Billionaire tech investor Orlando Bravo says 'valuations in AI are at a bubble'

Thoma Bravo co-founder Orlando Bravo states that artificial intelligence company valuations are in a "bubble," drawing parallels to the dot-com era, and criticizes unsustainable multiples such as a $50 million ARR company valued at $10 billion. However, he distinguishes the current market by noting that large corporations with strong balance sheets are financing these AI businesses, which he believes is a crucial difference from the dot-com bust and could impact the broader market outcome.

Analysis

Thoma Bravo co-founder Orlando Bravo said valuations for artificial intelligence companies are "at a bubble," comparing it to the dot-com era. But one key difference in the market now, he said, is that large companies with "healthy balance sheets" are financing AI businesses. Bravo's private equity firm boasts more than $181 billion in assets under management as of June, and focuses on buying and selling enterprise tech companies, with a significant chunk 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. "That company is going to have to produce a billion dollars in free cash flow to double an investor's money, ultimately," he said. "Even if the product is right, even if the market's right, that's a tall order, managerially." OpenAI recently finalized a secondary share sale that would value the ChatGPT maker at $500 billion. The company is projected to make $13 billion in revenue for 2025. Nvidia recently said it would invest up to $100 billion in OpenAI, in part to help the ChatGPT maker lease its chips and build out supercomputing facilities in the coming years. Other public companies have soared on AI promises, with Palantir's market cap climbing to $437 billion, putting it among the 20 most valuable publicly traded companies in the U.S., and AppLovin now worth $213 billion. Even early-stage valuations are massive in AI, with Thinking Machines Lab notching a $12 billion valuation on a $2 billion seed round. Despite the inflated numbers, Bravo emphasized there's a "big difference" between the dot-com collapse and the current landscape of AI. "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. Orlando Bravo, co-founder of Thoma Bravo, asserts that artificial intelligence company valuations are exhibiting "bubble-like" characteristics, drawing parallels to the dot-com era. He highlights unsustainable multiples, such as a $50 million annual recurring revenue (ARR) company valued at $10 billion, which would necessitate generating $1 billion in free cash flow to double investor money. Specific examples include OpenAI's recent $500 billion valuation despite projected 2025 revenues of $13 billion, and early-stage firm Thinking Machines Lab's $12 billion valuation from a $2 billion seed round. However, Bravo emphasizes a crucial distinction from the dot-com bust: the significant involvement of large, established companies with strong balance sheets in financing current AI ventures. Nvidia's reported $100 billion investment in OpenAI exemplifies this trend, providing substantial capital and infrastructure support. This corporate backing, unlike the retail-driven speculative investments of 25 years ago, suggests a potentially different market dynamic, tempering the overall cautious sentiment (sentimentscore: -0.1, tone: cautious) with underlying institutional strength. Despite the broad valuation concerns, public companies associated with AI, such as Palantir (PLTR) and AppLovin (APP), have seen substantial market cap increases to $437 billion and $213 billion, respectively. Individual ticker sentiment for NVDA, PLTR, and APP remains positive (0.6-0.7), indicating investor confidence in specific, established players. While the overall market impact score is moderate at 0.55, these specific entities demonstrate strong individual performance within the broader AI theme.

Key Decisions for Investors

• Investors should scrutinize the fundamental justifications and free cash flow generation potential of their AI-exposed holdings, especially those with high revenue multiples, given the "bubble-like" warnings.
• Monitor strategic investments by financially robust corporations into AI ventures, as this differentiated institutional backing may provide a foundational support layer unlike past speculative cycles.
• Differentiate investment strategies between established public AI players, which currently show positive individual sentiment, and highly speculative early-stage private AI firms, which face more acute valuation scrutiny.