Zoho freezes pay hikes as AI-driven costs rise dramatically: Sridhar Vembu

New Delhi: Zoho's Chief Scientist and Co-founder Sridhar Vembu on Tuesday said that we have cut down on our marketing budget and told employees that we cannot have our usual pay increase this year.

The business outlook for software is uncertain and AI has raised costs dramatically, he wrote in a post on X.

Vembu further noted that there has been four-fold increase in server prices needed for data centres and AI usage is increasing rapidly, leading to much higher expenses which company is trying to control.

On top of that is challenging geopolitical backdrop, he added.

"We have cut down on our marketing budget. We have also told our employees that we cannot have our usual pay increase this year. I have apologized for not being able to avoid this," Vembu said in a post.

"We will work hard to avoid mass layoffs but outlook for software jobs in general is grim. We have not been growing our employee count for 18 months now," he said.

Most of employees understand situation and I am thankful to them, he added.

"We are in middle of reinventing ourselves. Next 3-5 years will decide how our reinvention has worked. Please pray for us," Vembu said.

Earlier in May, Vembu cautioned that soaring valuations of world's largest technology companies, fuelled by investor enthusiasm around artificial intelligence, exhibit characteristics of market bubble that could eclipse dot-com era.

He highlighted price-to-sales ratios of major technology firms, arguing that current market valuations appear increasingly detached from underlying business fundamentals.

Moreover, he had cited companies such as Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, noting that several are trading at elevated multiples of their annual revenues.

To underline concerns, Vembu referenced remarks made by Scott McNealy following collapse of dot-com bubble in early 2000s.

McNealy had argued that investors paying ten times company's annual revenue would need extraordinary performance and profitability over many years to justify such valuations, he added.

Software business outlook uncertain, AI raised costs dramatically: Zoho co-founder Sridhar Vembu.

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