Talk about ending on a high note. A strong earnings season was winding down only for Nvidia, Salesforce and CrowdStrike to deliver a trio of blockbuster reports which should give the AI trade another lease of life and potentially end the chips vs software debate.
Between them, the three companies delivered a reminder that sometimes it's best to bet on the incumbents. Chip maker Nvidia's outlook for 70% sales growth in its next fiscal year was way ahead of Wall Street expectations. Enterprise software giant Salesforce bumped up its own forecasts, as did cybersecurity company CrowdStrike.
Apart from the numbers, the takeaway was that investors have been too quick to assume artificial intelligence will mean disruption for market leaders rather than an opportunity.
Nvidia stock has been dogged by fears of the rise of custom AI chips from the likes of Amazon. But on Wednesday, Amazon said it would deploy an additional two million of Nvidia's processors. Salesforce shares have slumped on concerns over AI-driven rivals-so it announced an expanded partnership with Anthropic, in direct response. And while investors had already begun to recognize AI cyber threats mean more business for CrowdStrike, not less, the scale still looks underappreciated.
Another misunderstanding which might be put to bed is the assumption only hardware or software stocks can be winners at any one time. Coming into August, a popular bet was on AI being a boon for hardware and hurting software companies. The blowup of hedge fund Situational Awareness-the most aggressive exponent of that trade-had already weakened the thesis and the latest earnings might kill it off for good.
It might not be particularly smart-sounding to assume AI benefits will accrue to the existing big companies, be those chip companies or software sellers, but sometimes the simple answer is the right one.
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