To talk a little bit more here about, I
guess the substance on the substance behind this rally.
And when you look at some of these software software
makers, when you look at some of these software
services providers here, is there a use case there
that is already apparent? Yeah. Hi, Romaine
. First of all, thanks for having me on
the show. And I think that's one of the
exciting things about the software sector is they're an early
beneficiary in terms of the top line. So we're
seeing software companies embed uh generative A I into their
products, Adobe last night was talking about it,
Microsoft, of course, talking about it. Um
And so by the end of this year, we
should have products in the market with embedded gen A
I and we should know what the monetization mechanisms are
. The other thing that's exciting about the software sector
is they're also key beneficiaries in terms of productivity gains
. Um When you think of where the is for
software companies is R and D and its sales and
marketing with R and D, we see benefits in
terms of software coding, software development, productivity through
the use of co pilots for coding and then in
sales and marketing. That's another first use case for
gen A I being more efficient about selling, being
more efficient about customer service. So the software sector
as a whole benefits top line and bottom line.
Well, let's break down some of those sectors here
. Talk about sales and marketing a little bit because
I think this is sort of one area where I
think some people are wondering how much of a benefit
is there really going to be? I feel like
A I or something maybe similar to A I has
already been incorporated into that space for some time.
Not necessarily. Well, yes. So I attended
the sales force A I launch on Monday here in
New York and they're embedding it within, you know
, across their C R M products. We worked
at B and P on a couple of weeks ago
, we published a large cross sector piece of research
working with 30 sector analysts to look at how this
is going to be used across different industries. Sales
and marketing was a key one. An example was
in the catering space company we were talking to has
a six month backlog in terms of new business in
order to pitch that new business in order to respond
to those R F P S. A lot of
work needs to go in months of work in terms
of preparation, analysis, research into what those companies
are pitching or looking for any problems they've had in
the past, a lot of that can now be
automated through gen I So if you think about getting
through a six month backlog of, of proposals in
six weeks, of course, it can have pretty
important impacts on the top line. I talk about
the cost of this particularly for those users because when
I hear some of these companies on the conference call
, I talk about, you know, the price
points that they're offering right now, which is usually
a few$100,000 at least for some of these big
software firms. Is there a cost benefit there for
those end users? That that actually makes sense.
Now, I think so, I mean, we
are still waiting to see the monetization mechanisms, this
is expensive to deliver. So for the software companies
to provide this, there's going to be a cost
and that's why NVIDIA is doing so well. You
know, the infrastructure that's required to deliver these capabilities
is costly. So it will probably be a separate
charge based on consumption and based on usage. But
some of the productivity benefits can be quite significant.
Um like I said, in terms of acceleration,
the demand on the top line, but also a
cost savings in terms of in terms of staff and
efficiency. There was a great story in the Bloomberg
terminal this week about Microsoft really sort of being out
in front of this and they weren't always out in
front of it, but they really have reasserted themselves
obviously, with the investment in open A I here
. When you look at who are going to be
the dominant players in this space? Are we to
look at the Microsoft Amazon and alphabets of the world
? Is that it? I think. So,
I think they are amongst the, the obvious beneficiaries
. Um they're all a little bit different. So
in terms of those large language models, you mentioned
Microsoft with open A I, that's a great partnership
, but they don't own those large language models.
They are open A I S when you look at
Google, they do own those large language models through
deep mind. Whereas Amazon doesn't necessarily have the large
language models that the other two do, does that
matter the ownership? We think it does. We
think that we're already starting to see some enterprise customers
gravitating more towards Microsoft, Azure, a bit more
towards Google cloud because they're seen to be having an
advanced here on the A I front. So we
think that benefits both of them and potentially enables them
to win some share against AWS. I think the
other thing to highlight is Google and Amazon have the
proprietary chips. Now, Microsoft is working on it
, but Amazon and Google are ahead on that front
. And then the final thing we look at is
existing enterprise relationships where Amazon and Microsoft are probably head
on that front. So it's quite interesting the competitive
dynamics, we actually prefer Google amongst the three because
they do have that full stack from the large language
models down into the semi conductors. They have a
more attractive valuation on 18 times earnings for next year
. So that Google cloud enterprise business that's currently break
even is not really reflected in the valuation. And
yes, they do have lower market share, but
we think that this enables them to win market share
going forward. There's been a lot of discussion here
about some of the companies that have incorporated A I
into their own operations here, meaning the companies that
are producing the stuff, but mainly using it for
their own business is whether they really need to go
out there and sell it. The idea is can
they sort of create a business within their own business
if that, that probably doesn't make any sense.
But you know what I'm getting at the idea that
they don't necessarily need to create a separate product,
they can just kind of create for themselves is that
sort of viable? I think all of these companies
since 2018 have been developing generative A I. So
we think of this as kind of new. It
has been around for a couple of years but obviously
is accelerated. And most of these large tech companies
are already trying to find ways to use it internally
. But of course, what's interesting is how do
we get that to other enterprise customers. Last week
in Paris, we hosted our B P 25th annual
CEO conference. We had 100 ceos, we had
1000 institutional investors. Of course A I was one
of the main topics. All of these, all
these companies are looking for trusted partners to enable them
to implement this. And so I think a sales
force, a Microsoft, a Google, if they
can use this internally show how they're using it,
package it and sell it, they'll benefit from it
. I also think in accenture and I of course
, they're doing the same thing. How can we
use this technology and how can we show those use
cases and sell it to our customers? We only
have about a minute left, but I do have
to ask you about valuations on some of these stocks
here. I mean, some of them, at
least for a certain cohorts have gotten a little bit
stretched. And I use that word stretching quotation marks
because some people then would say, well with the
promise of what A I could deliver, maybe those
valuations aren't as high as we think they are.
Yeah. So in many instances, we're still not
back at those peak valuations for what it's worth.
So we still have 15 to 30% upside for a
lot of stocks back to those peak valuations. Microsoft
is one exception, we're sort of hitting, you
know, those peak valuations. We had a couple
of years ago. So I do think there's still
scope for some of this multiple expansion to continue.
I still think there's also a lot of skeptic again
. You know, we've been traveling quite a lot
through Europe through the USA. Lot of investors are
still skeptical. They may be scarred from the metaverse
, scarred from Blockchain and some of these technologies that
maybe didn't take off the difference here is we're seeing
this more tangible, we're seeing this put into use
more quickly and therefore, potentially more people will get
interested in it as we go through the year and
those products get launched and priced.