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The growth potential of software companies is immense, given the rise of artificial intelligence (AI). At the recent Goldman Sachs’ Communacopia + Technology conference, analyst Kash Rangan told Yahoo Finance that AI will enhance software’s role. While parts of the industry have faced headwinds, Rangan’s outlook remains positive.
Many of his favored stocks are undergoing downturns rather than inflated valuations. Application software companies have been hit with subdued valuations, whereas some infrastructure providers have proven resilient. This pressure, he suggested, may present intriguing entry points for long-term investors, as quoted on the above-mentioned Yahoo Finance article.
Increasing AI Adoption Across Industries
AI is becoming essential in various sectors, such as healthcare, finance, retail, manufacturing, and more. Industries are deploying AI for automation, decision-making, predictive analytics and personalized customer experiences (as quoted on boomi.com). This fast adoption opens up vast opportunities for AI software companies to develop customized solutions.
The global artificial intelligence as a service market size was estimated at $16.08 billion in 2024 and is projected to reach $105.04 billion by 2030, at a CAGR of 36.1% from 2025 to 2030, per Grand View Research.
Valuation High But Far Below the Dot-com Era
Per Goldman Sachs, valuations of AI companies like NVIDIA are high, but they are actually lower than they were in the dotcom boom of 2000, as quoted on Fortune. “The five largest stocks in the index (NVDA, MSFT, AAPL, GOOGL, AMZN) trade at P/E multiple of 28X, compared with 40X at the peak in 2021 and 50X at the peak in the Tech Bubble [of 2000],” per Ryan Hammond and his team of Goldman Sachs, quoted on Fortune.
However, Goldman went on to explain that an “inevitable slowdown” in capital expenditures by the “hyperscaler” AI companies (Amazon, Alphabet, Amazon, Meta, Microsoft, and Oracle) are likely. Goldman Sachs also commented that a substantial slowdown in AI investment by Big Tech could lower the S&P 500’s valuation multiple by up to 20%, as quoted on Fortune.
Steady Demand for AI Software
Unlike AI hardware, which is mainly a one-time sale (as quoted on Forbes), meaning demand would wane at some point in time, AI software is sold on a subscription basis. This indicates that AI software will always remain in demand.
While hardware sales could be pronounced at the time of upgrade cycles and launch of new architectures, AI software companies are likely to see a steady, and predictable recurring sources of revenues. Moreover, software companies are generally of higher-margin in nature than hardware, as quoted on a Software Equity Group article.
That being said, we would like to note that hardware-as-a-service (HaaS) has lately been an emerging concept. The mode offers businesses an opportunity to access new business models that include hardware, software and services, per Forbes.
The underlying S&P North American Expanded Technology Software Index comprises North American equities in the software industry and select North American equities from the interactive home entertainment and interactive media and services industries. The fund charges 39 bps in fees.
The underlying S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Software Index is a modified equal-weight index. The fund charges 35 bps in fees.
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AI Software ETFs for Long-Term Opportunity
The growth potential of software companies is immense, given the rise of artificial intelligence (AI). At the recent Goldman Sachs’ Communacopia + Technology conference, analyst Kash Rangan told Yahoo Finance that AI will enhance software’s role. While parts of the industry have faced headwinds, Rangan’s outlook remains positive.
Many of his favored stocks are undergoing downturns rather than inflated valuations. Application software companies have been hit with subdued valuations, whereas some infrastructure providers have proven resilient. This pressure, he suggested, may present intriguing entry points for long-term investors, as quoted on the above-mentioned Yahoo Finance article.
Increasing AI Adoption Across Industries
AI is becoming essential in various sectors, such as healthcare, finance, retail, manufacturing, and more. Industries are deploying AI for automation, decision-making, predictive analytics and personalized customer experiences (as quoted on boomi.com). This fast adoption opens up vast opportunities for AI software companies to develop customized solutions.
Cloud Computing and AI Integration
The growth of cloud computing has provided AI software companies with scalable infrastructure, allowing them to offer AI-as-a-Service (AIaaS). Top cloud platforms have integrated AI tools, helping companies scale faster by reducing hardware and infrastructure costs.
The global artificial intelligence as a service market size was estimated at $16.08 billion in 2024 and is projected to reach $105.04 billion by 2030, at a CAGR of 36.1% from 2025 to 2030, per Grand View Research.
Valuation High But Far Below the Dot-com Era
Per Goldman Sachs, valuations of AI companies like NVIDIA are high, but they are actually lower than they were in the dotcom boom of 2000, as quoted on Fortune. “The five largest stocks in the index (NVDA, MSFT, AAPL, GOOGL, AMZN) trade at P/E multiple of 28X, compared with 40X at the peak in 2021 and 50X at the peak in the Tech Bubble [of 2000],” per Ryan Hammond and his team of Goldman Sachs, quoted on Fortune.
However, Goldman went on to explain that an “inevitable slowdown” in capital expenditures by the “hyperscaler” AI companies (Amazon, Alphabet, Amazon, Meta, Microsoft, and Oracle) are likely. Goldman Sachs also commented that a substantial slowdown in AI investment by Big Tech could lower the S&P 500’s valuation multiple by up to 20%, as quoted on Fortune.
Steady Demand for AI Software
Unlike AI hardware, which is mainly a one-time sale (as quoted on Forbes), meaning demand would wane at some point in time, AI software is sold on a subscription basis. This indicates that AI software will always remain in demand.
While hardware sales could be pronounced at the time of upgrade cycles and launch of new architectures, AI software companies are likely to see a steady, and predictable recurring sources of revenues. Moreover, software companies are generally of higher-margin in nature than hardware, as quoted on a Software Equity Group article.
That being said, we would like to note that hardware-as-a-service (HaaS) has lately been an emerging concept. The mode offers businesses an opportunity to access new business models that include hardware, software and services, per Forbes.
AI Software ETFs in Focus
iShares Expanded Tech-Software Sector ETF (IGV - Free Report)
The underlying S&P North American Expanded Technology Software Index comprises North American equities in the software industry and select North American equities from the interactive home entertainment and interactive media and services industries. The fund charges 39 bps in fees.
SPDR S&P Software & Services ETF (XSW - Free Report)
The underlying S&P Software & Services Select Industry Index represents the software sub-industry portion of the S&P Total Stock Market Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Global Select Market. The Software Index is a modified equal-weight index. The fund charges 35 bps in fees.