Will cloud software be ready for its AI moment?
It is too early to determine winners of the artificial intelligence boom, but so far, those companies haven’t been cloud software vendors like Salesforce and Workday. Salesforce’s recent earnings miss, which disappointed investors looking for software-as-a-service companies to benefit from the generative AI hype, may be tied to the fact that the AI investment cycle is still unfolding.
That is why some analysts say the issue for cloud software isn’t a matter of product-market fit but rather timing. By necessity, the first wave of AI investment will boost the stocks of companies developing the technology’s building blocks—the chips and data centers that make AI possible to use.
Shares of companies like chip giant Nvidia and cloud infrastructure companies Google and Microsoft have surged to record highs. After that cycle, investment will go toward application and software firms like Salesforce, but it won’t happen for several more quarters, said Dan Ives, managing director and senior analyst at Wedbush Securities.
A third wave of investment will follow later, as an additional layer of applications is built on top of foundational enterprise apps, Ives added. In the meantime, software and applications companies are becoming some of the first to face a reckoning as generative AI, the technology behind OpenAI’s ChatGPT, is starting to change the way enterprises buy and build their core systems.
Salesforce declined to comment on its earnings. Salesforce and Workday, both software-as-a-service providers that expanded their businesses by selling corporate software in the cloud over a decade ago, are facing scrutiny from investors over what they have described as a tough deal environment in which enterprises aren’t buying as much
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