The chief executive of software analytics giant Databricks, valued at a staggering $134 billion, has raised a major red flag about the current state of the artificial intelligence industry. Ali Ghodsi has called out the unsustainable hype, pointing to companies commanding billion-dollar valuations despite having absolutely no revenue.
The "Insane" Billion-Dollar Bubble with Zero Revenue
Speaking at the Fortune Brainstorm AI conference in San Francisco, Ghodsi did not mince words. The CEO, who holds a PhD in computer science, stated that the situation has become "clearly a bubble" and is "like, insane." He highlighted the stark reality of firms being worth billions without a single rupee in sales, a sign of deep market distortion.
Ghodsi observed that the overall mood in Silicon Valley has turned significantly sour. He revealed that even the venture capitalists who are fuelling the AI investment frenzy privately admit the market's instability. Some VCs have confided in him, suggesting they should "just go on a break for, like, six months and come back," believing it would be financially beneficial once the hype settles.
Circular Financing Deals Artificially Inflate Valuations
A key criticism from the Databricks CEO targets the complex, circular financing arrangements proliferating across the AI sector. In these deals, money moves in intricate loops between the same set of companies, artificially boosting valuations without creating real economic value.
While Ghodsi avoided naming specific players, the operations of OpenAI serve as a prime example of this trend, involving a web of deals reportedly worth over $1 trillion. OpenAI's financial maneuvers include:
- Receiving a $13 billion investment from Microsoft, then spending the majority of it back on Microsoft's own cloud computing services (Azure).
- Securing $350 million in stock from cloud provider CoreWeave while simultaneously committing to pay CoreWeave $22 billion for computing power.
- Signing a massive $300 billion agreement with Oracle to construct data centers, which OpenAI will then pay roughly the same amount to use.
- Recently acquiring a 10% stake in chipmaker AMD and partnering with Thrive Holdings, whose parent company Thrive Capital is ironically a major investor in OpenAI itself.
Private Status Shields Firms, But Worse Times Ahead
Ghodsi predicts the bubble is far from bursting and conditions will deteriorate further. "I think like 12 months from now, it'll be much, much, much worse," he warned. However, he views the current market wobbles as a healthy signal for CEOs to critically reassess their business strategies.
He argues that the private company status of many AI firms is shielding them from the full force of market volatility and investor scrutiny. This skepticism partly explains why Databricks, despite "flirting" with the idea, has been reluctant to pursue an Initial Public Offering (IPO). Ghodsi contrasted this with competitors who rushed to go public during the 2021 boom, only to face severe corrections by 2022, forcing drastic cost-cutting. Databricks, in contrast, hired thousands during that period.
Despite his stark warnings about the industry's financial foundations, Ghodsi remains optimistic about specific, practical applications of AI. He is particularly bullish on AI agents, revealing that over 80% of databases launched on the Databricks platform are now created by AI agents, not humans.
He believes the real, sustainable revenue potential lies in the application layer where these agents perform specific tasks. In his view, the foundational AI models are becoming commoditized with very low profit margins due to intense competition, making the agent layer a more viable business frontier.
