Until recently, the narrative around AI was that the $600 billion in annual corporate capital expenditures (“Capex”) it was good for stocks in the short term. Companies that receive that money as new revenue (AI model makers, data center builders and the energy companies that supply them) will benefit immediately. The efficiency provided by AI will be good for both tech and non-tech companies. Big tech hyperscalers have always argued that demand from their revenue-paying customers far exceeds their ability to supply AI services.
That narrative was turned on its head in the past 24 hours as it dawned on traders that AI has potential too. reduce Revenues from a huge range of adjacent tech companies.
Palantir CEO Alex Karp and CTO Shyam Shankar made the argument in their recent earnings call that AI is now so good at writing or managing enterprise software that it threatens to render irrelevant the range of tech companies that have enjoyed recurring revenue from providing enterprise apps for years.
That led to a massive selloff in tech stocks, wiping out $300 billion in market cap in a single session.
S&P 500 futures were flat this morning after closing down 0.84% last night.
SaaS companies took major hits: Microsoft closed 2.87%; SAP was down 3.29% in German markets this morning; Salesforce lost 6.85% yesterday and fell further in overnight trade; ServiceNow was down 6.97% yesterday and was slightly lower overnight.
Palantir’s Shankar said on the call that his company’s “AI Forward Deployed Engineer” product — which allows customers to manage software and codebases through natural language commands — has been able to reduce the time it takes to complete “complex SAP ERP migrations” from “years of work” to “two weeks.” (ERP stands for “enterprise resource planning”, and refers to a service provided by SAP around helping companies transition from old legacy systems to new systems.)
Karp added: “In the US market, we are insiders [requests from clients] Where people have already seen proof points in other companies and not in a use case. [There is] Numerous use cases.”
Jefferies analysts Akshat Agarwal and Ayush Bansal – who focus on Indian enterprise tech companies – published a note this morning saying AI has the potential to cut the revenues of a wide range of tech companies:
“Anthropic’s Cowork plugins and Palantir’s claims of faster SAP migrations highlight how AI can potentially reduce application services revenue for IT firms. Application services account for 40% to 70% of revenue. [for tech companies in India]IT firms face growth pressure. Consensus growth estimates do not fully reflect this, posing a downside risk to the valuation,” they warned. Cloud CoWork is like a general purpose work assistant that can manage tasks and files autonomously.
