“Software is eating the world!” ~ Marc andsses
In 2011, Marc Andreessen, one of the world’s top venture capitalists (and an early investor in companies like Stripe, Waymo, and Anduril, to name a few), famously and rightly proclaimed, “Software is eating the world.” Andreessen’s bold prediction was based on the fact that software was turning traditional business upside down, becoming fundamental to both business and modern life, and how these companies were undervalued at the time.
“The most ironic outcome is the most likely.” ~Elon Musk
Ironically, the artificial intelligence revolution has caused Wall Street to come full circle and begin to wonder whether AI will disrupt or “eat” software, just as software did to other companies more than a decade ago. As always, investors should research history to gain the most informed insights, as history often repeats itself – especially on Wall Street.
“You adapt, evolve, compete or die.” ~Paul Tudor Jones
Historical precedents tell us that the answer to the AI software question is unlikely to be a clear-cut answer. Instead, the companies that fail or are slow to adapt or integrate AI technology will fail, while those that do will succeed. Below are three examples of companies that failed to adapt to disruptive technology:
1. Blockbuster Video: In the late 1990s, Blockbuster dominated the video rental industry. However, instead of embracing new technology (the DVD and later streaming), Blockbuster went bankrupt. To make matters worse, Blockbuster’s management team famously and ignorantly turned down an offer to buy Netflix(NFLX) for $50 million. Today, Netflix is worth $500 billion.
2. Border group: Like Blockbuster, the bookseller’s lack of foresight and initiative led to its demise. Instead of embracing the Internet, Borders refused to expand beyond its physical locations, ultimately leading to its bankruptcy. Ultimately, Amazon (AMZN) disrupted the physical book market with its Kindle and e-commerce store for physical books. While Amazon is still the dominant player in the industry today, it’s worth noting that Barnes & Noble (a direct competitor of Borders) was able to survive by embracing e-commerce.
3. Kodak: Although Kodak was among the first to invent digital cameras, management foolishly suppressed internal technological innovations, fearing that such innovations would cannibalize the old, highly profitable film industry.
Regardless of era or technology, numerous other examples exist. It should be abundantly clear to investors that embracing technology, taking risks and keeping an open mind are integral to success.
Although private, OpenAI is perhaps the most important company on the planet today. For example, Advanced micro devices (AMD) rose 43% this week after securing a deal with parent company ChatGPT. In the field of software, Shopify (SHOP) gained more than 6% earlier this week after signing an agreement with OpenAI. Shopify operates a leading e-commerce platform that allows customers to start, scale, market, and manage an online business.
Under the terms of the deal, Shopify will integrate with ChatGPT to allow chatbot users to discover and purchase products directly within a ChatGPT conversation, essentially creating a new company. Shopify’s partnership with the fastest growing application essentially creates a new way to shop online, allowing Shopify to continue to reach a large audience. Unlike software laggards, Wall Street analysts expect Shopify to generate double-digit revenue growth for the foreseeable future.
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Figmas (FIG) flagship product is a web-based interface that allows designers, product managers, and developers to collaborate and create digital products. Investors can imagine Figma as Microsoft (MSFT) Teams, but for designers.
Figma is another company fortunate enough to partner with OpenAI. Earlier this week, OpenAI CEO Sam Altman announced that Figma users will be able to trigger Figma-related actions directly with ChatGPT. Like the Barnes & Noble example discussed earlier, the Figma partnership is an example that embraces new technology and doesn’t shy away from it.
Technically, FIG, which went public in late July, is the right side of a classic IPO U-turn basic structure.
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Salesforce-(CRM) is the leading provider of on-demand Customer Relationship Management (CRM) software, helping organizations better manage critical operations such as sales automation, customer service and support, analytics and marketing automation.
When asked about the potential AI disruption to CRM’s business, CRM CEO Marc Benioff offered an intriguing counterargument. Benioff revealed that Salesforce left more than 100 million sales leads unattended due to human limitations. Because CRM’s internal AI makes salespeople much more efficient, Salesforce can handle more leads with fewer employees, increasing revenue and reducing costs. While fears of AI disruption have led to sluggish price action, CRM stock continues to track its long-term 200-week average, a level where the stock has found support numerous times over the past fifteen years.
Image source: TradingView
In short
The cycle of disruption is a constant in the technology world, and the rise of AI is the latest test for the software industry. As history repeatedly shows, the companies that thrive will embrace and integrate new technology – not run away from it.
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