The future of coding: AI startups challenge Big Tech’s grip

Two years after ChatGPT kickstarted the generative AI revolution, one area stands out for actually making money — writing code. A wave of AI startups is racing to reshape software development by automating the grunt work of programming, and investors are pouring in billions to back the early frontrunners.

A recent report by Reuters highlights this very change, calling it a revolution. One of the examples listed in the report, a San Francisco-based Cursor, recently raised $900 million at a jaw-dropping $10 billion valuation. Its tool can suggest, complete, and even write entire blocks of code on its own. Just 18 months old, Cursor claims to have hit $100 million in annual recurring revenue, though sources say it still burns more cash than it brings in.

Another fast-rising player mentioned in the report is Windsurf, the startup behind the AI coding tool Codeium. It turns plain English into code, a style now known as "vibe coding". Windsurf launched its product in late 2024 and is already generating $50 million in annualised revenue. It's now in talks to be acquired by OpenAI for $3 billion, according to people familiar with the deal.

Behind the hype is a very real shift in how software gets written. Microsoft says 20-30% of its code is already AI-generated. Google and Amazon report similar figures, states the Reuters report. Entry-level programming jobs are declining: VC firm SignalFire found tech hires with less than a year of experience dropped 24% in 2024.

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Vibe coding: what is it?

Big Tech isn't just using AI; it's competing directly. Microsoft's GitHub Copilot has more than 15 million users and pulled in over $500 million in revenue last year, adds the report. And the giants are moving fast: Google, OpenAI, Microsoft and Anthropic all announced new code-gen tools in May.

Most of today's AI coding startups run on models built by these same companies, like Anthropic's Claude or OpenAI's GPT-4. Every user query comes with a cost. To avoid being squeezed, some startups are now building their own models, but training a frontier AI model can cost tens of millions. Cursor and Windsurf are trying. Others, like Replit, have already backed out.

It's a land grab, and the clock is ticking, suggests Reuters. "It's not just about the best tech," said Redpoint Ventures' Scott Raney in the report. "It's about who can sell it better - and fast."