Tigerong
09-13 09:53

The rise of AI poses a threat to software stocks. A powerful enough AI can customise a company’s software, or at least call into question the value of standardised software that costs more than an AI subscription and doesn’t fully suit a business’s operating needs. Some companies may switch to AI to disintermediate software altogether, which would mean less revenue for software companies.

But the reality is that most software stocks are still reporting revenue growth. That’s because the stock market is forward looking, and prices in the future impact on software fundamentals well in advance. That said, investors may have gotten too pessimistic on software and too optimistic on AI. In July, overleveraged AI bets got unwound and software stocks soared. The proxy VanEck Semiconductor ETF (SMH) fell 8.61% since 1 July, while software proxy WisdomTree Cloud Computing Fund (WCLD) rose 22.69% over the same period.

Big gains in AI trades were met with big drops in software stocks. The two sat at opposite ends of the performance scale among S&P 500 constituents. So while investors may think that holding both AI and software stocks offers diversification, the fact is the two probably neutralised each other.

Can AI investment be honored? Who is more worth looking forward to in the financial reports of the four major technology giants?
US technology giants ushered in a period of intensive earnings release. After Google's financial report last week, investors' worries about high capital expenditure and free cash flow pressure heated up. Whether technology giants can prove the liquidity and capital expenditure efficiency of AI business will become the key to this round of financial report. Microsoft and Meta will announce their earnings after the market bell on July 29, and Apple and Amazon will release their latest results after the market bell on July 30. Of these companies, whose performance do you expect the most?
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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