Inc42 surveyed more than 85 institutional investors for its analysis of AI funding in the third quarter of 2026 and found that 63 per cent of them perceive valuation froth in Indian AI start-ups. The survey is part of the report in which Inc42 says Indian AI start-ups raised $438 million in the quarter.
About half of the investors who see froth expect corrections within 18 months, according to the report’s summary. The wording of the summary is ambiguous about whether ‘half’ refers to the 63 per cent or to all of the investors surveyed. If it refers to the 63 per cent, it means that about 31 per cent of all respondents expect a correction within 18 months, a calculation by IndiaX24, while if it refers to all respondents the share is about 50 per cent. IndiaX24 flags that the sources reviewed do not settle which is meant.
Not all investors are cautious. Thirty-one per cent believe that current valuations reflect genuine revenue potential, according to the report. The two figures, 63 per cent and 31 per cent, add up to 94 per cent, which leaves 6 per cent of investors who gave neither answer, a subtraction that IndiaX24 has made and that the report does not explain.
The survey also asked about the type of AI business that investors prefer. Investors increasingly favour vertical AI applications, in sectors such as banking, financial services and insurance, healthcare and agriculture, with 39 per cent expressing that preference, according to the report. The alternatives are foundational models and infrastructure, which investors regard as capital-intensive and as competing against better-funded global firms.
The concerns about capital intensity match the funding data. Inc42 says that AI start-ups raised $676 million in the first half of 2026, more than four times the $162 million of the first half of 2025, and a further $438 million in the third quarter, bringing the total to more than $1.1 billion in nine months. Rapid growth from a low base is one reason investors worry about valuations.
The percentages can be turned into rough head counts. Sixty-three per cent of 85 investors is about 54, and 31 per cent is about 26, which are IndiaX24’s calculations that use 85 as the base, although the report says more than 85 were surveyed, so the true numbers are slightly higher. The report summary does not give the exact sample size.
Vertical AI refers to applications built for a single industry, such as software that reads insurance claims or assists doctors, as opposed to general-purpose models, which is general background. The preference of 39 per cent for the vertical approach suggests that investors see a clearer path to revenue in applications than in building models from scratch, although the summary does not quote any investor explaining the reasoning.
The survey’s limits should be kept in mind. The sample of more than 85 investors is not described in the summary, so it is not known how many were venture capital funds, family offices or corporates, or whether they were randomly chosen. Surveys of investors reflect opinions, not facts about valuations.
The report’s headline question is whether the momentum will continue. The answer depends on whether the start-ups can turn funding into revenue, and on how investors in India and abroad judge the sector. The sources reviewed do not offer a forecast.
IndiaX24 will report the next funding data for the sector.
Image: A data centre (file photo; a stand-in image). Photo by Kecko from Eastern Switzerland, licensed under CC BY 2.0, via Wikimedia Commons.
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