Tyler Radke, co-head of US software equity research at Citi, reports that AI adoption is creating a divide between software companies. The shift in corporate IT budgets toward AI projects is fueling growth for some firms while creating financial pressure for others.
Microsoft, Palantir, and Snowflake are identified as beneficiaries of the current trend. Microsoft reported 18% revenue growth for the quarter ending June 30, and Radke expects this figure to exceed 20%. The company leverages its Office suite, priced under $100 per month, to bundle security tools and its Copilot AI assistant.
Conversely, Adobe and smaller application vendors face challenges as budgets are reallocated. Radke notes that while AI cloud providers face market pressure, their capacity for 2026 is already fully booked. He suggests that scale will be the primary factor for survival if financing costs remain high.
Market consolidation continues as a trend, exemplified by Salesforce's agreement to acquire customer engagement platform Braze for $47.50 per share in cash. Despite recent stock performance, questions remain regarding the ability of such companies to accelerate organic growth amid rising debt costs.
