TECH-EXTRA: AI Predictions for 2026
What We Got Right (and Wrong) in 2025
Welcome to Silicon Sands News—the go-to newsletter for investors, senior executives, and founders navigating the intersection of AI, deep tech, and innovation. Join ~35,000 industry leaders across all 50 U.S. states and 117 countries—including top VCs from Sequoia Capital, Andreessen Horowitz (a16z), Accel, NEA, Bessemer Venture Partners, Khosla Ventures, and Kleiner Perkins.
Our readership also includes decision-makers from Apple, Amazon, NVIDIA, and OpenAI, some of the most innovative companies shaping the future of technology. Subscribe to stay ahead of the trends defining the next wave of disruption in AI, enterprise software, and beyond.
This week, we explore the Year LLMs got upstaged and a look back at last year.
Let’s Dive Into It..
Key Takeaways
For VCs and LPs
The Future is Specialized: The era of massive, general-purpose models as the sole solution is over. The real value lies in small, efficient, and highly specialized models tailored to specific enterprise needs. Look for startups that are building these specialized models and the platforms that enable them.
Data is the New Moat: In a world of open-source models, the most durable competitive advantage will come from proprietary data. Invest in companies that have a clear strategy for acquiring, curating, and leveraging unique datasets to build specialized models.
The AI Foundry is the Next Big Thing: The AI industry is following a similar trajectory to the semiconductor industry. The emergence of AI foundries—companies that provide the infrastructure and expertise for building custom AI models—is a massive investment opportunity.
Don’t Bet Against the Edge: The edge AI market is poised for explosive growth, and small models are the key to unlocking this potential. Look for companies that are building the hardware and software to enable real-time, on-device AI.
Quantum is Closer Than You Think: While a universal, fault-tolerant quantum computer is still a few years away, we are on the cusp of a major breakthrough. The first commercially useful quantum computers will emerge in 2026, with a profound impact across a wide range of industries.
For Senior Executives
It’s Time to Get Specific: If you haven’t already, now is the time to move beyond experimentation and start identifying specific, high-value use cases for specialized AI. Look for tasks that are characterized by a narrow domain, a high volume of repetitive queries, and a clear need for accuracy and consistency.
Your Data is Your Most Valuable Asset: Don’t let your proprietary data sit on the shelf. Develop a strategy to curate and leverage this data to build your own specialized AI models. This is the key to creating a sustainable competitive advantage in the age of AI.
Think Small, Win Big: Don’t be seduced by the hype of massive, general-purpose models. In most cases, a small, fine-tuned model will deliver better performance at a fraction of the cost. The ROI on small models is simply too compelling to ignore.
Embrace the Edge: The ability to run AI models on-device is a game-changer for privacy, security, and real-time applications. Develop a strategy to leverage edge AI to create new products and services and improve the customer experience.
Start Planning for Quantum: The quantum revolution is coming. Start educating yourself and your team about the potential impact of quantum computing on your industry. The companies that start preparing now will be the ones that win in the quantum era.
For Founders
Find Your Niche: The days of building a general-purpose AI company are over. The future belongs to startups focused on solving a specific problem in a specific industry. Find your niche and own it.
Data is Your Superpower: If you have access to a unique, proprietary dataset, you have a massive competitive advantage. Build your company around this data and use it to create specialized models that can outperform the competition.
Build a Platform, Not a Point Solution: The most valuable AI companies will be the ones that build platforms that enable others to develop their own specialized solutions. Think about how you can create a platform that can be used by a wide range of customers to solve a variety of problems.
Don’t Be Afraid to Go Against the Grain: The conventional wisdom in the AI industry is often wrong. Don’t be afraid to challenge the status quo and to build something different from what everyone else is creating.
The Future is Bright: We are at the beginning of a new era of AI, an era of specialization, efficiency, and democratization. The opportunities for founders willing to think differently and challenge the status quo are immense.
Part 1: A Look Back at 2025 - The Summary
The year 2025 will be remembered as a pivotal moment in the history of artificial intelligence. It was a year of reckoning, where the unbridled hype of the early 2020s collided with the hard realities of enterprise adoption and real-world value creation. The narrative of “bigger is better,” which had fueled an arms race of ever-larger language models, began to crumble under the weight of its own inefficiency. In its place, a more nuanced and pragmatic understanding of AI started to emerge, prioritizing specialization, efficiency, and demonstrable ROI over sheer scale.
The predictions made in the December 2024 edition of the TECH-EXTRA served as a surprisingly accurate, if at times conservative, roadmap for this transition. The central theme of a shift from brute-force scale to intelligent specialization played out across multiple domains, from the rise of Small Language Models (SLMs) to the surge in specialized AI hardware. The year also saw the emergence of agentic AI as a major force in the enterprise, with autonomous agents beginning to deliver on their promise of automating complex, multi-step tasks.