Cursor, a San Francisco-based startup capable of autonomously suggesting, completing, or writing large sections of code, raised $900m in May for a valuation of $10bn. Investors include Thrive Capital, Andreessen Horowitz, and Accel.

In Mountain View, Windsurf, creator of the popular AI coding tool Codeium, is currently in talks to be acquired by OpenAI for $3bn, according to sources familiar with the matter. Its tool translates natural language instructions into lines of code, a practice sometimes called "vibe coding," which opens up programming to non-experts. OpenAI and Windsurf declined to comment.

"All the repetitive and tedious work has been automated by AI," says Scott Wu, CEO of Cognition, another startup in the sector. "The role of the software developer has already changed radically. It's no longer about esoteric syntax."

The founders of these companies and their investors believe they are engaged in a race against time, seeking to reach a critical mass of users to establish their tool as the industry standard.

However, dependence on AI models designed by third parties such as OpenAI, Anthropic, and DeepSeek is weighing heavily on their finances. The cost per query is rising, and none of these startups are yet profitable. In addition, they face competition from heavyweights: Alphabet, Microsoft, and OpenAI all launched new code generation products in May, and Anthropic is working on a similar project, two sources say.

These startups must grow in the very garden of giants. Microsoft's GitHub Copilot, a pioneer of the genre launched in 2021, is expected to generate over  $500m in revenue in 2024, according to one source. Microsoft did not comment on this figure, but said in April that Copilot now has more than 15 million users.

The future of code training in question

The rise of AI in software development could spell the end for certain jobs, particularly junior positions, which are often associated with repetitive tasks.

The Signalfire fund notes a 24% decline in hiring of developers with less than one year's professional experience in 2024, a drop attributed to the gradual replacement of these positions by AI tools.

At Google, over 30% of code is now generated by AI, its CEO says. At Amazon, Andy Jassy claims that the company has saved the equivalent of 4,500 developer years thanks to AI. In May, Microsoft CEO Satya Nadella estimated that 20% to 30% of the code produced in the company was the result of AI. That same month, Microsoft announced 6,000 job cuts worldwide, of which over 40% were developers in Washington State.

"We want to create AI that makes developers more productive, more creative, and saves them time," said a Microsoft spokesperson. "This involves role changes, but human intelligence remains at the heart of software development."

Strong revenue growth, but increased losses

Some players in the "vibe coding" space are already posting impressive recurring revenues. Cursor, which has only 60 employees, reached $100m in annual revenue in early 2025, less than two years after its creation. Windsurf, launched in 2021, released its product in November 2024 and is already generating $50m in annual revenue, a source says.

However, both are operating with negative gross margins, with expenses exceeding revenue, according to four sources familiar with their financial situations. "The price of coding assistants will continue to climb," warns Quinn Slack, CEO of Sourcegraph.

Cursor and Windsurf embody the current euphoria in the world of AI startups. Both are led by young MIT graduates fresh out of college. "I haven't seen people work this hard since the first internet bubble," notes Martin Casado, a partner at Andreessen Horowitz, an investor in Anysphere, Cursor's parent company.

It remains to be seen whether these companies will be able to retain their customers as the industry giants go on the offensive. "In many cases, it's not about having the best technology, but about knowing how to use it and sell it better than others," says Scott Raney, a director at Redpoint Ventures, an investor in Sourcegraph and Poolside, a start-up developing its own AI model.

Towards proprietary models

Most coding startups currently rely on Anthropic's Claude model, whose annual revenue surpassed $3bn in May, largely thanks to fees paid by these startups.

But some are trying to regain control. In May Windsurf announced the launch of its first proprietary models, optimized for software development. Cursor has recruited a team of researchers to pre-train so-called "frontier" models in order to reduce its dependence on third-party providers, two sources say.

Training its own models remains a huge challenge due to the computing costs involved, which run into millions of dollars. Replit recently abandoned this ambition. Poolside, which has raised over $600m, has partnered with Amazon Web Services and is currently conducting tests with its customers, with no consumer launch planned to date.

Magic Dev, another player in the sector that has raised nearly $500m since 2023, had promised a cutting-edge AI model for summer 2024, but has yet to launch a product.