I don’t necessarily consider myself a gamer, but I have sunk hundreds of hours of my life into Skyrim.  So, it follows perhaps that I keep an eye on the state of the gaming industry—a famously tough business, driven by hits and weighed down by high development costs. It’s also a space wher e success in one era doesn’t promise success in another, as evidenced by the challenges facing Microsoft’s Xbox, which my colleague Sebastian Herrera has reported on.  I pondered all this looking at PitchBook’s gaming VC data for Q3 2026, and it’s a mixed picture. On the surface, deal value year-to-date is $13.7 billion, across 430 deals, the data says. Early stage VC was especially active, comprising 54.5% of deal value for the third quarter—and that’s up massively from, say, 14.1% in Q1.  Now, a few less promising data points: Deal value at the venture growth-level dropped to $269.4 million in Q3, a stark decline from the $2.3 billion of Q2. Additionally, content is not king: Content-focused startups drew limited attention, with the subsector in Q3 raising $270.7 million—the lowest quarterly number since Q4 2017.  It’s worth considering where the largest rounds are materializing: Meshy, an AI 3D generation startup, and Higgsfield, an AI video generation startup, each raised $400 million rounds. Both companies are California-based and, in the eyes of investors, AI deals. Meanwhile, four large gaming-related rounds came out of China, including the whopping $500 million raised by Shengshu Technology, a world model maker with a notable AI video generation platform.  What does all this amount to? Reading between the lines a bit, I think it’s clear that investors aren’t betting on hit games or studios (or content at all). So, the AI “picks and shovels” thesis has infiltrated gaming and that some of these deals scarcely count as gaming deals at all. Checks are going to tools, but not to game makers.  Any gamers out there, I’d love to know what you think: Has AI eaten gaming? I’m unpersuaded that it has entirely, as I think back to something Xbox CEO Asha Sharma said this summer at Fortune Brainstorm Tech. “This is definitely not an Allbirds moment where we’re going to turn into xbox.ai,” she told me onstage.  I don’t think gaming is in its own AI Allbirds moment, but AI in gaming (as everywhere) remains unavoidable. See you tomorrow, Allie GarfinkleX: @agarfinksEmail: [email protected] Submit a deal for the Term Sheet newsletter here. Joey Abrams curated the deals section of today’s newsletter. This story was originally featured on Fortune.com ...read more read less