Nvidia Chief Executive Jensen Huang stated on Wednesday that the markets have mistakenly assessed the AI risk to software companies, just hours after the chip giant released a positive sales outlook due to strong AI demand.
“I believe the markets misjudged the situation,” Huang shared with CNBC’s Becky Quick, countering concerns that AI agents would disrupt the enterprise software market.
Rather, he anticipates that a wide range of software companies will harness agentic AI to enhance their software and increase productivity.
In what he labeled as “counterintuitive,” Huang mentioned that AI agents won’t eliminate these software tools, but rather utilize them.
“That’s why we assert agents are users of tools,” he noted.
He referenced web browsers and Microsoft‘s Excel as instances of tools that AI agents will employ.
“All these tools we utilize today, whether it be Cadence or Synopsys or ServiceNow or SAP, these tools exist for a fundamentally valid purpose. These agentic AI will be smart software that uses these tools on our behalf and assist us in becoming more efficient,” Huang continued.
“Nobody can provide service better than ServiceNow, and they will introduce agents that are finely adjusted and optimized for tasks that employ the tools they possess.”
“Ultimately, we require the tools to complete their tasks and relay the information in an understandable manner,” he stated.
These remarks followed Nvidia’s announcement that its revenue for the fiscal fourth quarter surged 73% to $68.13 billion compared to the previous year, exceeding analysts’ predictions of $66.21 billion.
The firm also provided an optimistic forecast projecting revenue for the fiscal first quarter at $78 billion, plus or minus 2%, significantly above analysts’ expectations of $72.6 billion.
Investors had grown cautious that the substantial increase in spending on AI hardware might not be sustainable, raising fears of a potential bubble forming in the industry.
Shares of software service companies have experienced a downturn in recent months. Although analysts have raised concerns that AI will “consume” software over the long haul, opinions on that risk and the underlying reasons for the recent sell-off seemed to be mixed.
Software stock performance was varied in after-hours trading after Huang’s comments. Synopsys fell 3.6% post-market, and Cadence decreased by 0.9%. ServiceNow remained relatively stable, while SAP increased by 0.3%.
“People must remember that all advancements — whether in railroads, canals, or the internet, all of these tend to be overbuilt — and then we determine who the winners and losers will be,” Dan Niles, founder and portfolio manager of Niles Investment Management, told CNBC after Huang’s conversation.
Niles cautioned that not all companies will remain intact as AI threatens to automate processes, lower prices, and create openings for new competitors in the market.
“There are indeed some substantial companies that may be rendered worthless in the software domain,” Niles remarked. He noted that the most enduring players will likely be in the database and cybersecurity fields.
Nvidia shares climbed by up to 2% in after-hours trading following the quarterly earnings announcement.
This year’s selloff in software stocks has impacted the S&P 500 software and services index, which has dropped nearly 23% as of Wednesday’s market closure.
CNBC’s Jim Cramer, however, dismissed the pessimistic forecasts, indicating that concerns about an AI-induced existential threat to software firms were exaggerated and that the situation is less severe.
“The software companies are survivors. They can merge. They can adapt. They can take whatever measures are necessary to remain operational,” Cramer stated on “Mad Money.”
“They are valued for perfection, though, and they do seem to have, let’s say, somewhat of a rugby-scrum vibe about them — and we don’t invest heavily in scrums,” he added.
