Why synthetic data will be pivotal in building next-generation AI and automated technology

In the race to build smarter artificial intelligence (AI) and supporting systems, many digital organisations and technology developers are focused on making more efficient models. The architecture, scale and benchmark scores are all under the microscope. Yet it must not be forgotten that behind every impressive model lies a more fundamental force: data. Not just any data, but data that is high-quality, diverse, and available in sufficient quantity. 

As we reach the limits of what real-world data can offer, whether that is due to privacy concerns, cost, or simple scarcity, a quiet revolution is gaining pace. Synthetic data is emerging not just as a workaround, but as a cornerstone of the next generation of AI. Those of us behind AI technology are seeing firsthand how synthetic data is reshaping the way models are trained, refined and deployed. Whether for automation, large language models, or AI applications in tightly regulated sectors, synthetic data is solving problems that traditional data simply cannot.

Synthetic data may not be what the public thinks of when they imagine breakthroughs in AI and similar technologies. Yet behind every sophisticated chatbot, every automated decision system and every model making millions of predictions per second, there is a dataset that trained it. Increasingly, synthetic data is the invisible thread weaving through these systems, enabling their creation, evolution and accountability. As AI becomes more powerful and apparent, both in business and day-to-day life, the importance of the data that fuels it will only grow. 

Why synthetic data works

Synthetic data refers to information that is artificially generated, often through simulations or algorithmic processes, rather than collected from real-world environments. At first glance, that might sound like an inferior alternative. After all, how can data that isn’t “real” be trusted to train AI?

The answer lies in control and precision. While collecting real-world data is slow, expensive and increasingly encumbered by legal and ethical constraints, synthetic data can be created at scale. It is tailored to specific use cases and cleaned of potential noise or bias. It may not be perfect, but it is flexible and increasingly practical.

Importantly, it can be generated in ways that real-world data cannot. Are you in need of data that models rare edge cases in financial fraud detection? Would you like a dataset that captures unusual but plausible interactions in a driverless car system? These are scenarios where real data is sparse, or even non-existent, and synthetic data steps in.

Data quality, diversity and volume

One of the most urgent challenges in AI development today is ensuring that models are not just accurate, but fair, explainable and robust. That requires data that is representative across a wide range of demographics, scenarios and environments.

Yet diversity in datasets is difficult to guarantee when drawing solely from historical or observational data. Synthetic data can be engineered to plug these gaps. By generating data that covers underrepresented groups or rare scenarios, it enables AI systems to perform more reliably in the real world.

Recent events underscore the risks of failing to address this. In early 2024, Google’s Gemini model made headlines for generating historically inaccurate images, a byproduct of fine-tuning efforts that failed to balance diversity with contextual accuracy. It was a sharp reminder that data quality and diversity are not trade-offs, but essential components of responsible AI development.

Simulations deliver proven solutions

At the heart of synthetic data generation are simulations. These digital environments mimic real-world dynamics, and they can be used to test what works and what fails, creating controlled scenarios from which synthetic data can be drawn. These simulations provide a safe, repeatable environment for experimentation, one that is particularly valuable in sectors like healthcare and financial services where real data is both sensitive and scarce.

Advanced techniques like Generative Adversarial Networks (GANs) and Variational Autoencoders (VAEs) allow us to push even further. GANs, through a competitive training process between generator and discriminator models, can produce highly realistic synthetic data. VAEs, meanwhile, offer a more stable and interpretable route, particularly valuable when explainability is paramount.

Notably, studies from institutions like MIT have shown that in some contexts, models trained on high-quality synthetic data actually outperform those trained solely on real-world data. We must be mindful that the practice is not about replacing real data entirely. Instead, harnessing synthetic data intelligently allows us to deliver representative outcomes.

Responsible innovation

Synthetic data does not only enable better AI. It supports more responsible AI. With privacy concerns growing and regulatory frameworks like the EU AI Act tightening the rules around data use, synthetic data offers a way forward that is compliant by design.

By removing personally identifiable information, synthetic datasets can be shared and tested across teams without breaching confidentiality. This makes it easier to iterate quickly, experiment safely, and demonstrate compliance, especially in high-risk AI systems.

However, this is by no means a silver bullet. Generating effective synthetic data still requires significant computational resources and domain expertise. Relying too heavily on synthetic data, without grounding models in the real world, can lead to model collapse. For instance, the system could become detached from reality.  The quality of the data must be rigorously validated to ensure that it accurately reflects the conditions it is meant to simulate. If the synthetic data is flawed, the model will be too.

A new era of model development

Perhaps the most exciting use of synthetic data lies in what happens after a model is trained. In reinforcement learning from human feedback (RLHF), synthetic data can accelerate fine-tuning, providing new training examples that hone model behaviour with each iteration. It is akin to restarting a video game from a save file, but each time you reload, you begin from a stronger position, with the training loop progressively enhancing the outcome.

Leading companies are already embracing this. Meta has used large models to generate synthetic training data for smaller ones. Google uses distillation to pass knowledge from larger models to more efficient variants like Gemini Flash. The recent wave of generative models, including Moshi, has leaned heavily on synthetic data to push past bottlenecks in traditional training.

An integral part of the solution is balance. Those using synthetic data effectively are blending it with real-world data, constantly refreshing training datasets, while never losing sight of the fundamental principle that data diversity, quality and quantity must all work in harmony.