By Hagen Ernst, Deputy Head of Research and Portfolio Management
From cloud to software: which companies are benefiting from the
AI boom
Artificial intelligence remains the dominant topic in the technology sector. While manufacturers of AI chips such as NVIDIA and Broadcom were the main beneficiaries of this development last year, large cloud providers such as AWS (Amazon), Azure (Microsoft) and Google Cloud are now investing billions in the expansion of fast data centers. AI is also a top priority in the IT budgets of corporate customers and the surge in investment is likely to increase significantly by 2025.
Monetization as a challenge
However, monetizing these developments remains difficult. It remains to be seen whether and how the enormous investments will pay off in the long term. Software companies have a decisive role to play here. Almost all providers are currently working on creating concrete added value for their customers with AI agents, tools and chatbots. Monetization in this area is still at a very early stage. However, customers' willingness to pay is likely to increase if significant efficiency gains and cost savings can be realized through AI.
In contrast to chip and cloud providers, software companies do not have to make risky investments in the expansion of data centers. Many have already developed a variety of AI tools, which are often integrated into existing software solutions free of charge. Nevertheless, it will still be some time before software companies can generate significant sales with their AI products.
Automation is changing the software landscape
Increasing automation through AI will initially lead to a reduction in the number of employees in companies. This has a short-term impact on software expenditure, as this is often linked to the number of users. In the long term, however, customers are likely to be prepared to share some of the productivity gains achieved through AI with the software providers. Currently, large software companies in particular are benefiting from the AI trend. New market players such as OpenAI are not currently in sight in the software sector.
Software companies with a solid customer base and well-structured data are best placed to realize the added value of AI. Such data is easier to analyze and transfer into automated processes than unstructured information, which often remains hidden in in-house software solutions.
One example of a successful positioning in the field of AI is a US software company that is particularly well known for its collaboration with government institutions and military organizations. The company has developed an innovative Artificial Intelligence Platform (AIP) that can support military operations by detecting suspicious activities at an early stage. For example, the AI can sound the alarm if military equipment is moved in the direction of allied forces. The solution is characterized by its ability to seamlessly integrate and analyze large amounts of data. Thanks to its cooperation with various AI models, the platform offers a high degree of flexibility and adaptability.
Increasing productivity through automation
ServiceNow is also well positioned in the field of AI. The cloud-based NOW platform enables the automation of work processes and thus increases productivity. Routine activities can be automated and human interactions can be supported in a targeted manner at the same time. The AI solution optimizes the distribution of workloads and ensures a dynamic, demand-oriented distribution of work.
The NOW platform is also designed to be secure and scalable. It processes large volumes of data and guarantees the integrity of the data. ServiceNow is one of the few companies that is already generating revenue with AI. Although these are still in the single-digit percentage range, they are showing strong growth.
Oracle is also well positioned in the field of AI. As a traditional data provider, the company has extensive expertise in data analysis and evaluation - a key building block for successful AI applications. With Oracle Fusion, the competitor product to SAP in the area of enterprise application software (ERP), AI agents should be able to independently handle simple processes in areas such as finance, HR or procurement after a learning phase.
Oracle has entered into partnerships with the major cloud providers AWS, Azure and Google Cloud, making the Oracle database available to customers on all major cloud platforms. At the same time, Oracle is building its own cloud solution with Oracle Cloud Infrastructure (OCI). The long-standing partnership with NVIDIA is a particular advantage here: the NVIDIA DGX Cloud runs on Oracle's infrastructure. And Oracle has good access to NVIDIA's high-performance processors, which are in high demand.
Oracle's well-known customers include Zoom, Uber and TikTok. At over 50 percent, the company is currently growing significantly faster than its competitors. However, the cloud business only accounts for around 20 percent of total sales to date and the base is comparatively small. While Oracle has usually only achieved single-digit growth in the past, annual sales growth of 16% is forecast until 2029. The company is a good example of how AI can generate new growth.
Salesforce also has considerable AI potential. Savings of up to 30 percent could be achieved in call centers through automation. With Agentforce, Salesforce launched a new AI tool on the market in October 2024. After a learning phase, this AI agent takes over simple work processes such as processing specific customer inquiries. According to Salesforce, one advantage of Agentforce is that the agent is based on a standardized code.
Salesforce's various cloud platforms - including Sales, Services, Marketing & Commerce, Data Analytics and the expensively acquired Slack for collaborative work - are now so well integrated that Agentforce can be used in all areas in the future. In addition, more and more applications are being developed in the areas of service/back office, sales and commerce that benefit from AI.
Salesforce's monetization model is particularly interesting. While many software companies bundle their AI tools in premium versions, Salesforce charges a usage-based fee of two dollars per call request or case processing for Agentforce. Salesforce had already launched an AI platform on the market in 2016 with "Einstein", but it fell short of expectations. Following a disappointing outlook at the beginning of 2024, the share price corrected more sharply.
Agentforce, on the other hand, is considered more mature and is set to increasingly automate business processes. Salesforce has hired more than 1,400 new employees in just a few months for the development and sale of the AI agent alone. However, Agentforce is not expected to generate major sales until the medium term. Over the next three to five years, however, Salesforce could make significant progress in terms of monetization.
Disruption risks due to new competitors
Adobe is currently viewed controversially. The company was seen as one of the main beneficiaries of AI in mid-2023. With programs such as Photoshop and Illustrator, the company offers proven solutions for image processing - an area that is predestined for the use of AI. With Firefly, Adobe has launched an AI tool on the market that has already been used to create AI-generated images worth over 13 billion US dollars. Videos can now also be generated using AI, which makes it much easier to create, personalize and reuse advertising campaigns.
However, the great opportunities are also accompanied by considerable disruption risks. In 2024, for example, OpenAI and Meta presented their own AI tools for generating images and videos. This has led to intensified competition, particularly in the consumer segment. Adobe therefore underperformed in 2024. However, Adobe solutions offer comprehensive functionalities, particularly for customers who create sophisticated advertising campaigns, monitor content and play it out via various media formats such as social media, the internet or TV. They also offer better protection against cyberattacks and copyright infringements.
High investments in AI infrastructure
Microsoft is also viewed controversially in connection with AI. With products such as CoPilot and GitHub, as well as its close partnership and involvement in OpenAI, the company is one of the leading players in the field of AI. Azure's cloud business grew by 34 percent in the last quarter - twelve percentage points of which are attributable to Generative AI alone.
The flip side of this success story, however, is the enormous investment required to expand the AI data centers. In the last quarter alone, Microsoft invested 14.9 billion US dollars in the expansion of its infrastructure. For the year as a whole, investments are estimated at between 55 and 60 billion US dollars. Some investors now fear that these investments will not pay off - while there was still great euphoria surrounding AI at the beginning of 2024.
The future of AI: growth potential and obstacles
At the beginning of the rapid development in the field of AI, it was primarily the providers of high-performance chips that benefited from the advances. Now the focus is shifting to monetization. Software companies play a key role in this. Considerable savings potential can be realized through AI, particularly in image and video processing as well as in sales. AI is also increasingly being integrated into traditional business applications (ERP) such as finance, procurement and HR in order to simplify and automate processes.
Established companies with a solid customer and data base are of particular interest to investors. These companies are already offering their customers the first AI tools, which are increasingly being adopted. Even if monetization will take some time, it can be assumed that software providers will receive a "fair" share of the productivity gains achieved through AI in the long term.
Nevertheless, caution is advised. In addition to the opportunities, AI also harbors considerable risks. Disruption risks are likely to increase - it is therefore important to keep a close eye on new products and competitors.
Legal information
Marketing advertisement: All information published here is for your information only and does not constitute investment advice or any other recommendation. The statements contained in this document reflect the current assessment of DJE Kapital AG. These may change at any time without prior notice. All statements made have been made with care in accordance with the state of knowledge at the time of preparation. However, no guarantee and no liability can be assumed for the correctness and completeness.