The proliferation of AI is taking a toll on enterprise software stocks — and the overhang could persist moving forward.
“Software and services as we know them are going to be profoundly affected by AI,” Snowflake (SNOW) CEO Sridhar Ramaswamy told me at the Goldman Sachs Communacopia + Tech conference on Monday. “There is just no question about it.”
Top enterprise software stocks such as Salesforce (CRM), SAP (SAP), and Oracle (ORCL) have come under pressure of late as investors fret about AI rendering their offerings at future risk.
The narrative hasn't been reflected in recent earnings reports. Salesforce co-founder and CEO Marc Benioff pushed back hard on the concerns on his Sept. 3 earnings call.
“This idea that there's some kind of AGI [AI] that's about to take over the whole world, well, let me just help everybody understand that's not exactly what's about to happen, that we have this incredible capability, which is the large language model, which is the next step in artificial intelligence,” Benioff said.
“Remember, this is a dynamic world,” Ramaswamy said. “The software companies are not going to be sitting still. They are going to figure out how they can disrupt themselves, how they can create new services. But what I feel very confident about is this is very much a before and then after moment.”
As for Snowflake, the data analysis company is fresh off a strong second quarter.
Product revenue rose 32% year over year to $1.09 billion. The company clocked in with a 125% client retention ratio.
For the third quarter, Snowflake sees product revenue rising in a range of 25% to 26%, to $1.125 billion to $1.13 billion.
Snowflake stock is up 46% year to date, outperforming the S&P 500's 10% advance.
“We believe that the combination of accelerating revenue growth — now in the high 20's% — driven by stabilization in the core and contributions from AI and data engineering workloads — and operating margin leverage can drive further multiple expansion from current levels. We continue to believe there is room for further upward revisions to guidance and Street estimates,” Evercore ISI analyst Kirk Materne said.
Brian Sozzi is Yahoo Finance's Executive Editor and a member of Yahoo Finance's editorial leadership team. Follow Sozzi on X @BrianSozzi, Instagram, and LinkedIn. Tips on stories? Email brian.sozzi@yahoofinance.com.
Click here for the latest stock market news and in-depth analysis, including events that move stocks
Read the latest financial and business news from Yahoo Finance
