SaaS Players Re-write AI Disruption
The software narrative resets. A rebound in software stocks since 24 July 2026 reflects a shift in how investors are assessing AI’s impact on enterprise software. Results from Microsoft, Salesf...
Chief Investment Office - Hong Kong version28 Aug 2026
  • July 2026 software rebound reflects both a narrative reset as ServiceNow's results challenged AI disruption fears and a rotation out of richly valued AI infrastructure and semiconductor stocks
  • AI monetisation is gaining traction as vendors bundle premium AI capabilities with existing software deployments, reducing concerns around immediate seat-based pricing erosion and workflow displacement
  • Large-cap software earnings broadly beat expectations, with Microsoft, Alphabet, Salesforce and SAP all topping consensus and raising guidance
  • Investment focus is shifting toward vendors that can successfully monetise AI spending while preserving their core software franchises, favouring platforms with scale, data and ecosystems
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The software narrative resets. A rebound in software stocks since 24 July 2026 reflects a shift in how investors are assessing AI’s impact on enterprise software. Results from Microsoft, Salesforce, Oracle and Datadog showed enterprise AI budgets increasingly flowing through incumbent platforms rather than to AI-native challengers. In-house agentic AI deployments cost USD300,000 to over USD1.5mn upfront with a c.33% success rate, compared with USD5,000 to USD30,000 for commercial platforms with a c.67% success rate. Salesforce drove USD3.4bn in AI/data ARR supported by Agentforce, Data 360 and Informatica Cloud. Legacy seat counts grew across Sales and Service, lifting non-GAAP operating margins to a record 34.8%. This suggests AI monetisation is currently contributing to revenue growth while margins remain supported by operating discipline.

Earnings broadly beat across large-cap software, with upside concentrated in AI/cloud. The upside in June 2026 quarter performances was concentrated in AI/cloud-related businesses, while legacy software franchises remained resilient rather than declining. Microsoft’s 4Q26 (June YE) revenue rose 18% y/y to USD90.0bn (c.3% beat), driven by Azure (+43% y/y); Alphabet’s 2Q26 (Dec YE) revenue grew 24% y/y to USD119.8bn, driven by Google Cloud (+82% y/y); SAP’s 2Q26 (Dec YE) revenue rose 11% y/y to EUR9.88bn on 22% Cloud ERP growth (above street); and Salesforce beat on revenue (USD11.13bn) and EPS (USD3.88, c.24% beat), with Agentforce ARR up 205% y/y to USD1.2bn and combined AI and data ARR of USD3.4bn (comprising Agentforce, Data 360 and Informatica Cloud). AI/data annual recurring revenue (ARR) has become a meaningful growth vector despite broader AI and data ARR accounting for only c.7% of Salesforce’s FY27 guided revenue.

Favour integrated platforms, while turning more constructive on SaaS. Seat-based pricing pressure remains a long-term structural risk as AI-driven productivity reduces seats per workflow. Instead, vendors are monetising AI alongside existing deployments. Salesforce customers are adopting its AI offering alongside core CRM, while ServiceNow is embedding premium AI into workflow contracts. High token consumption is also boosting demand for governance and cost-optimisation tools, supporting Microsoft Azure.


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