Nvidia’s Jensen Huang says markets ‘got it wrong’ on AI threat to software companies

Nvidia CEO Jensen Huang countered market concerns about AI threatening software companies during an interview with CNBC's Becky Quick on Wednesday, January 6, 2025, shortly after the chip giant reported stronger-than-expected quarterly earnings and issued an upbeat sales forecast driven by robust AI demand. Huang stated, 'I think the markets got it wrong,' pushing back on fears that AI agents would cannibalize the enterprise software industry. Instead, he predicted that software companies would utilize agentic AI to enhance their products and improve efficiency, describing this relationship as 'counterintuitive' where AI agents won't replace software tools but will use them instead. Huang provided examples like internet browsers and Microsoft's Excel as tools that AI agents would leverage, explaining that established software providers like ServiceNow, SAP, Cadence, and Synopsys would develop specialized AI agents optimized to work with their existing tools. The chip behemoth's financial performance supported Huang's optimistic outlook, with revenue climbing 73% to $68.13 billion in the fiscal fourth quarter, surpassing analysts' expectations of $66.21 billion. The company's guidance for the first quarter was even more bullish, projecting $78 billion in revenue (plus or minus 2%), significantly higher than the $72.6 billion forecast by Wall Street. These results came amid investor concerns about the sustainability of massive AI hardware spending and fears of a bubble forming in the sector. Huang's remarks aimed to reassure investors that the AI revolution would complement rather than disrupt existing software ecosystems, arguing that specialized tools would continue to serve fundamentally important purposes even as AI becomes more sophisticated. The market reaction to Huang's comments was mixed, with software stocks showing varied performance in after-hours trading. While Nvidia shares rose as much as 2% in extended trading following the earnings report, some software providers faced declines, including Synopsys which tumbled 3.6% and Cadence which dipped 0.9%. ServiceNow remained relatively stable while SAP edged 0.3% higher. Market analysts remained divided on the long-term impact of AI on the software industry. Dan Niles, founder and portfolio manager of Niles Investment Management, warned that while some software companies would thrive, others 'are going to go to zero' as AI automates workflows, squeezes prices, and lowers barriers to new competitors. CNBC's Jim Cramer, however, rejected such doomsday predictions, arguing that software companies have proven resilience through adaptation and mergers, though he noted they are 'priced for perfection' in the current market. The broader S&P 500 software and services index has lost nearly 23% this year as of Wednesday's close, reflecting investor anxiety about the sector's future in an AI-dominated landscape.