Zoho freezes annual salary hikes as AI costs rise, software market slows

Zoho has cancelled its annual salary hikes for 2026, with co-founder and chief scientist Sridhar Vembu attributing the decision to soaring AI-related infrastructure costs, rapid growth in AI usage, and an uncertain business climate. The Chennai-based software firm is cutting its marketing budget and seeking to avoid mass layoffs, while warning that software job prospects are "grim".

Vembu cited a four-fold increase in data center server prices and rising AI usage as key drivers of higher operating expenses. As part of its cost-control measures, Zoho has reduced marketing spend and declined the pay increase, apologizing to employees for the decision. The business outlook for software remains uncertain due to the dramatic rise in AI costs, with Vembu highlighting the need to control expenses amidst the rapidly expanding AI usage.

The company has not increased its headcount in the past 18 months, indicating a prolonged hiring slowdown. While no layoffs have been announced, Vembu emphasized that Zoho would work hard to avoid mass layoffs and warned of the increasingly challenging employment prospects in the software sector.