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ZDNET’s key takeaways
- The AI boom has fueled hefty investments in software companies.
- Yet, not all software companies are seeing the same boost.
- Investors favor companies providing infrastructure for AI solutions.
Billions of dollars are flowing into artificial intelligence companies such as OpenAI and Anthropic, yet investors in software firms that should also be well-positioned to benefit from the AI boom have largely been left on the sidelines.
Cloud-based company Salesforce is down 28% year to date, closing at $240.36. Adobe is down 21% ending at $346.74. And a Morgan Stanley basket of SaaS stocks, a group of software-as-a-service companies the bank tracks to gauge sector performance, fell more than 6% this year.
The companies are certainly trying to jump on the AI bandwagon.
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For instance, Salesforce has been quick to embrace AI, with a plethora of AI offerings, including Einstein Copilot — its very own conversational AI assistant, which layers on top of customer data, including sales, customer service, marketing, and commerce AI solutions.
Similarly, Adobe unveiled a suite of generative AI tools packaged under its Firefly offering, folded into its consumer tools, including Adobe Photoshop and Premiere, its enterprise digital marketing solutions, and as a standalone AI chatbot-like experience.
However, investors are focused on companies that provide the infrastructure that makes AI productivity possible. Because every AI application depends on vast amounts of data, the firms that specialize in storing, organizing, and delivering that data have emerged as the ones investors value most.
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“Infrastructure AI firms as well as AI PaaS (Platform-as-a-service) providers have benefited more directly from AI because AI adoption starts with data and compute: enterprises need scalable platforms to store, process, and feed data into AI models and applications,” saidArun Chandrasekaran, distinguished vice president Analyst at Gartner.
Snowflake, the one software company that has caught investors’ attention, fits that mold. The company is a cloud-native data warehouse that lets organizations store, process, and analyze massive volumes of structured and semi-structured data. Companies can scale computing power up or down as needed, making it a flexible hub for enterprise data and a critical player in the AI boom.
SNOW is up about 43% year to date and nearly 96% over the past 12 months on the NASDAQ. During that same period, its market cap has more than doubled, reaffirming its position as one of the fastest-growing cloud software companies.
Data is the fuel that powers AI solutions, and managing it effectively is critical to maximizing returns on costly AI investments, making software infrastructure providers essential for new companies looking to capitalize on AI and increasingly attractive to investors.
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“The algorithms may be great, but if your data is garbage, in reference to the garbage in, garbage out analogy, then you may have garbage outcomes,” said Omer Minkara, vice president, principal analyst at Aberdeen Strategy and Research, which is owned by ZDNET’s parent company, Ziff Davis. “So you may have a Ferrari, but if you’re putting bad oil or bad fuel into it, you’re not going to get far.”
Snowflake isn’t alone. Oracle recently surged after reporting fiscal first-quarter results that showed strong growth in its remaining performance obligation (RPO), future revenue from contracts that are already in place. The Wall Street Journal later reported that OpenAI, the AI research company behind ChatGPT, signed a multiyear deal to purchase computing power from Oracle, contributing to that RPO growth.
The deal highlights the scale and ongoing demand for cloud infrastructure. Just as Nvidia has become indispensable by supplying the hardware that powers AI, infrastructure-adjacent SaaS and cloud providers are proving equally critical to the ecosystem.
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For investors, the signal is clear. Nathan Punwani, a doctor based in Arizona, purchased Oracle stock early this year. By Sept. 10, his position was up 40%.
“FAANNG, Microsoft was getting all the attention, and I figured at some point a rotation would happen to help Oracle,” said Punwani. “I always thought there was room for a fourth cloud operator.”
Salesforce ($233 billion), ServiceNow ($194 billion), and other software companies face challenges beyond AI. R ‘Ray’ Wang, principal analyst and founder of Constellation Research, explained that their large market caps make it harder to deliver massive stock moves without major catalysts
Still, Wang believes it may be too early to write them off entirely. “They [Salesforce] are leading the conversation on Agentic AI,” he said. “If you buy the dip, this could be the beginning of a new cycle.”
Beyond AI, companies always contend with a variety of factors impacting stock. Salesforce, in particular, has had a challenging year, with a notable number of cybersecurity attacks targeting companies for sensitive customer data. The list of companies targeted includes household names such as Credit Bureau TransUnion, Carmaker Stellantis, and Workday.
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