The last 72 hours in AI coding have been nothing short of extraordinary. What started as a potential $3 billion OpenAI acquisition of Windsurf ended with Google poaching Windsurf’s CEO and co-founders for $2.4 billion, while Cognition swooped in to acquire the remaining company. With Windsurf generating $82 million in ARR with enterprise revenue doubling quarter-over-quarter, it almost seems … too cheap.
The 72-Hour Rollercoaster
Jeff Wang, Windsurf’s former head of business who became interim CEO, called it “the wildest rollercoaster ride of my career.” Here’s how it unfolded:
- Friday: OpenAI’s $3 billion acquisition offer for Windsurf expired
- Friday Evening: Google hired Windsurf CEO Varun Mohan, co-founder Douglas Chen, and key researchers for $2.4 billion
- Monday: Cognition announced it had signed a definitive agreement to acquire the remaining Windsurf assets
The chaos left Windsurf’s 250-person team in limbo until Cognition’s rescue. Cognition emphasized that “100% of Windsurf employees will participate financially in this deal and have vesting cliffs waived for their work to date”—a stark contrast to Google’s deal where recent Windsurf employees reportedly received no payout.
The AI Coding Gold Rush: Comparing Valuations
To understand whether Windsurf sold cheap, we need to examine the broader AI coding landscape. The numbers are staggering:
The Revenue Leaders
Cursor (Anysphere): $500+ million ARR at $9.9 billion valuation (19.8x multiple)
- Revenue doubling approximately every two months
- Third fundraise in less than a year
Replit: $100+ million ARR at $1.16 billion valuation (11.6x multiple) — but at just $1m ARR (!)
- Grew from $10M to $100M ARR in less than 6 months
- 10x revenue growth since launching Replit Agent in September 2024
Windsurf: $82 million ARR, enterprise revenue doubling quarterly
- Team acquired for $2.5 Billion by Google
- $82m of ARR? Acquisition price undisclosed by Cognition
Lovable: $50 million ARR in 6 months, reportedly raising $150M at $2 billion valuation (40x multiple)
- $17M ARR achieved in just 3 months
- 30,000+ paying customers, 25,000 new projects daily
Bolt.new (StackBlitz): $40 million ARR, raising $83.5M at $700 million valuation (17.5x multiple)
- Reached $20M ARR within 2 months of launch
- 0 to $4M ARR in just 4 weeks
The Valuation Reality Check
These multiples reveal a market in full speculation mode. Traditional strong B2B companies trade at 10-15x ARR, but AI coding tools are commanding 15-40x multiples. Far higher for top teams. Windsurf’s $82M ARR should theoretically support a valuation of $3 Billion -$6 Billion using these benchmarks.
The fact that OpenAI was willing to pay $3 billion and Google paid $2.4 billion just for talent and licensing rights suggests Windsurf was indeed valued appropriately by the market. The question becomes: did Cognition get an incredible deal on the remaining team and assets?
The Strategic Context
Market Dynamics
The AI coding space has become a strategic necessity for tech giants. Microsoft’s GitHub Copilot reportedly generates over $500 million annually, while Anthropic’s Claude Code has become a significant revenue driver. This isn’t just about productivity tools—it’s about controlling the future of software development.
The Anthropic Complications
Windsurf lost access to Anthropic’s Claude models in early June when Anthropic cut off API capacity, citing competitive tensions with OpenAI. Anthropic co-founder Jared Kaplan explained: “It would be odd for us to sell Claude to OpenAI”. This technical dependency likely weakened Windsurf’s negotiating position.
Speed vs. Price Optimization
The announcement came just days after Google hired away Windsurf’s CEO, leaving the company in operational chaos. In such circumstances, speed of execution often trumps price optimization. Cognition offered stability and employee protection that may have been more valuable than maximizing acquisition price.
The “Vibe Coding” Revolution
What makes these valuations particularly interesting is the emergence of “vibe coding”—a term coined by AI researcher Andrej Karpathy describing software development through natural language prompts. This represents a fundamental shift from traditional programming to conversational development.
The growth rates are “venture capital fever dream numbers” that go beyond typical B2B metrics. Bolt.new enables users to “complete projects that traditionally would cost $5,000 and take 2-3 months in under two weeks”—representing a 99% cost reduction in development.
Did Windsurf Leave Money on the Table?
The evidence suggests a more nuanced answer:
Arguments for “Too Cheap”:
- OpenAI valued the entire company at $3 billion
- Google paid $2.4 billion for just leadership and licensing
- Windsurf’s $82M ARR with accelerating enterprise growth deserved premium multiple
- Comparable companies trading at 17-40x ARR multiples or higher
Arguments for “Market Value”:
- Loss of Anthropic API access weakened technical position
- Leadership exodus created operational chaos requiring quick resolution
- Cognition’s deal protected all employees financially, which pure financial maximization might not have achieved
- Market dynamics favored speed over price optimization
The Broader Implications
Windsurf’s saga illustrates several critical trends:
1. Talent Wars Intensifying
Google’s $2.4 billion reverse-acquihire shows how valuable AI coding expertise has become. When talent commands nearly as much as entire companies, traditional acquisition math breaks down.
2. Platform Dependencies Are Risky
Windsurf’s loss of Claude access demonstrates the vulnerability of companies dependent on third-party AI models. This dependency likely influenced valuation discussions.
3. Speed Matters More Than Perfect Pricing
In rapidly moving markets, decisive action often creates more value than prolonged negotiations. Cognition’s quick acquisition prevented further talent hemorrhaging and operational disruption.
The Verdict
Did Windsurf sell too cheap? In pure financial terms, probably yes. A company generating $82 million ARR with enterprise revenue doubling quarterly should command premium multiples in today’s market.
But Windsurf’s situation was unique: technical dependencies on Anthropic, leadership exodus to Google, and operational uncertainty created a distressed sale scenario. Cognition’s acquisition provided immediate stability and ensured all employees participated financially—outcomes that pure price maximization might have jeopardized.
The real story isn’t whether Windsurf got the highest price, but whether the AI coding market has reached sustainable valuations. With Cursor at nearly 20x ARR and Lovable reportedly seeking 40x multiples, we’re witnessing either the birth of a transformative new category or the inflation of a spectacular bubble.
As Jeff Wang noted about the experience: “the wildest rollercoaster ride of my career.” For AI coding companies, the ride is just beginning—and the stakes have never been higher.
The Windsurf acquisition represents more than just a business transaction; it’s a window into how quickly AI markets can evolve and how traditional valuation metrics struggle to keep pace with technological disruption.
