As money keeps pouring into companies that will never be profitable, concerns grow about the wider impact on the economy.
For years, artificial intelligence (AI) startups have been pitched as the vehicles of the next productivity boom.
But as product delivery lags behind the hype, some AI companies are slipping into a quieter, more troubling category: startups that are functional but no longer viable.
Economists and financial institutions describe these firms as “zombie” companies—businesses that can’t cover their debt, operating costs, or generate sufficient returns, yet continue to survive through repeated injections of fresh capital, debt restructuring, or investor reluctance to accept losses.
Venture capital, financial, and AI insiders say that signs of these zombie companies are increasingly visible in the AI startup community.
AI and machine learning venture capital deals accounted for more than 65 percent of all U.S. venture capital project funding in 2025, totaling $222 billion, according to the National Venture Capital Association. This represents an increase from 47 percent in 2024 and 10 percent in 2015.
That’s a lot of money flooding into an investment market with a high rate of failure. Approximately 90 percent of startups fail, according to analysis by data analytics company Demand Sage.
While a universally accepted count of U.S.-based AI firms operating as zombies is unavailable, a recent Fortune report put the number of venture capital zombies at 574. An analysis by management consulting firm Kearney reported that the number of zombie companies worldwide has grown by about 9 percent annually since 2010, with a total of 2,370 as of 2024.
Concern is no longer limited to investor losses but also broader economic effects, such as misdirected capital and talent being tied up in underperforming companies. Some believe this could slow AI productivity and future innovation.
“Typically, unproductive entities would fail quickly due to the inability to secure further funding and service debt. But with the AI boom, nearly half of the venture capital funding is going into all things AI, and it’s extended their lifespan beyond what normally would be expected,” Joseph Favorito, founder of Landmark Wealth Management, told The Epoch Times.
Favorito believes that prolonged support for debt-financed or insolvent AI firms can slow innovation and create broader economic ripples.
