Chennai, May 31: Zoho Corporation founder and Chief Scientist Sridhar Vembu has raised concerns over the soaring valuations of leading global technology companies, warning that the artificial intelligence (AI)-driven stock market rally may have created a bubble even larger than the dot-com boom of the late 1990s.
In a post on social media platform X, Vembu pointed to the exceptionally high price-to-sales ratios of several major technology firms, arguing that current valuations appear increasingly disconnected from underlying business fundamentals.
According to Vembu, AI chip giant Nvidia is currently trading at around 20 times its annual sales, while technology giants Apple, Alphabet and Microsoft are valued at roughly 10 to 11 times their revenues. Meta Platforms trades at approximately 7.5 times sales, while memory chip manufacturer Micron Technology is valued at nearly 19 times sales.
Highlighting the risks associated with such lofty valuations, Vembu referenced comments made by former Sun Microsystems CEO Scott McNealy after the collapse of the dot-com bubble in the early 2000s.
McNealy had famously argued that investors paying ten times a company’s annual revenue would require extraordinary levels of profitability and sustained growth over a decade to generate reasonable returns.
Sharing the quote, Vembu noted that the logic remains relevant in today’s market environment.
“As Scott McNealy of Sun Micro said back in 2002: ‘At 10x revenues, to give you a ten-year payback, I have to pay you 100% of revenues for 10 straight years’,” Vembu wrote.
Drawing parallels with the technology bubble that peaked in 1999, he described current market conditions as an “insane bubble” and suggested that the scale of investor optimism surrounding AI could be even greater than what was witnessed during the dot-com era.
The remarks come at a time when AI-related stocks have experienced a remarkable surge, driven by expectations that artificial intelligence will transform industries, boost productivity and unlock significant new revenue opportunities. Semiconductor companies, cloud computing providers and software firms have been among the biggest beneficiaries of the AI investment boom.
The rapid rise in valuations has helped push several technology companies to record market capitalisations and contributed to strong gains in major global stock indices.
While many investors remain optimistic about AI’s long-term potential, Vembu’s comments serve as a reminder of the risks associated with excessive market enthusiasm and the possibility that stock prices may be running ahead of business fundamentals.
