The news: Annual venture funding for US digital health startups reached $14.2 billion last year—a 35% YoY increase and the highest level since 2022—per newly released Rock Health data.

Driving the news: AI digital health companies spurred last year’s investment activity by deal count and size.

• 50% of digital health deals in 2025 were closed by AI-enabled companies, defined by Rock Health as startups using AI, machine learning, and/or deep learning as a core part of their product or offering.
• AI-fueled companies also snagged 54% of total funding, up from 37% in 2024.
• AI startups commanded an average 19% deal-size premium compared with companies not primarily focused on AI.

Investors also increased backing for fitness and wellness startups in 2025.

• Those startups raised $2 billion across 44 deals, jumping from the eighth- to the third-most-funded value proposition YoY.
• Oura’s $900 million raise accounted for nearly half that total, but even after removing Oura, the category saw a 13% funding increase YoY.
• D2C lab testing company Function Health scored a $298 million Series B funding round in November, while sleep tech firm Eight Sleep raised $100 million in an August round.

Why it matters: At first glance, last year’s digital health startup funding total suggests a more favorable investment climate following a period of uncertainty due to macroeconomic concerns. But a closer look at Rock Health’s data reveals that funding was concentrated among fewer companies.

• Startups raised more money in 2025 than the year prior, but deal count dropped by 5%—from 509 deals to 482. That’s the lowest deal count since 2020.
• “Mega” deals (raises over $100 million) accounted for 42% of all funding, which is the highest proportion since 2021 and nearly two times last year’s share.
• Three healthcare AI startups—OpenEvidence, Hippocratic AI, and Abridge—each closed multiple mega rounds in 2025.

Implications for digital health companies: Most health tech firms now use AI, but market leaders that stand out to investors are demonstrating clear value propositions through core AI capabilities—supporting clinical decision-making or reducing administrative burdens so doctors can focus on patient care. Meanwhile, on the consumer side, there’s a growing recognition of rising demand for tools that deliver quick health insights. Smaller digital health players with offerings similar to category frontrunners could consider acquisition by larger entities as a viable strategy to exit the market or differentiate by identifying an area of unmet need while still delivering a measurable ROI.