itstargetnews
Until recently, the narrative around AI was that the $600 billion in annual corporate capital expenditure (“capex”) fueling it good for stocks in the short term. The companies that receive the money as new revenue (AI model makers, data center builders, and the energy companies that supply them) are the immediate beneficiaries. The efficiencies provided by AI are great for tech and non-tech companies alike. Big Tech hyperscalers often argue that demand from their revenue-paying clients outstrips their ability to supply AI services.
That narrative has been turned on its head in the last 24 hours as it dawned on traders that AI is also capable of Alleviating the earnings of a wide range of adjacent technology companies.
The argument—advanced by Palantir CEO Alex Karp and CTO Shyam Sankar in their recent earnings call—is that AI is now so good at writing or managing business software that it threatens to render irrelevant a range of technology companies that, for years, have enjoyed recurring revenues by providing business applications to basic software-as-a-service (SaaS) companies.
That led to a massive selloff in tech stocks, wiping out a $300 billion market cap in one session.
S&P 500 futures were flat this morning after closing up 0.84% last night.
SaaS companies take big hits: Microsoft closed at 2.87%, SAP fell 3.29% this morning on the German market, Salesforce lost 6.85% yesterday and was lower in overnight trading, ServiceNow down 6.97% yesterday and slightly lower overnight, too.
Palantir’s Sankar said on the call that his company’s “AI Forward Deployed Engineer” product—which allows clients to manage software and code bases through natural language commands—can reduce the time needed to complete a “complex SAP ERP migration” from “years of work” to “as little as 2 weeks.” (ERP stands for “enterprise resource planning,” and it refers to a service offered by SAP to help companies transition from aging legacy systems to new ones.)
Karp added, “In the American market, we have inbound (requests from clients) where people have already seen proof points in other companies and not in a use case,” he said. “(There are) many use cases.”
Jefferies analysts Akshat Agarwal and Ayush Bansal — who focus on business technology companies in India — published a note this morning arguing that AI has the potential to reduce the profits of a wide range of technology companies:
“Anthropic’s Cowork plug-ins and Palantir’s claims of faster SAP migration highlight how AI can destroy application services revenues for IT companies. With application services accounting for 40-70% of revenues (for Indian technology companies), IT companies are facing growth pressures. Consensus growth estimates do not fully reflect this danger, which poses the danger of war. Claude Cowork is like a general purpose work assistant able to organize tasks and files autonomously.
“Software stocks are correcting behind it, however, we believe its impact may go beyond software—potentially disrupting downstream application-managed services (AMS) revenues for IT service companies.”
“Our checks suggest that the use of AI is clearly compressing migration timelines which can drag down application implementation revenues for IT services companies,” they added. “AI will drag the revenue growth of IT companies in the next one to two years.”
Ed Yardeni of Yardeni Research made a similar argument in a note to his clients: “Software stocks took a hit because Anthropic launched new tools for its Cowork product. It’s too soon to tell how useful the new tools will be, but investors have decided to cut the valuation of many software stocks.”
SAP has been approached for comment.
Here’s a snapshot of the markets ahead of the opening bell in New York this morning:
- S&P 500 futures are flat this morning. The last session closed at 0.84%.
- STOXX Europe 600 down 0.18% in early trading.
- The UK’s FTSE 100 rose 0.83% in early trading.
- Nikkei 225 in Japan fell 0.78%
- CSI 300 in China increased by 0.83%.
- The South Korean KOSPI increased by 1.57%.
- NIFTY 50 in India is flat.
- Bitcoin down to $76K.
