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Excessive spending is one of the trademarks of a boom, but even Scale AI’s recent $13.8 billion valuation raises some eyebrows. The most recent fundraising values Scale at more than 25 times this year’s expected gross profits, measured before operating costs.

Cory Weinberg explores the potential reasoning 27-year-old CEO Alexandr Wang used to convince investors, looking at everything from Scale AI’s growth to gross margins. The mysterious formula behind the valuation becomes especially elusive when compared to the lower valuation of Databricks, a software company expected to have a 78% gross profit margin this year.

That’s another perspective to add on shaping AI trends,

Jessica Lessin
Founder & Editor-in-Chief

The Fuzzy Math Behind Scale AI’s Valuation

Scale AI’s 27-year-old CEO, Alexandr Wang, used to compete in national high school math competitions. His latest math-related victory may have been convincing investors in Silicon Valley to stretch his own company’s numbers. The startup’s $13.8 billion valuation, from a billion-dollar round it raised in May, is almost certainly too high, whichever formula you use.

The eight-year-old startup mostly handles the low-end work on artificial intelligence that large-language models developers like Alphabet, Meta Platforms and OpenAI don’t want to do. A lot of that work lately has involved hiring people with doctorates or other educated types to sit at their laptops and help those AI models figure out which responses to users’ prompts are best.

A message from RBC Capital Markets What’s driving the resurgence of Energy mega-deals? Oil and gas markets have reached a low- or no-growth business model, yet recent months have produced a surge in M&A activity not seen for a generation. What’s behind the revival, and can it continue? Listen to Strategic Alternatives, the RBC Capital Markets podcast, for insights on the sector’s prospects.