Orlando Bravo, co-founder of Thoma Bravo, said the artificial intelligence company’s valuation is “on a bubble” and compared it to the Dotcom era.
However, one key difference in the current market is that AI businesses are being funded by large companies with “healthy balance sheets.”
Bravo’s private equity firm, which boasts more than $181 billion in assets under management as of June, focuses on buying and selling enterprise high-tech companies, with a significant portion of its portfolio invested in cybersecurity.
Bravo told CNBC’s “Squawk on the Street” on Tuesday that investors can’t value a $50 million annual recurring revenue company at $10 billion.
“The company would have to produce $1 billion in free cash flow to ultimately double investors’ money,” he said. “Even if the product is right, even if the market is right, that’s a tall order for management.”
Openai recently completed a secondary stock sale valuing ChatGpt-Maker at $500 billion. The company is projected to generate $13 billion in revenue in 2025.
Nvidia recently said it would invest up to $100 billion in Openai to help the ChatGpt maker lease chips and build supercomputing facilities over the next few years.
Other public companies are surging on the promise of AI, with Palantir’s market cap rising to $437 billion, making it one of the 20 most valuable public companies in the US, and Applovin now worth $213 billion.
Even early-stage valuations in AI are massive with Thinking Machines Lab recording a $12 billion valuation with a $2 billion seed round.
Despite the inflated numbers, Bravo emphasized that there are “huge differences” between the dot-com bust and the current AI landscape.
“Now you have really big companies and some big balance sheets and healthy balance sheets funding this activity. This is different from what happened about 25 years ago,” he said.
