Left behind in the AI boom

Hi, It’s Brody Ford in New York. Some of the biggest software makers are getting left behind in the AI boom. But first... Three things you n [View in browser]( [Bloomberg]( Hi, It’s Brody Ford in New York. Some of the biggest software makers are getting left behind in the AI boom. But first... Three things you need to know today: • The US is asking its allies to help [restrict China’s AI chip progress]( • Elon Musk’s X is planning to introduce a [Venmo-like payment feature]( • Amazon was fined $5.9 million over [warehouse productivity quotas]( AI is eating software Every day in my email inbox, there’s another press release from a tech company launching a generative artificial intelligence feature. It’s clear that application makers are laser-focused on building AI tools. What’s less clear is whether anyone is willing to pay for them. New generative features let you craft pitches using Salesforce, summarize your employees’ skills in Workday, create images from prompts in Adobe Inc.’s Photoshop, and automatically draft responses to IT requests in ServiceNow. But a year and a half into AI mania, there isn’t much revenue to show for this work. For most big application software companies, AI-related sales won’t appear on the profit-and-loss statements till next year — or the year after that. In many cases, software companies can’t even decide on how to charge for them. Some are using AI as a pitch for higher-priced subscription tiers, others are selling “generative credits,” and a few others — like Zoom Video Communications Inc. — are just [bundling AI features for free](. Investors have lost patience. The iShares Expanded Tech-Software Sector ETF, a common gauge of the industry, has gained about [3.5% this year](bbg://screens/IGV%20US%20Equity%20TRA) after jumping 59% in 2023. Meanwhile, makers of AI-oriented hardware like Dell Technologies Inc. have seen massive rallies. On Tuesday, Nvidia Corp. passed Microsoft Corp. and Apple Inc. to become [the world’s most-valuable company](. That’s because most AI spending at this point is going toward hardware or cloud infrastructure, which is used to train and deploy models, said [Jackson Ader](bbg://people/profile/23773536), an analyst at KeyBanc. In many cases, that spending has come at the expense of traditional software vendors like Salesforce Inc. that were prioritized in recent years, Ader added. Most CIOs are in a “wait-and-see” mode on AI-based applications, he said. Bloomberg There’s also a longer-term worry that AI could dent the software-as-a-service business altogether. Most computer applications are charged per user, so revenue growth is premised on corporate customers continuing to hire. But one of the main pitches of AI is efficiency – you need fewer customer service reps to serve the same user base, for example. Not all companies will reinvest labor savings into hiring more people. Job losses will hurt future growth for software based on “seats,” the number of workers using it. [Kash Rangan](bbg://people/profile/22095432), an analyst at Goldman Sachs, posed the question to Adobe’s management during an earnings call last week. “Will generative AI be so good that it’s the end of the creative process — so we don’t need creative folks,” he asked, noting it was a major point of debate for investors. Since AI will make software easier to use, it will expand the customer base, replied Chief Executive Officer Shantanu Narayen. As for hardware and infrastructure getting all the attention in this wave of AI spending, the veteran Adobe CEO said that customer focus will eventually swing back to use of AI within applications, or else all that investment in chips and servers wouldn’t have been worth it. Still, for most software companies, the timeline for making money from AI is a ways out.—[Brody Ford](mailto:bford61@bloomberg.net) The big story Chipmaker Nvidia is now the [world’s most-valuable company](, with a market cap of $3.3 trillion, leaping above Apple and Microsoft. The stock has almost tripled this year as investors see continued huge demand for the company’s artificial intelligence processors and other AI products. One to watch [Waabi Innovation Inc. CEO Raquel Urtasum talks on Bloomberg Television about the startup’s efforts on AI and autonomous driving.Â]( Bloomberg Technology podcast [Foundering: The OpenAI Story is a narrative podcast that examines the rise of Sam Altman, from the time he was a 19-year-old startup founder, then the head of Y Combinator, and now the billionaire king of this AI boom.]( Get fully charged Sequoia is backing a startup using [AI to automate coding tasks](. Los Angeles public schools are banning mobile phones during the school day to help students avoid distractions and [improve their mental health](.[Â]( Nintendo announced new [Zelda and Mario games]( ahead of console launch. HBO Max hit a single-day audience record even as [House of the Dragon viewership fell.]( More from Bloomberg Bloomberg Screentime: The entertainment landscape is shifting rapidly. Cable empires are crumbling, streaming giants face new challenges, and innovative forces are on the rise. 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