Why AI coding tools like Cursor and Replit are doomed – and what comes next
YaroslavKryuchka/iStock/Getty Images Plus Follow ZDNET:Add us as a preferred source The Cursor AI-driven integrated development environment (IDE) Cursor Data Inc. The tool makers or their parent companies have been flooded with venture capital funding because, as a survey by venture firm Menlo Ventures indicates, inside enterprises, product and engineering is the area that has been…
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The Cursor AI-driven integrated development environment (IDE)
Cursor Data Inc.
The tool makers or their parent companies have been flooded with venture capital funding because, as a survey by venture firm Menlo Ventures indicates, inside enterprises, product and engineering is the area that has been the second-largest user of AI to date behind IT operations.
A total of $3 billion has flowed into key startups Data Robot Inc., parent of Cursor’s creators; Replit Inc.; Cognition AI Inc., the owner of Windsurf; Augment Computing Inc., the owner of Augment Code; and All Hands AI Inc., according to data compiled by FactSet Systems.
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Companies with related technology pertaining to app deployment, such as Harness Inc., have also received hundreds of millions of dollars.
And yet, the guts of how the programs function, the core task of code generation, relies on the foundation models invented by the giants.
“Most of those startups depend on Anthropic’s model,” Burton said. In Burton’s view, Anthropic’s Claude family of large language models is the best among the AI frontier model makers in solving the problem of automatic code generation. “Anthropic models are better than anyone at code generation.”
As a result, “Code generation tools are going to struggle to keep ahead of Anthropic,” he said.
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Anthropic has built its own IDE on top of Claude, called Claude Code. “Anthropic has got the foundation models. Claude Code is probably going to be good enough,” said Burton.
Code generated in Claude Code, or in Microsoft’s App Builder copilot, “is going to be done ‘good enough’ by the foundational model providers if all you need is an LLM [large language model], and access to a code repository (like GitHub),” said Burton.
Observability is the next frontier
Burton predicts the IDE makers may also try to build their own observability functions into the coding tool.
“In order to differentiate from the foundational models, the pure-play code-gen startups will have to go beyond being a thin layer on top of an LLM,” he said. “The obvious adjacency is observability.” That suggests code tools makers such as Data Robot’s Cursor could merge with DevOps companies such as Harness Inc. Burton expects the code tools may look to utilize Observe’s capabilities to enhance their functionality.
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It’s also possible that Cursor and the others will get bought out by Dynatrace, Datadog, Splunk, or other established software firms. “They are too expensive right now,” Burton said of Cursor’s corporate price tag in an acquisition situation. “But, if their valuations dip based on competitive threats from LLM companies, then that would be a buying opportunity.”
As long as investment from venture capital keeps pouring into the startups, additional funding will keep Cursor and the others going for a while, predicted Burton.
Until the music stops.
“The challenge is going to be when either their growth slows and/or the [AI] bubble bursts,” he said. “Valuations then plummet, there’s no financing available, and you end up with a mix of fire sale acquisitions or bankruptcies when there are no dance partners left.”
