Wall Street may be getting the AI trade wrong, says Dan Ives, a Wedbush analyst and longtime tech bull.
Ives said on CNBC’s “Closing Bell” published Tuesday that the recent investor pessimism toward software companies is ‘the most disconnected call that I’ve ever seen.”
While much of the AI excitement has centered on data centers, chips, and GPUs, Ives said software will be the “heart and lungs of the AI revolution.”
The infrastructure buildout is still in its early innings and could stretch over the next decade. But software is where the real use cases and monetization will emerge, he added.
Ives said it is wrong to assume that big software companies like Salesforce and ServiceNow are “structurally broken” or set to be replaced by AI-native tools.
These companies are deeply embedded in enterprise stacks, with hundreds of thousands of customers, Ives said, adding that their AI use cases could unlock incremental revenue over the next six to 18 months that investors are not yet pricing in.
Large, entrenched platforms should not be compared to smaller players that serve small and medium-sized businesses. “You cannot paint all of them with the same brush,” Ives said.
Ives also defended Microsoft’s role in the AI revolution. While acknowledging near-term concerns around capital spending and Azure growth, Ives said the broader AI rollout cannot succeed without Microsoft’s software and cloud ecosystem.
Software sell-off
Ives’ comments came after software stocks tumbled last week amid investor fears that AI could disrupt large swaths of the industry.
Not all tech and finance leaders think AI will replace traditional software companies. Nvidia CEO Jensen Huang dismissed that idea at a Cisco AI event last week.
“There’s this notion that the tool industry is in decline and will be replaced by AI,” Huang said. “You could tell because there’s a whole bunch of software companies whose stock prices are under a lot of pressure because somehow AI is going to replace them. It is the most illogical thing in the world and time will prove itself,” he added.
Huang said AI depends on the tools software offers and pointed to ServiceNow, SAP, Cadence, and Synopsis as examples of software firms well-positioned in the AI era.
Ives also wrote in an industry note published last week that the “software armageddon” can be regarded as a tech stock “garage sale.”
“We believe the market is baking in a doomsday scenario for software companies in the near-term, which we believe is extremely overblown, as many customers won’t be willing to put their data at risk to capitalize on AI implementation strategies until there is less risk with these migration projects,” Ives and his analysts wrote.
Ives has long urged investors to buy tech dips, even as critics caution that AI enthusiasm may be running ahead of earnings and real-world adoption.
