Zoho Chief Scientist and Co-founder Sridhar Vembu said on Tuesday that the company has cut its marketing budget and informed employees that it cannot offer its usual annual pay increases this year amid an uncertain software business outlook and sharply rising artificial intelligence (AI) costs.

In a post on X, Vembu said AI has significantly increased operating expenses, while the company faces higher infrastructure costs and a challenging geopolitical environment.

He noted that server prices for data centres have increased fourfold, while rapidly growing AI usage continues to drive up expenses. Zoho is working to control these rising costs, 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 his post.

He also expressed concern about the outlook for software jobs and said Zoho would work to avoid large-scale layoffs.

“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.

Vembu thanked employees for understanding the company’s situation and supporting its efforts during this period of uncertainty.

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

He said Zoho is undergoing a major transformation and that the next three to five years would determine the success of its reinvention.

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

Vembu Raises Concerns Over AI-Driven Tech Valuations

Earlier in May, Vembu cautioned that soaring valuations of the world’s largest technology companies, fuelled by investor enthusiasm for artificial intelligence, showed signs of a market bubble that could surpass the dot-com crash of the early 2000s.

He highlighted the price-to-sales ratios of major technology companies and argued that their market valuations appeared increasingly disconnected from underlying business fundamentals.

Vembu cited companies such as Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, noting that several traded at elevated multiples of their annual revenues.

To reinforce his concerns, Vembu referred to comments by former Sun Microsystems CEO Scott McNealy following the dot-com bubble’s collapse in the early 2000s.

McNealy had argued that investors paying ten times a company’s annual revenue would require extraordinary business performance and profitability over many years to justify such valuations.

Vembu’s latest remarks highlight the financial pressures that rising AI infrastructure costs and an uncertain software market can create, even as technology companies explore ways to adapt their businesses to rapid changes in the industry.