US Leads AI Investment; India Faces Capital Flight

The global race in artificial intelligence is increasingly determined by capital flow rather than technological prowess. Currently, the United States is drawing substantial AI investment, with significant spending on new models, data centers, and AI-driven products.

A report by Stanford University indicated that private AI investments in the U.S. reached $285.9 billion in 2025, over 23 times the $12.4 billion invested in China. Despite growing concerns about a potential ‘AI bubble,’ investors continue to inject capital into the sector.

In contrast, India is not experiencing this surge. Foreign investors are withdrawing funds, opting for markets and companies that offer greater exposure to AI-driven growth. While Indian companies are adopting AI to enhance efficiency, reduce costs, and protect margins, there is a lack of evidence of AI being used to develop new products, platforms, or revenue streams at scale.

Foreign portfolio investors (FPIs) have been divesting from India at an unprecedented rate. In March 2026, FPIs sold $12.58 billion worth of Indian equities, marking the highest monthly outflow on record. This included net selling across 21 of 23 sectors, according to the National Securities Depository Limited (NSDL).

This trend is not isolated. FPI equity assets under custody (AUC) decreased from nearly $930 billion in September 2024 to approximately $660 billion by March 2026, a decline of nearly 29%. Macro factors such as geopolitical tensions, inflation concerns, and rupee weakness contribute to this.

Conversely, the U.S. ETF market saw $112.9 billion in net inflows in March 2026, with equity ETFs attracting $56.7 billion. U.S.-based AI companies captured nearly 79% of global AI funding in 2025, according to some estimates.

Rishabh Khandelwal, CEO of Sabiduria Capital, noted that valuations also play a crucial role. He stated that Indian companies are not inexpensive compared to other emerging markets. Taiwan, South Korea, and China offer lower valuations and stronger AI-linked opportunities, making them more appealing within the same emerging market allocation.

Indian IT companies are not yet signaling participation in the AI-led value cycle in ways that resonate with global investors. AI is largely being used for productivity improvements, cost optimization, and margin protection.

Uddeshya Goel, an investment advisor at Empirica, pointed out that capital is increasingly flowing toward AI infrastructure and hardware ecosystems, including power systems and data center supply chains, rather than traditional services. Large IT firms have prioritized buybacks and incremental capability acquisitions over aggressive AI investments, signaling a cautious approach.

Domestic institutional investors continue to support Indian tech stocks, but foreign capital is increasingly directed toward markets where AI-led value creation is more visible and scalable. Experts suggest that emerging AI-adjacent plays, such as data centers and semiconductor-linked manufacturing, could serve as early proxies to the AI cycle within India.

Abhishek Srivastava, a managing partner at Kae Capital, believes that India’s advantage lies in domain-specific, context-rich applications built for real-world complexity. He highlighted areas such as healthcare diagnostics and multilingual AI, where India’s data diversity offers a structural advantage.

For India to attract global AI investment, a shift from AI-enabled services to AI-led businesses, from delivery models to product and IP ownership, and from efficiency gains to revenue creation is essential. Without these changes, global investors have little incentive to view India as an AI investment destination.