AI and Software Revisited: Opportunities Moving to the Forefront

Back in late March, when the AI hype machine was in full swing, we commented on the market’s search for software beneficiaries of AI.  Jensen Huang’s keynote at the company’s flagship conference underscored that although the potential of AI software was being widely discussed, the real action was then very much in hardware.  A speculative surge in the U.S. software sector was being driven by expectations of AI’s transformative impact, reminiscent of the initial excitement about personal computers and the internet. 

It’ll Be Awhile Before Software Comes To the Fore…  But There Are Investment Opportunities Here and Now

However, we then noted that the tangible financial benefits for software innovators may be delayed.  The accelerated pace of AI adoption relative to earlier mega-innovation cycles might shorten this delay, particularly in sectors already technologically equipped.  Notable presentations at NVDA’s GTC highlighted (for example) AI’s evolving role in healthcare and drug discovery, stressing that while initial AI applications might underwhelm, rapid iteration will lead to substantial improvements.  We advised investors to focus on monitoring AI software development, keeping in mind that while hardware currently dominates, the software sector holds promising long-term potential.

The months since have confirmed us in this view, even as the performance of software companies has languished since their January and February run-up, and the hardware winners have continued to be the leaders.  Progress is being made in software, but market consciousness is accepting that proving it out and developing it is not going to be an instant process. 

The Underperformance of Software Is Creating Opportunities