Software Revenue Lags Despite Tech Giants' $292 Billion AI Spend

Silicon Valley is betting the farm on AI. Data centers are straining power grids. Model training costs are heading toward billions. Yet across the software industry, AI revenue remains theoretical. From a report: Hyperscalers -- combined with Meta and Oracle -- plan to spend $292 billion on AI infrastructure by 2025 -- an 88% increase since 2023. Two-thirds of software companies, however, still report decelerating growth in 2024.

Semiconductor stocks have surged 43% year-to-date on AI expectations, while the software index IGV is up 30%. Microsoft, despite its OpenAI investment, has underperformed the IGV by 19% since ChatGPT's release. Microsoft's AI revenue run rate is 3% of total revenue, according to estimates by investment bank Jefferies. Snowflake expects immaterial AI contribution in fiscal 2025. Salesforce isn't factoring in material contribution from new AI products into FY25 guidance. Adobe's Firefly AI, launched in March 2023, hasn't accelerated revenue.

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