Zoho has put its usual annual salary increases on hold and reduced marketing expenditure as rising artificial intelligence (AI) infrastructure costs put pressure on the company’s finances. Zoho Chief Scientist and co-founder Sridhar Vembu announced the measures on Tuesday, citing higher server prices, growing AI usage and uncertainty in the software industry.
Vembu said server prices for data centres had increased fourfold, adding to the financial burden of expanding AI capabilities. The company is now looking to control spending while navigating an uncertain geopolitical and economic environment.
Zoho Cuts Spending to Manage Rising AI Infrastructure Costs
In a post on X, Vembu said the company had reduced its marketing budget and informed employees that it would not be able to provide its usual annual pay increases this year.
“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 wrote.
He also raised concerns about the outlook for employment across the software industry, while stating that Zoho would make efforts 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 added that most employees had understood the company’s position and expressed gratitude for their support during the difficult period.
The co-founder said Zoho was undergoing a process of reinvention, with the next three to five years expected to determine the outcome of its efforts.
“We are in middle of reinventing ourselves. Next 3-5 years will decide how our reinvention has worked. Please pray for us,” Vembu said.
The announcement highlights the financial challenges technology companies face as they expand their AI capabilities. Investment in computing infrastructure, servers and data centres can increase operating expenses, forcing businesses to reassess spending priorities as they adapt to changing market conditions.
For Zoho, the immediate response involves reducing discretionary expenditure and suspending regular salary increases while the company works on its longer-term business strategy.
Sridhar Vembu Raises Concerns Over Technology Valuations
Vembu had also expressed concerns in May about rising valuations of major technology companies amid investor enthusiasm for artificial intelligence. He argued that some market valuations showed characteristics of a bubble that could exceed the excesses witnessed during the dot-com era.
He pointed to price-to-sales ratios among major technology firms, suggesting that their market valuations were becoming increasingly detached from underlying business fundamentals.
Among the companies he cited were Nvidia, Apple, Alphabet, Microsoft, Meta Platforms and Micron Technology, several of which were trading at elevated multiples of their annual revenues.
Vembu also referred to comments made by former Sun Microsystems chief executive Scott McNealy following the dot-com bubble’s collapse in the early 2000s.
McNealy had argued that investors paying 10 times a company’s annual revenue would need to see exceptional business performance and sustained profitability over many years to justify such valuations.
Vembu’s latest remarks shift attention from AI-related market valuations to the costs of implementing the technology. His comments also raise questions about how software companies will balance AI investment, operating expenses and employment as the industry adapts to technological change.
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