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There is a notable sector of the tech world that has not been affected by the euphoria surrounding artificial intelligence that is invading the stock market.
If it is generative AI If AI really does represent the next big sales opportunity for the tech industry, software companies should be among the big winners. After all, most AI is likely to appear as enhanced features in the enterprise software that companies rely on in their daily operations.
Yet the BVP Nasdaq index of cloud software companies has fallen nearly 10 percent this year, while the Nasdaq Composite is up more than 20 percent. It has also halved from its pandemic-era peak. The drop points to an industry at a crossroads. A long, secular growth phase fueled by the boom in cloud computing has been a challenge for the industry. cloud It seems to be entering a new, more mature stage, while the next one (the spread of generative AI in business) has only just begun.
At times like this, Wall Street is faced with complex questions. If the cloud business is truly maturing, investors’ focus must shift more quickly from growth to value. Tech companies that recently reported disappointing results, such as Sales forceMongoDB and Workday have tried to pass off the lull as the result of prolonged economic weakness, but the longer it drags on, the harder it will be to sustain that argument. Salesforce’s revenue has doubled over the past four years to $36 billion — at that scale, the slower 10 percent growth it has projected for next year is starting to look more like the norm.
At the same time, investors need to predict which companies will ride the next wave of growth and which will fail to adapt and be left behind.
According to companies themselves, AI’s lack of impact on their sales is simply a matter of timing. Salesforce CEO Marc Benioff, for example, points to the challenge of training large armies of salespeople to handle what he calls “a more difficult and complex sale.” Clients are grappling with a wide range of questions, trying to understand how new AI models work and how their workers should interact with them. They also need to consider how to redesign their work processes to make the most of the technology, as well as deal with new threats to the security of their data.
Although sales are still negligible, software companies are reporting huge interest from customers in trying out their new AI services. This may mean that the AI dividend has been delayed.
However the Disruptive threats from AI There are several factors that suggest things won’t be that simple. One is the radical change in the business model of cloud companies. Most of them rely on charging subscriptions per seat, meaning their revenues increase based on the number of workers using their services. If generative AI works as promised and makes workers much more productive, customers should be able to do more with fewer staff.
The result has been a shift toward consumption-based pricing, or charging based on actual usage of new services. Tying fees to usage has the added benefit of offsetting some of the higher cost of delivering generative AI. But unless this delivers real, demonstrable business benefits, software companies could face a backlash as customers see their bills skyrocket.
Software groups also have to deal with their technological history. In the past, new technological eras (such as the rise of client-server computing in the 1990s and cloud computing in the following decade) have given rise to new waves of software startups. The new companies, with their products and business models designed from the ground up to fit a new computing paradigm, have a big head start.
The first wave of these “AI-native” software companies often seemed like little more than “wrappers” around big language models, adding just a layer of industry-specific expertise while offering businesses ways to embrace generative AI. But they are all working hard to gain a foothold from which they can begin to develop more compelling services.
Salesforce’s Benioff says it will be hard to unseat traditional companies. Companies like his have become the repositories of their customers’ most important data, he says, giving them a huge advantage when it comes to training AI models that companies will find truly useful.
That will only be true if existing cloud companies can adapt their own products and processes to the new technology quickly enough. For now, Wall Street is on tenterhooks.