Will AI lower gross margins?

The focus for SaaS companies in 2023 is higher margins and improved profitability. At the same time generative AI is getting into more and more SaaS services. As AI is more computational intensive and more expensive than typical hosting costs, these two trends are likely to collide. Clouded Judgement newsletter writes about how AI is likely to increase COGS and put downward pressure on gross margins, and how companies can address that.

Another data point in the newsletter is that currently the median enterprise value/revenue ratio for the 10 publicly listed SaaS business with the highest ratio is 10.5 and the overall median enterprise value/revenue ratio for public SaaS companies is 6.

Author: Henrik Torstensson

Partner at Alliance VC. Investing in Nordic early-stage tech startups.

Leave a Reply