Are private AI companies undervalued right now?

Are private AI companies undervalued right now?


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Are private AI companies undervalued right now?


Kelvin Mu

Aug 07, 2025

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Here’s a hot contrarian take: AI companies are massively undervalued right now...

One way to see this is by comparing today’s top breakout GenAI companies with the breakout SaaS companies of the past decade. (see table below)


Let’s take a look at the median Revenue Multiples:

GenAI: 42x

SaaS: 33x

Sure, GenAI companies are valued ~26% higher.

But multiples alone don’t tell the full story. Let’s take a look at the growth rates:

📈 Median y/y Growth:

GenAI: 7x

SaaS: 3x

Ah, so GenAI companies are growing more than 2x faster.

When you normalize for growth by taking the revenue-to-growth multiples (think PEG ratio for the finance nerds), GenAI comes out 50% cheaper:

Median Revenue-to-Growth Multiple:

GenAI: 5.9x

SaaS: 11.1x

AI companies are not getting a valuation bump simply because they have "AI" in them. The bump exists because of the extraordinary growth profile of these companies. And based on this table, one can argue that bump isn't nearly high enough.

Simply put, there is no precedent for the hypergrowth we’re seeing right now:

Not in the SaaS cycle.

Not in the internet and mobile cycle.

Not in any other tech cycles.

So what does this means for investors and founders?

💸 As an investor - This is not the time to nickel-and-dime. The traditional rules don’t apply in a hypergrowth cycle like this. You can’t afford to be too price-sensitive if it's the right company.

🚀 As a founder - If your metrics are breaking records, your valuation should too. Don’t sell yourself short. Look beyond simply revenue multiples. You may not be overvalued, just way ahead of the curve.

• * *

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#### Discussion about this post

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Allen Wu

[Aug 7, 2025](https://kelvinmu.substack.com/p/are-private-ai-companies-undervalued/comment/143112416 "Aug 7, 2025, 4:34 PM")

Hi Kevin - good stuff. Have you tried to run this math with gross margin factored in? My rough sense is that the GM for SaaS is around 80% and 40% for GenAI (OAI/Anthropic on high end of 50-60%, and inference platform and coding on the lower end of ~20%). If you apply the GM to the math, you will basically have those two category on parity. Any thoughts?

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