Amplitude CEO Spenser Skates tells CNBC he expects a significant correction in the artificial intelligence sector, warning that current valuation gaps between AI and non-AI companies are unsustainable. Despite this, Skates sees continued momentum for deal-making and investment in the space.

Amsterdam

Amplitude CEO Spencer Skates highlighted ongoing opportunities for mergers and acquisitions in the AI sector, particularly in Europe, where he sees a wealth of talented founders and teams. Amplitude has recently acquired several AI companies, including a Paris-based firm, as part of its strategy to become more AI-native.

Skates also expressed concern about the current high valuations of AI companies, noting a stark difference between AI and non-AI company valuations. He predicted a major correction in the market, stating that the current valuation multiples for AI firms are unsustainable and that some investors are likely to lose money as the market adjusts.

Amplitude CEO: Major AI market correction ahead

Let's get more on AI investments and how to spot M&A opportunities in the tech space. I'm pleased to introduce Spencer Skates, CEO of Nasdaq-listed software company Amplitude. Spencer, good morning. Thank you for being with us. First and foremost, just give us your thoughts in terms of the opportunities that you see right now when it comes to potential dealmaking in the AI world. There are fantastic opportunities out there on the AI front. There are a lot of companies that raised money at the peak in 2021 and 2022 that have struggled to find product-market fit, but have very talented founders and teams. We've acquired a number of those companies over the last few months. We've acquired three recently, including one company based here in Europe, in Paris, called Junesso. There's just fantastic talent overall in the ecosystem. As a larger company, one of the big challenges is how do you retool your workforce to be AI-native? When you think about some of the opportunities in Europe, you've highlighted one there. But more broadly, we also heard recently a potential deal, in fact, between SoftBank to buy ABB Robot Business. When you think about some of the opportunities on the European continent, what parts of AI do you actually see as providing even further opportunities for investors at this stage? The really exciting thing from a company standpoint is that there's a lot of great talented people in Europe. We obviously acquired the company June. We see great talent in London. We see great talent in Germany. We see great talent across the continent. We're actually being very, very aggressive when it comes to acquisitions. We've done three different acquisitions in the last three months of some very talented teams. I think in general, one of the things that larger companies have really struggled with is how to adapt to the AI revolution. There's a lot of talk and hype of it, but very few companies are doing it in earnest. And so a great way to attack it is to buy these early stage teams that have maybe two founders or a team of five to ten people and have them come on and help rebuild your product and company as part of being AI native. We've done that at amplitude with digital analytics, and I'm just really excited about it. It just seems that a lot of the potential in Europe is related to talent. But Spencer, I also would like to get your thoughts on the ongoing conversations around the potential market correction given the level of valuations for some of the AI companies. To what extent are you concerned about this? Oh, we, I think, candidly, just on a personal basis, there is going to be a major correction. There's kind of two different types of companies in the venture ecosystem now. There's most companies that are not AI and receive valuations maybe at the 3x to 5x range. And there are AI companies which will see valuations at 100x or 200x or sometimes even more. That sort of valuation multiple is not sustainable. There for sure are going to be a lot of people who lose money investing in AI now, and we're going to see a correction sometime in the next few years.

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