The Next Wave of AI Spending Is Hitting Software

For business leaders tracking the AI investment boom, a clear signal is emerging: the money is moving up the stack. After a punishing April selloff in growth stocks, a notable argument is gaining traction—that the real financial payoff from artificial intelligence is just beginning to reach software providers.

Financial commentator Josh Brown of Ritholtz Wealth Management frames this as the 'halo trade.' His premise is simple. The historic capital allocated to data centers, semiconductors, and power grids forms a necessary foundation. That hardware, however, doesn't create value by itself. It requires the applications, cloud platforms, and data tools that businesses actually use to operate. Brown contends the market has been slow to connect the dots between infrastructure investment and the coming surge in software revenue.

The recent dip in software stocks, he suggests, created an opening. Companies like ServiceNow, Palantir, and Datadog—firms already demonstrating tangible AI revenue—were sold off alongside more speculative names. This presented a chance to invest in businesses with recurring enterprise contracts and clear paths to monetizing AI features, not just hype.

Evidence is mounting to support this view. Corporate IT budgets are expanding, with software leading the growth. Earnings reports show AI-related revenue streams accelerating sharply, often far outpacing traditional business lines. ServiceNow recently reported AI contract value growing more than 150% year-over-year. This isn't theoretical; it's measured spending.

The risk, of course, is execution. Not every software firm will profit from AI, and macroeconomic shifts could pressure valuations. Yet the underlying capital expenditure from cloud giants like Microsoft, Amazon, and Google shows no sign of slowing. That investment must ultimately flow to the software layer where business processes are automated and data is analyzed.

Brown's call highlights a strategic shift for observers of tech investment. The initial phase, dominated by chipmakers and infrastructure builders, is maturing. The focus is now turning to the companies that will deliver the tools that make AI usable for the enterprise. The next few quarters of earnings will determine if this transition marks a genuine new chapter or a missed expectation.

Source: Webpronews