PitchBook's Q2 2026 U.S. VC Valuations report, released this week, paints a stark picture of an increasingly lopsided venture capital market: artificial intelligence companies are absorbing the vast majority of funding, while nearly every other sector is left competing for what remains.

For the first half of 2026, AI megadeals—typically rounds of $100 million or more—accounted for 87.5% of all U.S. venture dollars deployed. The valuation gap between AI and non-AI companies has widened considerably. According to PitchBook, non-AI companies saw median valuation step-ups of 1.6x, while AI companies experienced step-ups of 2.2x. The divergence becomes especially pronounced at Series D and later stages, where AI companies recorded a median step-up of 6.6x.

"The Series D+ step-up is clear evidence of how much AI is driving venture valuations," said Emily Zheng, PitchBook senior research analyst, via email. "Median velocity of value creation at that stage jumped from $108.9 million in 2025 to over $1 billion in 2026, nearly a 10x increase. Top AI companies like Anthropic are driving this growth, as its valuation grew 5.3x in just eight months. Venture returns already follow a power law, and AI has raised the bar for what an outsized valuation looks like."

The concentration extends beyond traditional venture channels. Major technology companies including Amazon, Google, and Microsoft have poured billions into AI labs through equity stakes, credit arrangements, and cloud infrastructure partnerships, further widening the capital advantage of leading AI firms over startups in other sectors.

Liquidity remains difficult to access in the current environment. A limited IPO window has opened, though only SpaceX and Cerebras have provided meaningful evidence that going public can be worthwhile.

The acquisitions market offers some encouragement on the surface. PitchBook reports that 2026 acquisition value has reached $375.4 billion to date, a decade high, with valuations climbing to 1.9x compared to 1.2x a year earlier. Individual deal outcomes, however, vary widely. ServiceNow's acquisition of Armis closed at $7.8 billion, an increase from the cybersecurity firm's prior $6.1 billion valuation. Conversely, Capital One's $5.2 billion acquisition of Brex represented a significant decline from the fintech company's peak valuation of $12.3 billion.

The secondary market reflects the same divide. On the secondary trading platform Forge, startups that raised capital in 2025 or 2026 were trading at a median discount of zero to 5%. Startups that last raised in 2021 or 2022 faced median discounts of 54% and 59%, respectively.

"The winners are bigger than ever, overshadowing the rest of the venture market," Zheng said. "Companies that cannot raise on strong terms right now generally are not raising at all."

The pace of change in the venture landscape is notable. While data on the AI-dominated venture market has appeared consistent over recent quarters, the structural shift has accelerated meaningfully. Companies that last secured funding during the 2021 boom—a period marked by its own excesses—face a particularly challenging environment, though some may be fundamentally sound businesses that are simply out of step with current trends.

Allie Garfinkle (@agarfinks) covers venture capital for Fortune. This story was originally featured on Fortune.com.