Key Takeaways:
Nvidia CEO Jensen Huang pushed back against the idea that artificial intelligence will destroy software companies, arguing instead that the technology creates opportunity for the sector.
"AI is coming. Agentic AI is coming. Therefore, all of the software companies are going to go out of business," Huang said at Computex, repeating a common fear. "I said it's exactly the opposite."
The Nvidia founder called it an "incredible" time to be a software company, suggesting AI will enhance existing products rather than replace them. His comments carry weight given Nvidia's roughly $5 trillion market capitalization and its position as the primary supplier of chips powering the AI buildout.
Microsoft, the world's second-most-valuable company, has already demonstrated the pattern Huang described. The software giant's AI business surpassed a $37 billion annual revenue run rate in its fiscal third quarter, jumping 123% from a year earlier. Microsoft 365 Copilot, which embeds AI tools across the company's productivity suite, allows users to analyze data, summarize documents and generate content without switching applications.
The software survival question
The fear that AI would render traditional software obsolete has circulated since ChatGPT's launch. Alphabet's search business faced similar predictions, with analysts warning that AI-powered chatbots would bypass Google's search results and crater advertising revenue. Instead, Alphabet incorporated AI overviews and an AI mode into its search engine, boosting engagement and ad sales.
Microsoft's financial results suggest a similar dynamic. Revenue reached $82.9 billion in the quarter ending March 31, up 18% year over year. Azure and other cloud services revenue climbed 40%. The company's cloud backlog — a measure of future revenue visibility — hit $627 billion, nearly doubling from the prior year.
Adjusted earnings per share came in at $4.27, a 21% increase. Despite the results, Microsoft shares have fallen about 17% over the past 12 months, reflecting investor concern that heavy capital spending on AI infrastructure may not translate to proportional revenue growth.
Valuation and the AI spending question
Microsoft trades at 20.6 times forward earnings, below the information technology sector average of 22.3 times. The discount suggests the market has already priced in some skepticism about the returns on the company's AI investment.
Huang's endorsement addresses a core investor question: whether AI represents a threat or an opportunity for incumbent software platforms. If Huang is correct, Microsoft's existing distribution network — millions of business customers already paying for Office, Azure and Dynamics — gives it an advantage in deploying AI features at scale.
The Nvidia CEO has been a vocal advocate for broad AI adoption, telling the Associated Press last week that "everybody use AI" and comparing the technology's societal adaptation to the introduction of automobiles. He also stressed the need for new social norms around AI, similar to how sidewalks and crosswalks emerged after cars became common.
For Microsoft, the path forward depends on converting its $37 billion AI run rate into sustained profit growth. The company's $627 billion cloud backlog provides near-term visibility, but investors will watch whether AI-driven revenue growth outpaces the capital expenditure required to build and maintain the underlying infrastructure.
This article is for informational purposes only and does not constitute investment advice.
