Gurley argues cloud providers may inflate AI valuations by overbidding to win investment deals and gain market share.
“And so all of a sudden, like, you know, you've got definitive proof that the way you would win the war and and and you get another benefit, you get revenue, you get market share.”
Gurley warns AI companies with cloud credits may price services at negative gross margins without realizing it.
“So I believe that once you have these credits inside your company, somebody is certainly gonna make the argument, right?”
Gurley argues cloud GPU hosting is a commodity service, making credit-based investments questionable.
“Here's another here's a way to really drill in on that, you know, going back to Ultra Hosting Company. Let's assume for the sake of this discussion that the service being provided is a commodity.”
Gurley calls Inflection's implosion after Greylock's $1 billion pre-money round a warning sign for AI valuations.
“Right? And this is a warning sign that you can't just pay any price for any deal in the AI sector and get paid.”
Gurley calls Inflection outcome a yellow flag warning to slow down on AI valuations.
“This is employees, all the key employees leaving the company. And the blog post suggests the company goes on with a new CEO.”
Gurley reports AI deals average $1 billion valuation and $120 million round size year to date.
“Year to date, I think 200 deals, 22,000,000,000 of investment, average valuation, wait for it, $1,000,000,000. Right? Average round size, 120,000,000.”