Nvidia CEO Jensen Huang challenged the prevailing market sentiment on Wednesday, asserting that the financial markets have fundamentally misunderstood the impact of artificial intelligence on software companies. His remarks came mere hours after Nvidia released an exceptionally strong sales forecast, driven by robust demand for its AI-centric hardware.
“I believe the markets have gotten this wrong,” Huang stated in an interview, directly addressing concerns that AI agents are poised to decimate the enterprise software sector.
Instead, Huang envisions a future where a broad spectrum of software companies will leverage agentic AI not as a replacement, but as a powerful development and efficiency-boosting tool. He described this dynamic as “counterintuitive,” explaining that AI agents will function as sophisticated users of existing software.
“That’s why we also say agents are tool users,” Huang elaborated. He pointed to ubiquitous tools like internet browsers and Microsoft Excel as prime examples of the software that AI agents will interact with.
“All of these tools that we use today, whether it’s Cadence, Synopsys, ServiceNow, or SAP, these tools exist for a fundamentally good reason,” he continued. “These agentic AIs will be intelligent software that uses these tools on our behalf and help us be more productive. Nobody’s going to service better than ServiceNow, and they’re going to come up with agents that are really fine-tuned and optimized for the work that uses the tools that they have. In the end, we need the tools to finish their work and put the information back in a way that we can understand.”
Nvidia’s optimistic outlook was underpinned by its latest financial results. The company reported that its revenue for the fiscal fourth quarter surged by an impressive 73% year-over-year, reaching $68.13 billion, comfortably exceeding analysts’ expectations of $66.21 billion. Furthermore, Nvidia projected first-quarter revenue to land between $78 billion, with a 2% margin of error, significantly surpassing the consensus estimate of $72.6 billion.
This performance comes at a time when investors have expressed growing apprehension about the sustainability of the massive capital expenditure in AI hardware, fueling concerns about a potential sector bubble. The shares of many software service providers have experienced a notable downturn in recent months. While some analysts have cautioned that AI could “eat” software in the long run, opinions remain divided on the extent of this risk and the underlying fundamentals driving the recent sell-off.
Following Huang’s comments, software stocks showed a mixed performance in after-hours trading. Synopsys saw a decline of 3.6%, while Cadence dipped by 0.9%. ServiceNow remained largely flat, and SAP registered a modest increase of 0.3%.
Dan Niles, founder and portfolio manager of Niles Investment Management, commented on the broader market dynamics, noting, “People need to remember that all everything — whether it’s the railroads, canals, the internet, all of these things tend to get overbuilt — and then we figure out who the winners and losers are going to be.”
Niles further cautioned that the transformative power of AI, with its potential to automate workflows, compress margins, and lower entry barriers for new competitors, will inevitably lead to winners and losers within the software landscape. He specifically predicted that “There’s some real companies that are going to go to zero in the software space,” identifying the database and cybersecurity sectors as potentially more resilient.
In extended trading, Nvidia shares saw a gain of up to 2% following the release of its quarterly earnings report. The recent slump in software stocks has had a tangible impact on the S&P 500 software and services index, which had declined by nearly 23% as of Wednesday’s market close.
However, not all market observers share this cautious outlook. Jim Cramer, host of CNBC’s “Mad Money,” has pushed back against what he considers overly dire predictions, suggesting that fears of an AI-driven existential threat to software companies are largely exaggerated. Cramer posited, “The software companies are survivors. They can merge. They can adapt. They can do whatever is really necessary to get it so they stay in business.” He did, however, add a caveat: “They’re priced for perfection, though, and they do seem to have, let’s say, kind of a rugby-scrum feel about them — and we don’t pay up for scrum.”
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