Siemens AG, the German industrial giant, believes that artificial intelligence poses a far smaller threat to its software business compared to its peers. This confidence stems primarily from the extremely high standards that core industrial processes covered by its product lines must meet, which are exceptionally difficult to achieve. The company also stated that the exceptionally strong demand in the industrial sector leaves no possibility of its business being "completely disrupted by AI." Siemens, adorned with a "HALO" halo, is highly confident about its future growth prospects and shows no fear of AI-related threats. This highlights how the HALO investment theme remains a top choice for global capital, even amidst pessimistic narratives of "AI disruption" and disturbances from renewed geopolitical conflicts in the Middle East.
According to reports, Cedrik Neike, head of Siemens' Digital Industries division, stated in a media interview on Monday that major buyers of Siemens' industrial software and AI-related products—primarily including automotive manufacturers and pharmaceutical giants—have zero tolerance for errors in the products they manufacture. This ensures long-term demand for Siemens' products. The Digital Industries division is one of the world's largest automation businesses, encompassing machine control and factory simulation software for creating digital twins.
"AI can and will change everything—some changes will come very quickly, while others will take longer," Neike said during the interview. He emphasized that factory software, which must meet quality and reliability certification requirements or guidelines, will continue to support strong demand for its high-end product lines. He specifically cited Siemens' exclusive chip design EDA software as an example. "If your deviation is just a tiny 2 nanometers—much finer than a human hair—you might end up having to scrap a large number of high-performance chips," he stressed.
Notably, Siemens is one of the world's top three chip design software (EDA software) manufacturers. Mentor Graphics, which alongside Synopsys and Cadence forms the global EDA triumvirate, was officially acquired by Siemens in 2016 and integrated into its Digital Industries division, being renamed Siemens EDA in 2021.
According to top global analysts, including those from UBS, Siemens benefits not only from the "resistance to AI disruption" catalyst provided by the "HALO" halo but also from powerful structural growth drivers fueled by emerging industrial-grade "AI+" software product lines. Consequently, the market awards it a dual premium for being both "AI-disruption-resistant" and having a "potential AI-driven growth trajectory."
While recent releases of AI agent products focused on high-efficiency automated workflows from leaders like Anthropic and OpenAI threaten to replace certain functional software services at much lower costs, leading to heavy selling pressure on global software stocks, Siemens appears resilient. The iShares Expanded Tech-Software Sector ETF (ticker: IGV), which tracks the US software industry, has fallen approximately 30% from its September peak, plunging deeply into bear market territory.
The pessimistic "AI disruption" narrative since February stems from growing market concerns that viral AI agent workflows like Claude Cowork and OpenClaw could undermine entire software empires based on SaaS seat subscription models. This selling rapidly spread to insurance, real estate, trucking, and other industries perceived as reliant on seat-based revenue or labor-intensive business models—sectors thought to be ripe for AI disruption.
Not only US stocks but software sectors globally have faced sustained declines since February due to "AI disruption" fears. Despite a surge in buybacks from US software companies, investors remain unconvinced, as the core worry is the long-term reshaping of fundamentals and business models by AI agents like Claude Cowork and OpenClaw.
This German industrial giant, with a diverse clientele including Heineken, TSMC, Johnson & Johnson, and Toyota, has significantly bolstered its software business through major acquisitions in recent years. This led some investors to believe it might be more vulnerable to broad concerns about AI disrupting business models. SAP SE, Europe's largest software company based in Germany, has lost about a quarter of its market value since the start of the year. In contrast, Siemens is down about 10%, having recovered most of its losses since February.
As illustrated, the "SaaS software doomsday" narrative has impacted the share price of German software giant SAP far more severely than Siemens. Both companies experienced sharp short-term sell-offs due to AI disruption fears. However, neither Siemens' management nor its long-term investors fear the "AI disruption" narrative. Even before the Digital Industries head highlighted robust industrial demand as a shield, investors flocked to the "HALO theme," with Siemens being a popular pick, helping its shares recover most losses incurred since the "AI disruption" wave hit markets in early February.
The core investor concern is that AI might enable companies to develop their own software internally, reducing reliance on expensive products from suppliers like Siemens. Examples of Siemens' products include Teamcenter software used by automakers to manage the design and manufacturing of automotive battery components.
Andre Kukhnin, a senior analyst at UBS, stated, "If we look at customer bases like aerospace and defense, automotive, or consumer electronics, the cost of error is simply too high. It makes no sense to risk running more design prototypes or real-world simulations just to save a few tens of thousands on software licensing."
Currently, integrating acquired assets and adjusting sales models have weighed on the Digital Industries division, which contributed approximately 22% of the group's total revenue in fiscal 2025. Neike indicated that the division has nearly completed its transition to a cloud-based subscription model. This transition phase, where customers shift from one-time upfront license fees to recurring charges, has somewhat suppressed revenue. With this transition largely complete, software updates can now be delivered conveniently via the cloud with a single click, replacing separate software package installations.
"Now, even smaller companies that previously couldn't afford expensive full software packages or lacked access can do so," Neike said. He added that while the pricing model needs to evolve from the current user-based system to one based on usage or enterprise-level operations, it will continue to operate on a subscription basis.
As shown, Siemens is shifting from its industrial foundation towards software growth—software now accounts for over one-third of the Digital Industries division's fiscal 2025 revenue. Under CEO Roland Busch's leadership, Siemens remains a major global manufacturer of trains and core industrial equipment. However, it has accelerated its push into software through acquisitions like Altair and Dotmatics, totaling approximately $15 billion.
In a January media interview, Busch stated that the company is seeking more acquisitions related to artificial intelligence, life sciences, and operational software.
As one of the oldest large industrial enterprises still operating, this global engineering leader has repeatedly reshaped its portfolio, spinning off former core businesses including Osram, chipmaker Infineon Technologies AG, and more recently, investor-favored Siemens Energy AG (gas turbine manufacturer) and Siemens Healthineers AG (medical device maker).
The software transformation of this Munich-based traditional industrial giant dates back to the 2007 acquisition of UGS Corp. Today, software accounts for about one-third of the Digital Industries division's revenue.
James Moore, Head of European Capital Goods at Rothschild & Co Redburn, said, "Siemens has mastered factory floor automation and holds a very strong market share position in engineering software. If Siemens can successfully establish leadership in the emerging industrial AI technology layer—where it will face new competition from US tech giants like Amazon and Google—it could enjoy even stronger fundamental growth than before."
With the "AI disruption" narrative severely impacting US markets favoring digital and light assets, European markets, with their focus on physical assets and stable cash flows from the "old economy," are becoming increasingly attractive to investors seeking alternatives outside the US. This is particularly true for traditional European industrial giants like Siemens.
Strategists from Wall Street giant Goldman Sachs noted in a report that companies with heavy, tangible production assets are significantly outperforming the global equity market, which is a core reason for European stocks outperforming US stocks. As global investors, including hedge funds and retail investors, actively seek safe havens from the "AI disruption" storm, they are collectively turning their attention to HALO (Heavy Assets, Low Obsolescence) stocks—those focused on heavy assets with low risk of AI obsolescence. These stocks have a higher weighting in Europe, while US markets are skewed towards "light capital" stocks.
The "HALO effect" cited by Goldman Sachs does not refer to the psychological "halo effect" but rather to companies whose value derives from physical assets/core capacity/manufacturing networks/infrastructure that are costly to replicate and have long lifespans. These are therefore considered less susceptible to rapid AI replacement or "technological obsolescence" and more likely to receive a "safe haven premium" during periods of AI anxiety.
"The market is rewarding capacity, dense manufacturing networks, traditional industrial infrastructure, and extremely complex manufacturing project engineering—assets that are prohibitively expensive to replicate and require AI systems to incur massive costs for 'trial-and-error' processing or production experiments, making them less vulnerable to AI-driven technological obsolescence," the Goldman Sachs strategists wrote.
Siemens is a prime representative of the globally popular HALO investment theme. While possessing software and digital businesses, it also has deep exposure to industrial automation, engineering software, factory infrastructure, and real physical assets. It is not a "pure software story" easily disrupted overnight by general-purpose AI models. In the view of some Wall Street analysts, a more accurate label for Siemens is a "large industrial AI platform stock adorned with a HALO halo." This explains why its long-term bullish investors are more confident than those of many pure software companies, and why its gross and operating profit margins are significantly stronger than those of the purest energy or utility-type HALO heavy asset plays.
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