foundational models become more powerful, efficient, and accessible, we can expect their use to surge across multiple sectors rather than wane.

This shift sets the stage for the rise of Applied AI, the layer built upon foundational models that directly tackles industry-specific challenges. In the life sciences, for instance, genAI is revolutionizing drug discovery. Machine learning algorithms now analyze vast datasets to improve target identification and optimize compound selection, speeding up a process that once took years. In manufacturing and the development of autonomous vehicles, physical AI—especially computer vision—is transforming production lines and powering self-driving cars, promising safer and more efficient operations. Meanwhile, in business process automation, agentic AI is streamlining operations and enhancing productivity by automating complex decision-making processes.

Despite the spotlight on these applications, the foundational infrastructure that supports AI cannot be overlooked. The backend systems—ranging from APIs to data centers and energy supplies—form a critical network that enables the sophisticated stacks required for modern AI workloads. While some may argue that efficiency gains in foundational models could eventually reduce the need for vast computational resources, the principle of planning for headroom suggests otherwise. Architects and technologists are likely to continue expanding capacity to accommodate both current demands and future innovations. When viewed through the lens of the Jevons Paradox, the efficiency improvements in AI models are expected to drive even greater demand for computational power and infrastructure.

One of the most pressing issues in this evolving landscape is the growing demand for energy. Projections indicate that energy requirements for AI workloads could increase fivefold in the coming years, far exceeding the currently identified supply. This imbalance is spurring a race among organizations to secure additional data center space and reliable power sources, underscoring energy as one of the critical challenges in the AI ecosystem.

Overall, the rapid progress in foundational AI models is catalyzing a multifaceted transformation across the entire AI stack. Although efficiency gains at the core might hint at a future with lower infrastructure demands, the Jevons Paradox implies that these very improvements will likely trigger broader adoption and expansion of Applied AI solutions. Rather than signaling the end of the AI hype, these developments mark the beginning of a new phase of innovation—one where breakthroughs in algorithmic efficiency go hand in hand with substantial investments in physical and digital infrastructure.

Flexential’s 2024 State of AI Infrastructure Report highlights that organizations are facing significant challenges in adapting their existing systems to meet the demands of modern AI workloads. It emphasizes the urgent need for increased investments in infrastructure, the closing of critical skills gaps, and a renewed focus on data privacy and security. These priorities are essential not only for sustaining the current wave of innovation but also for paving the way for the next generation of AI applications.

With foundational models becoming more efficient and Applied AI driving real-world outcomes, the demand for robust, scalable infrastructure—from compute to data centers and energy—is poised to grow. The evolving interplay between technological efficiency and increased usage will continue to shape the future of AI, heralding a dynamic era of innovation that spans from sophisticated algorithms to the very power sources fueling our data centers.

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💵Bay Area Startups Secured Over $9B

January was a big one for startups in the Bay Area, with fundings that totaled $9B. That's 3X the total in January of 2024 – and even if Anthropic's $2B and Databricks' $1.4B rounds are removed, the $6B remaining is still 2X 2024. There were sixteen megadeals ($100M+ in a single funding) that went to a wide range of sectors – biotech, healthcare, mining, aviation, fintech and security. Unusually, there were no Series A rounds for AI companies. The two AI companies funded in January – Hippocratic AI and Stackblitz – were later stage, Series B rounds.

It's far too early to say if January's fundraising bodes well for 2025, but it starts off the year at a good pace.

The first week of February was slow, with just $726M in fundings and most of those in early stage, seed and Series A. The largest deal of the week was Deel's $300M secondary sale. This was similar to Databricks $10B secondary sale in December, another company taking advantage of new investor interest to give their early investors and employees the opportunity for liquidity – without having to do an IPO.

Follow us on LinkedIn to stay on top of what's happening in 2025 in startup fundings, M&A and IPOs, VC fundraising plus executive & investor activity.

Early Stage:

• Echo Neurotechnologies closed a $50M Series A, improving the lives of patients with severe disabilities using brain-machine interfaces that allow patients to control external devices with their thoughts via implanted electrodes.

• TrueFoundry closed a $19M Series A, an enterprise platform as a service that empowers enterprise AI/ML teams to build, deploy, and manage large language model applications at scale.

• TYBA Energy closed a $13.9M Series A, helps energy companies maximize the profitability of energy projects with a unified simulation and operations platform.

• &AI closed a $6.5M Seed, providing Andy, the first AI agent for patent attorneys.

• Tandem Space closed a $6.1M Seed, a marketplace for office space. Find great space on short lease terms, and move in within 14 days.

Growth Stage:

• Deel closed a $300M Series Unknown, a leading global compliance and payroll solution with unmatched payroll, HR, compliance, perks, benefits, and other capabilities needed to hire and manage a global team.

• Semgrep closed a $100M Series D, an application security platform for scanning code for security, reliability, & other issues.

• Fay closed a $50M Series B, expanding access to affordable, inclusive nutrition counseling by connecting people with Registered Dietitians (RDs) – all covered by insurance.

• Archive Resale closed a $30M Series B, a resale technology company that builds highly differentiated resale software for brands.

• Monograph closed a $20M Series B, a project & performance management platform that provides A&E firms with clarity into their budgets, projects, time, and clients so their entire team can make smarter decisions.

INFRA INSIDERS: Breaking It Down. Keeping You Ahead.

INFRA INSIDER is not just another industry newsletter—it’s your trusted source for deep tech and expert insights into the evolving AI infrastructure landscape. By covering cutting-edge topics such as Stargate, capacity surges, and power breakthroughs, Infra Insider empowers industry leaders to understand the dynamic forces shaping the next phase of AI’s growth.

By breaking down complex developments and examining their real-world impact, Infra Insider equips businesses, investors, and technologists with the critical information they need to stay ahead of the curve.

✅ Expert Analysis – We unpack major shifts in AI infrastructure with precision.
✅ Industry Impact – We explore how compute constraints and innovative energy solutions are redefining scalability.
✅ Exclusive Coverage – We feature key players and emerging technologies that are driving transformative innovation.

As AI demand continues to surge, efficiently scaling infrastructure has become one of the industry’s most pressing challenges. Infra Insider connects its audience to essential industry trends and forward-thinking solutions that are defining the future of AI development.

With unmatched coverage of AI infrastructure trends, Infra Insider—proudly brought to you in partnership with Ignite and Fílos —delivers insights that matter in today’s fast-paced technological landscape.

📩 Subscribe Today: https://infra-insider.beehiiv.com/subscribe

Around The Valley

// INFRA@GTC, MAR18 San Jose

Join us during GTC week as we host an exclusive networking reception on Tuesday evening. Sponsored by Cirrascale, this reception party is set to be the infra industry's premier meet-up, bringing together the who's who of the field: from data center operators up to data clouds connect and network with other deep-tech professionals powering the future of AI infrastructure:

// AI INFRA, MAY02 Mountain View

Big news this week: We're hosting our AI INFRA SUMMIT on May 2 at the Microsoft campus! Featuring headliners Supermicro, AMD, and Microsoft, this event is set to be the most exciting edition of AI INFRA to date.

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