Zoho founder Sridhar Vembu warns of AI Bubble; valuations exceed 1999 levels
To underscore his warning, Vembu cited remarks made by Scott McNealy in the early 2000s, following the bursting of the Dot-com bubble.
(Representational image/AI generated)
New Delhi: Sridhar Vembu, Founder and Chief Scientist of Zoho Corporation, has warned the public regarding the "AI bubble," stating that the valuations of Artificial Intelligence (AI) companies have now surpassed even those seen during the Dot-com bubble of 1999.
In a post on the social media platform 'X', Vembu highlighted the price-to-sales ratios of major technology companies, arguing that current valuations are rapidly diverging from business fundamentals.
Citing examples of companies such as Nvidia, Apple, Alphabet, Microsoft, Meta Platforms, and Micron Technology, he noted that many of these firms are trading at high multiples of their annual revenue.
According to Vembu, Nvidia is currently trading at approximately 20 times its sales, while Apple, Alphabet, and Microsoft have price-to-sales ratios of around 10 to 11 times. Meta stands at roughly 7.5 times sales, while Micron is trading at approximately 19 times sales.
To underscore his warning, Vembu cited remarks made by Scott McNealy in the early 2000s, following the bursting of the Dot-com bubble. McNealy had argued that if an investor puts money into a company at a price-to-sales ratio of 10, that company would need to deliver exceptional performance for many years to justify such a valuation.
Drawing a comparison to the Dot-com bubble of the late 1990s, Vembu stated that the current environment reflects "a bubble," and suggested that it could potentially be even larger than the Dot-com bubble witnessed in 1999. He stated that this is an absurd bubble one even larger than that of 1999.
His remarks come at a time when AI-related stocks particularly those of semiconductor manufacturers and software companies are witnessing a sustained rally, driven by expectations that AI will bring about significant growth and productivity gains across various industries. This AI boom has propelled numerous technology companies to record market capitalizations and has helped push major stock indices to new all-time highs.
(With IANS inputs)
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