00:00
Josh Lipton
With shrinking IT budgets and recent trade deals reshaping the macroeconomic landscape, software stocks are under scrutiny. To navigate the software sector, we turn to Steve Koenig, Head of US Technology Research at Macquarie. Welcome, Steve. The August 1 trade deadline is approaching, and trade uncertainties are lingering. Have you noticed any impacts on the software sector regarding deal size or duration?
01:03
Steve Koenig
Hi Josh, thanks for having me. Indeed, there’s greater uncertainty affecting enterprise and SMB customers, leading to longer sales cycles. Simultaneously, companies are urgently exploring AI applications, be it through internal LLMs, developing retrieval augmented generation use cases, or leveraging AI functionalities pushed by SaaS vendors. While facing challenges, there are also areas of investment and urgency. In Q1, we observed strong momentum from Q4, but in Q2, we expect more differentiation among firms, with well-positioned companies attracting attention and legacy ones struggling.
03:08
Josh Lipton
The trend in AI trading appears strong based on recent earnings reports. Within your coverage of software companies, are there specific names you believe are particularly aligned with this trend?
03:37
Steve Koenig
Yes, we have three favorites, particularly as we approach the June and July quarter reports: Autodesk, HubSpot, and Atlassian. Each of these companies presents intriguing AI opportunities. HubSpot and Atlassian are ahead in utilizing agent AI for various applications. HubSpot focuses on marketing content creation and CRM-related customer service, while Atlassian’s approach revolves around enhancing the software development life cycle and collaboration within all business departments.
05:06
Josh Lipton
So, if I understand correctly, you recommend Autodesk, HubSpot, and Atlassian as buys. If pressed for a standout, do you have a favorite?
05:25
Steve Koenig
We have a favorable view of all three and usually like to suggest multiple picks for upcoming reports. If we can achieve two successful selections, we’re satisfied. Autodesk is particularly intriguing, as its AI potential is still in the nascent stages and may be underestimated. They play a crucial role in various sectors such as architecture and engineering, and their generative AI could transform design processes by allowing users to generate designs from text prompts.
07:32
Josh Lipton
Great insights on your buys. Now, let’s discuss the companies you’re less enthusiastic about. For Salesforce, you hold a neutral stance. Can you explain your reservations regarding the company led by Marc Benioff?
07:54
Steve Koenig
Absolutely. Salesforce has a long-standing reputation in the SaaS space, having pioneered the market. However, recent years have seen mounting challenges, especially as post-pandemic spending waned. Their customer renewals and subscription revenue growth have been declining for over ten quarters. While we anticipate some improvement, there’s lingering optimism around their AI strategy, which will take time to implement. Moreover, they’ve limited third-party AI tools from accessing Slack data, which signals a potentially defensive, siloed approach that might not bode well long-term for the SaaS model.
