‘AI mania fuels bigger bubble than 1999’

Sridhar Vembu questions soaring tech stock valuations, citing excessive investor optimism surrounding artificial intelligence

Zoho founder and chief scientist Sridhar Vembu has warned that the sharp rise in valuations of leading technology companies, driven by excitement around AI, bears the hallmarks of a market bubble that could be larger than the dot-com boom of the late 1990s.

  In a post on social media platform X, Vembu pointed to the price-to-sales ratios of some of the world's biggest technology firms, arguing that their market valuations appear increasingly disconnected from business fundamentals.According to him, AI chipmaker Nvidia is currently trading at nearly 20 times its annual sales, while Apple, Alphabet and Microsoft command price-to-sales multiples of around 10 to 11 times.  

Meta Platforms trades at about 7.5 times sales, while memory chipmaker Micron Technology is valued at nearly 19 times its annual revenue.

  Vembu cited comments made by former Sun Microsystems chief executive Scott McNealy after the dot-com crash in the early 2000s. McNealy had argued that investors paying 10 times a company's annual revenue would require extraordinary growth and profitability over many years to justify such valuations. Quoting McNealy, Vembu noted that for investors to achieve a ten-year payback at such valuations, a company would effectively need to distribute 100% of its revenue for a decade, a scenario that is highly unrealistic for most businesses. 

Drawing comparisons with the technology frenzy of 1999, Vembu said the current market environment reflects "an insane bubble" and suggested it may be even larger than the one that eventually burst during the dot-com era.