Software Stocks Rebound as RingCentral, Five9 Show AI is a Partner, Not a Predator

A sharp rally in shares of RingCentral and Five9 on Friday signaled a turning point for the battered software sector, as both companies demonstrated that artificial intelligence is fueling their growth, not threatening it. RingCentral’s stock jumped 34%, and Five9 gained 12% after each reported quarterly results that exceeded expectations and provided strong forecasts. Their message to investors was clear: the new wave of AI is creating more business, not stealing it. Both firms, which specialize in cloud-based customer contact systems, reported that demand for their services is accelerating as clients seek to integrate advanced AI capabilities.

This comes after a period of intense pressure on software stocks, driven by fears that generative AI tools from companies like OpenAI could make traditional software services obsolete. The sector, as tracked by the iShares Expanded Tech-Software ETF, is still down roughly 23% this year, with major players like Salesforce and Microsoft seeing significant declines. RingCentral, however, told investors that annual recurring revenue from its AI-related offerings has nearly doubled. The company has integrated ChatGPT models into its voice AI product.

Meanwhile, Five9 reported that its enterprise AI bookings more than doubled from a year ago, pushing its backlog higher. The company’s AI portfolio has reached $100 million in annual recurring revenue. Five9 Chairman Michael Burkland emphasized that while the company uses large language models to improve its solutions, the core of customer service operations requires a specialized, secure platform that an LLM alone cannot provide. “You cannot run a customer service organization on an LLM,” Burkland stated, reiterating a position he’s held for years.

The results offered a measure of relief, suggesting that for established providers, AI may be the key to the next stage of growth rather than a disruptive force.

Source: CNBC