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.

FTFY

[DjangoShagnasty]

> Software Revenue Lags Because Of Tech Giants' $292 Billion AI Spend

Re: FTFY

[oneiros27]

I assume you're saying that the cost of AI has to come from somewhere...

But AI is being used to replace human workers, so companies no longer need as many licenses.

People talk about how much savings there is from AI because of payroll, benefits, and sometimes even office space... but just think of the savings from the companies forcing people to pay monthly or annual licensing costs for everything. That adds up pretty quickly the way software companies price things these days

Just for perspective

[CEC-P]

A top level E5 license in the US that includes TONS of MS products and services, a call-in phone number hosting for Teams meetings, etc costs about $20/mo if I remember correctly. One copilot license is $30 PER PERSON. That suggests it (sort of) costs more than developing the entire Office 365 suite and cloud.

I can say with some certainty that's an introductory price of a hot new product that they want to push so you get used to it and eventually find it hard to live without before they increase the price

CoPilot

[JBMcB]

In my experience CoPilot is a really advanced refactoring and templating/boilerplate engine that usually works pretty well. It's not worth $30. ReSharper is almost as good once you learn all of it's tricks.

Re:

[CEC-P]

My company has actually gone down the path of only hiring people for jobs involving reporting, analytics, and business decisions who know how to read, type, and do math. So we haven't really seen a need for Copilot or any AI so far. That is, except for legacy employees that I'd describe as having their entire career propped up by Grammarly and caffeine already. Even those types aren't loving the Teams Meeting copilot "summaries" that are longer than the meeting was and puts "Sorry, I have to let me dog out"

Re: Just for perspective

[bazorg]

If AI lets you fire bad workers and make your phone tree more efficient, cool

"press 0 to speak to a customer service rep" should be mandatory by law. Without it, people can be blocked from exercising consumer rights.

It would be fascinating to see how many people choose to follow AI prompts/IVR if there was a direct way to queue for real customer service.

Re: Just for perspective

[paul_engr]

Wait so they want us to pay for copilot? I don't even want that shit if it paid me

AI bubble warning signs flashing purple

[Tablizer]

they ran out of red. The revenue-to-investment ratio is far too small to keep the pace. Investors have limited patience, and AI is hitting a plateau in revenue. Investment money is subsidizing almost every AI tool. It's hardware intensive, so not easy to give away for ad revenue alone, unlike say Facebook.

The poppage might trigger a general recession, so hold on to your hats.

Re:

[gosso920]

They've gone to plaid. This is a parallel to the dotcom boom/bust cycle from the mid-1990s to 2000, when the bubble burst, and the Clinton Recession began.

revenue

[ole_timer]

...the spend is mostly on h/w - gpu's, etc...

Enterprise 3d TV...

[fuzzyfuzzyfungus]

This feels a lot like the attempt to astroturf an alleged craze into actual sales numbers that accompanied 3d TV a number of years ago; except playing out mostly at the enterprise-focused SaaShole level rather than primarily consumer focused.

The (predictable) tragedy is that this seems to be directly competing for resources with the unhyped but desperately needed "retain employees who can implement what your customers actually want and fix your shit" strategy. Same old pain points remain unfixed, price i

Re: Enterprise 3d TV...

[paul_engr]

There was enterprise 3D tv - it was VR/AR headsets and glasses. How'd that work out? The useful talent who knows better than AI who gets pushed out or pissed off over AI is still going to be smarter and more useful than AI. If their current employers are too stupid chasing that short term bubble buck, they'll go somewhere else and keep being smart. The stupid big companies are going to have worse products that cost more and more, and there's only one way that'll go for them.

Re:

[Tablizer]

On Halloween I went as the Hawk Tuah chick. And no, nobody got "service", so don't ask.

The real problem with AI, is the clueless investor

[WarlockD]

I mean the pitch is perfect. Anyone who has used ChatGPT knows how janky it is but you see the potential. Image generation isn't perfect but damn is it "good enough". Code generation does have some strange bugs BUT most of that 5000 lines work! We just need the hardware! And the people! Oh, maybe a nuclear powerplant or three! Oh you have lawyer insurance right?

I mean will it all crash and burn like back in the 00's? Nah. Both Google and Microsoft are invested. The tech IS janky but it can solve

Re:

[Tablizer]

To be fair it's incrementally getting better. The real question is whether it gets better fast enough to justify the huge investment sums continually being poured into it. I'd guess "no", but predicting the future is an art.

We keep predicting a bubble pop, but the incremental improvements keep inventors' knickers moist. It's a tease. Eventually even teases wear out; investors want to hump profits.

Re:

[david.emery]

Well, my mod points ran out. So someone with points please mode parent up insightful.

Investing in potential

[ZipNada]

AI is one of those things that is already transformative, and the software companies are well aware that this is a race for dominance. Yes it costs a lot to be in the race but if you aren't in it you are sure to lose.

My guess is that costs will drop off rapidly as the tech matures. Training will be less expensive, inference will take way less cycles. The stuff they are doing now will be at the level of a commodity in the near future and AGI will be the truly expensive objective. Pretty soon the machines wil

AI is a long term research project

[MpVpRb]

There is a chance that it MIGHT produce something of value in the future.
Scientists are doing great work with tools like Alpha Fold, but today's consumer AI is just crap generators.
As investors demand profits, expect a tsunami of half-baked, useless, annoying crap to be forced on us, with the most frequent question being, How can I turn this off?