New Delhi, May 31 (IANS). Sridhar Vembu, founder and chief scientist of Zoho Corporation, warned people about the AI bubble and said that the valuations of artificial intelligence (AI) companies have become higher than the dotcom bubble of 1999.
In a post on social media platform ‘X’, Vembu highlighted the price-sales ratios of leading technology companies, arguing that valuations are currently becoming increasingly divorced from business fundamentals.
Citing examples of companies like Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, he said many of these companies are trading at high multiples of their annual revenues.
According to Vembu, Nvidia is currently trading at around 20 times sales, while Apple, Alphabet and Microsoft have price-sales ratios of around 10 to 11 times. Meta is trading at about 7.5 times sales, while Micron is trading at about 19 times sales.
To caution people, Vembu cited comments made by Scott McNeely after the dot-com bubble burst in the early 2000s. McNeely argued that if an investor invested in a company at a price-sales ratio of 10, the company would have to perform exceptionally well over many years to justify this valuation.
Comparing it to the dotcom bubble of the late 1990s, Vembu said the current environment represents “a bubble” and suggested it could be even bigger than the dotcom bubble seen in 1999.
He said that this is an absurd bubble, which is bigger than 1999.
His comments come at a time when AI-related stocks, especially those of semiconductor makers and software companies, are seeing a steady rise as it is expected that AI will bring significant growth and productivity gains across various industries. This AI boom has propelled many technology companies to record market capitalization and helped push major stock indices to new highs.
–IANS
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