Red Hat CEO: Valuations Of Tech Companies Will 'Come Down, The Question Is 5 percent Or 35 Percent'

Several analysts and industry experts have been raising concerns on the valuation of tech companies over the past few months. Red Hat Inc RHT James M. Whitehurst, Red Hat CEO, was on CNBC Wednesday to discuss whether those concerns are legitimate.

Ridiculous Valuations

“It’s just a natural thing when you can borrow money in investment grade for almost nothing, it gets really easy to overpay for an asset that you know you are paying for,” Whitehurst said. “But you are paying with someone else’s money they are giving you for free. So, just builds on itself. So, these valuations are ridiculous, but it can still make economic sense to buy a company if you can borrow money for free.”

Private Tech Companies Is Where The Problem Lies

Whitehurst was asked whether he considers the whole market as overvalued or just the tech sector. He replied, “Hard for me to comment on the market broadly. I am thinking the tech sector and in particular the private company valuations which are now actually higher than public company valuations. So, I have talked to several CEOs of companies looking to IPO and instead they have decided to do another inside round privately because the valuations are higher.”

The Big Question

On how much co-relation is there between private tech company valuations and public tech company valuations, Whitehurst said, “There is certainly a co-relation, as the private company valuations come down, they have been putting pressure on public company valuations because you can start to justify those. The whole thing will come down, the question is 5 percent or 35 percent. I think that’s the question as we will find out.”