Analysts say most of the AI industry's current spending goes to hardware or cloud infrastructure for training large models. In contrast, software application companies seem to have stagnated in the AI era. Although software applications are very passionate about building AI tools, their revenue situation is not optimistic.
Under the AI wave,$NVIDIA (NVDA.US)$,$Dell Technologies (DELL.US)$These hardware makers are making a lot of money. However, application software vendors, which once had unlimited popularity in the mobile internet era, now seem quite lonely and are no longer able to attract capital bets.
Dell's AI server revenue hit a new high in the first quarter of this year. According to Damo, Dell has excellent engineering capabilities in the field of AI servers. Due to the technical complexity of this field, Dell will be one of the few winners among server manufacturers. So far this year, Dell's stock price has increased by nearly 100%.
And Nvidia, needless to say, this Tuesday, Nvidia surpassed it by one fell swoop$Microsoft (MSFT.US)$und$Apple (AAPL.US)$It has become the company with the highest market capitalization in the world. The company's stock price has risen by more than 170% so far this year.
In contrast, software application companies seem to have stagnated in the AI era. Although application software makers are passionate about building AI tools, it's unclear whether anyone is willing to pay for it.
For example, AI tools from software service providers can help you use$Salesforce (CRM.US)$Write a paper, in$Workday (WDAY.US)$Summarize the skills of employees in$Adobe (ADBE.US)$The company's Photoshop creates images according to prompts... But Bloomberg points out that in the year and a half of the AI craze, these tools haven't brought much revenue to these software service providers. For large application software companies, sales related to artificial intelligence will not appear on the profit sheet until next year or the year after.
In many cases, software companies can't even decide how to charge. Some companies use AI as a selling point for high-priced subscriptions, while others, such as teleconferencing software service providers$Zoom Video Communications (ZM.US)$——It's just a free bundle of artificial intelligence features.
Investors have run out of patience.$iShares Expanded Tech-Software Sector ETF (IGV.US)$It is a commonly used measure of the industry. After rising 59% in 2023, the ETF has only risen about 3.5% this year.
In the era of mobile internet, applications account for the majority of the entire market, and computing power and infrastructure account for relatively little. Because the power of the internet is to “connect,” it needs to be used to redeem value. However, in the AI era, the underlying aspect — computing power and infrastructure — accounts for a higher share because it focuses on “generation.”
KeyBanc analyst Jackson Ader said that most of the AI industry's current spending goes to hardware or cloud infrastructure for training and deploying large models. Ader also notes that in many cases, these expenses are at the expense of traditional software vendors. Most company CIOs take a “wait-and-see” attitude towards AI-based applications, he said.
Furthermore, discussions continue on “AI instead of programmers,” “AI instead of drawing tools,” and “AI instead of customer service”... One long-standing concern is that unemployment anxiety in the software industry will spread. A new Citibank research report this week also pointed out that about 36% of jobs in the software platform industry have high potential to be “replaced by AI.”
Goldman Sachs analyst Kash Rangan raised this question to Adobe management during last week's earnings call. He asked if generative AI is good enough to be the terminator of the creative process. As a result (due to AI replacement), we no longer need creative people. Rangan pointed out that this is a major issue debated by investors.
Editor/Somer