- Orlando Bravo warns AI sector valuations resemble a bubble like the dot-com era
- Companies with $50m revenue cannot justify $10bn valuations, says Bravo
- Thoma Bravo manages $181bn, focusing on enterprise tech and cybersecurity
Billionaire tech investor Orlando Bravo has warned that valuations in the artificial intelligence (AI) sector are “at a bubble,” drawing comparisons to the dot-com era, reported CNBC.
Bravo, co-founder of private equity firm Thoma Bravo, told CNBC's Squawk on the Street on Oct. 7 that investors are overvaluing AI businesses. He added that a company generating $50 million in annual recurring revenue cannot realistically justify a $10 billion valuation.
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“That company is going to have to produce a billion dollars in free cash flow to double an investor's money, ultimately. Even if the product is right, even if the market's right, that's a tall order, managerially,” he said, according to CNBC.
Despite his warning, Bravo pointed out a key difference between the current AI market and the dot-com bubble.
“Now, you have some really big companies and some big balance sheets and healthy balance sheets financing this activity, which is different than what happened roughly 25 years ago,” he said.
Bravo's private equity firm, Thoma Bravo, manages over $181 billion in assets and primarily invests in enterprise technology, with a significant focus on cybersecurity, according to CNBC.
AI valuations have soared in recent months. OpenAI finalised a secondary share sale that values the ChatGPT maker at $500 billion, even as the company is projected to generate $13 billion in revenue for 2025.
Nvidia has pledged to invest up to $100 billion in OpenAI to support the startup's chip leasing and supercomputing expansion. According to a CNBC report in September, Nvidia's investment will channel billions of dollars into OpenAI's coffers, giving the company flexibility in its spending. However, the bulk of the funding is expected to be directed towards the use of Nvidia's advanced chips.
Other AI-related companies have also seen gains. Palantir's market capitalisation recently reached $437 billion, placing it among the 20 most valuable publicly traded companies in the United States, while AppLovin is now valued at $213 billion. Even early-stage startups are commanding eye-popping valuations, with Thinking Machines Lab reaching $12 billion on a $2 billion seed round, according to CNBC.
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