Recent developments in the technology sector have shifted perceptions regarding artificial intelligence (AI) and its impact on corporate earnings. Initially, investors believed that the substantial $600 billion annual capital expenditure directed towards AI would bolster stock prices, benefiting the companies generating revenue from AI services. These include AI model developers, data center operators, and energy suppliers supporting these operations. Major players in the tech industry maintained that the demand from clients outstripped their capacity to provide AI solutions.
However, a dramatic shift occurred in the last 24 hours as traders began to recognize that AI could also pose a threat to revenues for numerous adjacent tech businesses. This warning was particularly highlighted by Palantir’s CEO Alex Karp and CTO Shyam Sankar during their recent earnings call, where they conveyed that advancements in AI could render various enterprise software providers obsolete, companies that have traditionally relied on recurring revenues from software-as-a-service (SaaS) offerings.
The announcement triggered a considerable selloff in tech stocks, erasing about $300 billion in market capitalization in just one day. Following this downturn, S&P 500 futures showed minimal movement after closing down 0.84% the previous day. Specific SaaS companies experienced substantial losses: Microsoft shares dropped by 2.87%, SAP fell 3.29% in Germany, Salesforce saw a loss of 6.85%, and ServiceNow suffered a 6.97% decline.
On the earnings call, Palantir’s Sankar emphasized the efficiency of their “AI forward deployed engineer” tool, which can drastically cut the time required for complex SAP enterprise resource planning migrations—from years down to as little as two weeks, demonstrating the potential of AI to enhance productivity.
In a note released to clients, analysts from Jefferies, Akshat Agarwal and Ayush Bansal, articulated concerns that AI innovations could diminish revenues for a wide variety of tech firms. They pointed out that application services constitute a significant portion (40% to 70%) of revenue for many tech companies in India, creating challenges for growth amid the rapid advancements in AI technology.
Ed Yardeni from Yardeni Research echoed these sentiments, suggesting that a recent rollout of new AI tools by Anthropic drove software stock valuations lower, despite it being too early to evaluate their effectiveness fully.
In contrast, SAP countered the concerns expressed by Karp, arguing that while AI agents will enhance the capabilities of SaaS solutions, they will not replace them. A spokesperson highlighted that SaaS providers hold crucial data and established processes that are essential for the successful deployment of AI solutions, emphasizing the ongoing need for reliable data structures within businesses.
As markets prepare for today’s opening in New York, the conversation remains focused on balancing the optimism surrounding AI’s potential with the realities of its disruptive capabilities, pushing companies to adapt to an ever-changing technological landscape.