Sridhar Vembu says Zoho will wait for AI bubble to cool before investing in infrastructure

Zoho founder Sridhar Vembu has said the company will wait for the artificial intelligence (AI) market to become less speculative before investing in infrastructure, citing concerns over the sustainability of current AI spending.

In a post on X, Vembu said Zoho has avoided a business approach that relies on large investments funded by other people’s money. He added that the company will continue investing in foundational AI research but will take a cautious approach to infrastructure spending.

“As a rule, we have stayed away from monster-bets-on-other-people’s-money approach to business,” Vembu said.

He added, “We are investing in foundational R&D in AI but will await a less bubblicious time to invest in infrastructure.”

Vembu’s comments come amid growing concerns about the source of funding behind the rapid expansion of AI companies and whether current spending levels can be sustained through long-term business demand.

Sridhar Vembu flags concerns over AI spending

Vembu’s post also highlighted a claim about the extent to which AI spending depends on venture capital funding. According to the figures cited in the discussion, roughly 70-75 cents of every dollar spent on AI comes from AI companies using venture capital investment.

The argument is that a significant share of AI expenditure is being driven by companies that are not yet profitable and depend on external funding to finance their operations.

Venture capitalist Chamath Palihapitiya made a similar point in a post on X, saying that a small proportion of companies accounts for most AI spending.

“1% of companies represent 90% of AI spending. Of that 90%, 80% of this spend are from unprofitable VC backed companies,” Palihapitiya said.

He argued that this concentration of spending raises questions about the quality of AI-related revenue, particularly when companies buying AI services are themselves dependent on venture capital funding.

Palihapitiya compared the situation with the early days of cloud computing, when venture-backed startups were among the early customers of Amazon Web Services (AWS). He said the industry subsequently went through market corrections before cloud infrastructure providers established more sustainable revenue streams.

According to Palihapitiya, the AI industry will need to move from speculative expenditure towards recurring spending that translates into consistent earnings for publicly listed companies.

Ken Griffin calls AI a potential bubble

Concerns about the sustainability of AI investments have also been raised by Citadel founder Ken Griffin, who reportedly described AI as “almost certainly” a bubble.

Griffin pointed to the difficulty companies face in converting AI spending into measurable productivity gains. However, he remains bullish on the technology’s long-term potential.

The comments highlight the distinction between AI’s potential to transform businesses and the financial returns companies are currently generating from their investments in the technology.

For Zoho, Vembu’s position suggests a cautious approach to capital expenditure while continuing to develop AI capabilities. Rather than making large infrastructure bets amid uncertainty over the market’s direction, the company plans to focus on foundational research and wait for conditions to become more favourable for infrastructure investments.