Artificial intelligence has upended Wall Street, Main Street, and every road in between. In Silicon Valley, venture capital dollars are rushing to find AI targets, with total venture funding surging to $256 billion in the first quarter of 2026, according to PitchBook, surpassing the 2025 total.

As with public markets, those AI dollars have crowded out other investments, including the once red-hot area of consumer tech. After peaking near 3,000 in 2021, the number of VC deals for consumer tech was cut in half by last year, PitchBook data show, and the figure continues to slide in 2026.

Blame the decline on the do-everything smartphone, which serves as a camera, GPS, digital assistant, calculator, and all sorts of other products that once filled the aisles of an electronics shop.

Jeff Barrington, managing director at Windsor Drake, tells Barron's that building a consumer tech start-up is incredibly challenging. Margins are low, supply challenges are vast, and competition is fierce. "The other thing, too, is that the big Apples, Amazons, and Googles tend to copy or absorb the consumer tech products," he says.

That history makes it all the more surprising that one of this year's hottest consumer tech start-ups is taking on the establishment with...a phone.

Nothing, founded in 2020, began as an earbud maker before moving into smartphones and smartwatches. The products have a clean and modern aesthetic that has attracted a young audience looking to break away from tech giants Apple and Samsung Electronics. Its prices often undercut the competition. The Nothing 4a Pro phone with 256GB of storage starts at $599, compared with a comparable iPhone 17 for $799.

Tech site Droidlife called the Nothing 4 phone a budget phone where "almost everything about it punches above its price."

The company, which didn't make executives available for interview, crossed $1 billion in lifetime sales in 2024.

Nothing has garnered a lot of social-media attention, with Google trends for "Nothing Phone" and "Nothing headphones" both up 500% versus the previous five years.

The company is a regular presence on TikTok, where users gloat about their choice of a non-Apple device.

"I'm so sick of Apple because obviously, I'm filming this on my iPhone, but every time the new phone comes out and my phone crashes, I literally cannot afford spending, like, $2,000 on a phone with a lot of storage," says one video that has gotten more than 23 million views.

Nothing, itself, isn't shy about taking on the tech behemoth.

"This is a message to Apple," CEO Carl Pei said in a video posted to his TikTok account in June. "My name is Carl. I make phones in London. And I'm gonna steal your customers. One bored iPhone user at a time."

In a fairly commoditized world of smartphones, Nothing has tried to stand out with at least one unusual feature: a rear display through which users can deliver notifications with various symbols and animations. The idea is to keep the phone face down, limiting overall screen time.

Nothing has raised $456 million, per PitchBook, including a Series C funding round that brought in $200 million last year, giving the company a valuation of $1.3 billion.

It's rare air for consumer tech firms. According to PitchBook, of more than 31,000 VC-funded consumer tech companies, just 0.4% have generated a $1 billion-plus exit. Even for those, it's often a tough go.

Fitbit, the wearable fitness-tracking device firm founded in 2007, raised about $66 million in VC funding before going public in 2015 with a $4.1 billion market value. Six years later, the firm sold itself to Alphabet's Google for half that amount.

Meanwhile, this past week marked the end of a long saga for GoPro, the maker of cameras for outdoor enthusiasts founded in 2002. GoPro went public in 2014 with a market value of $3 billion, just in time for the smartphone camera to begin eating into its sales. For months, GoPro shares have traded below $1. On Tuesday, the company said it was being acquired by Starman Optical in a $285 million deal that would expand the business into the "AI data center, government, defense, and aerospace markets."

Venture capitalists are nothing if not optimists, though.

Mark Vena, CEO and principal analyst at SmartTech Research, tells Barron's that VC investors are currently looking for the next big consumer hardware AI play. He believes the next consumer tech winner will be an AI-powered wearable device that can potentially listen to a person's day-to-day happenings, and help with anything from scheduling appointments, messaging loved ones, or sending a reminder about picking up groceries on the way home after work.

"When you combine AI in terms of some interesting wearable hardware devices...it's a different deal," Vena says. "And the multiplier you get from a revenue opportunity standpoint becomes enormous."

The challenge for Nothing will be merging its plain hardware aesthetic-the inspiration for its brand name-with the complications and baggage of AI. According to an August study from the Pew Research Center, 55% of adults under age 30 now say they're more concerned than excited about AI.

Nothing is betting that audience just needs a different device. "For AI to reach its full potential, consumer hardware must reinvent itself," the company says on its website.