Long-term AI will 'eat a lot of software', says Melius' Ben Reizes

CNBC Television
25 Jul 202405:13

TLDRThe transcript discusses the impact of AI on the software industry, highlighting OpenAI's launch of SearchGPT and its potential to challenge Google. It also touches on how companies like ServiceNow and PEGA are leveraging AI for business process automation, suggesting that AI is not benefiting all companies equally and emphasizing the importance of solving real problems with user-friendly AI tools for companies to stand out.

Takeaways

  • 📉 Alphabet shares are under pressure, down 3% after OpenAI's announcement of SearchGPT in beta test form.
  • 🔍 OpenAI's SearchGPT aims to compete with Google's search engine, using information from business partners such as News Corp and The Atlantic.
  • 🤖 Ben Reizes from Melius Research suggests that OpenAI's following and diverse use cases could pose a competitive threat to Google's search dominance.
  • 🧩 The transcript discusses the potential of AI-infused search, hinting at a glimpse of what the future of search technology might look like.
  • 📈 ServiceNow's stock rose significantly after earnings, highlighting the company's success in the business process automation space.
  • 💡 PEGA Systems, a smaller company, is also gaining attention for its focus on business process automation and AI integration.
  • 🛠️ PEGA's CEO, Alan Trefler, emphasizes the importance of AI in optimizing business processes and improving efficiency, which is a major goal for most companies.
  • 🔧 ServiceNow and PEGA are developing industry-specific, customized AI-driven tools, potentially cannibalizing some consulting services.
  • 📊 The discussion points to a shift in the AI market, where companies that solve real problems and make AI easy to use and implement are standing out.
  • 💼 Ben Reizes suggests that AI is not helping everyone and some companies are getting crowded out, indicating a need for strategic positioning in the AI space.
  • 💹 There's an ongoing debate about whether investors should shift their focus from AI infrastructure to application layers, with the market still in flux.

Q & A

  • What is the main topic of discussion in the transcript?

    -The main topic of discussion is the impact of AI on the software industry, particularly how companies like OpenAI and ServiceNow are leveraging AI to create competitive advantages and the potential implications for the market.

  • What is OpenAI's recent announcement regarding its search engine?

    -OpenAI has announced the launch of SearchGPT in beta test form, which uses information from its business partners like News Corp. and The Atlantic.

  • Why might OpenAI's SearchGPT pose a threat to existing search engines?

    -SearchGPT could pose a threat due to OpenAI's strong following and its ability to merge functionality, offering a potentially different and improved search experience infused with AI capabilities.

  • What is the role of Perplexity in the context of AI and search engines?

    -Perplexity, in this context, refers to a measure that gives a glimpse of what an AI-infused search engine looks like, indicating the level of sophistication and understanding the AI has in processing and presenting information.

  • How is ServiceNow utilizing AI in its offerings?

    -ServiceNow is making it easy for people to use AI by developing industry-specific, customized AI-driven tools for business process optimization, which could potentially cannibalize some consulting services.

  • What does the transcript suggest about the future of AI in the software industry?

    -The transcript suggests that AI will continue to be a significant factor in the software industry, with a focus on creating applications that are easy to use and implement, and that there may be a shift in investment from AI infrastructure to application layers.

  • What is the significance of PEGA Systems in the discussion?

    -PEGA Systems is highlighted as an interesting company in the business of business process automation, which is benefiting from AI's ability to optimize business processes and improve efficiency.

  • How does the transcript view the role of AI in business process optimization?

    -The transcript views AI as a key driver in business process optimization, helping companies to save money and provide better service to customers by improving the efficiency of their operations.

  • What is the potential impact of AI on the consulting industry as discussed in the transcript?

    -The transcript suggests that AI could potentially cannibalize the consulting industry by providing industry-specific tools that make it easier for companies to optimize their processes without the need for external consulting services.

  • What does the transcript imply about the investment strategy in AI?

    -The transcript implies that investors might need to consider a shift in their investment strategy, moving from the first stage of AI infrastructure to focusing more on software names in the application layers, as AI continues to evolve and impact the market.

  • How does the transcript discuss the potential long-term impact of AI on software applications?

    -The transcript discusses the long-term impact of AI on software applications by suggesting that AI could 'eat a lot of software', indicating that it may disrupt traditional software applications and create new opportunities for those that can adapt and innovate.

Outlines

00:00

🔍 OpenAI's SearchGPT Launch Impacts Alphabet Shares

The script discusses the launch of SearchGPT by OpenAI, a new search competitor, which has put Alphabet shares under pressure, causing a 3% drop. The conversation highlights OpenAI's significant following and the potential threat it poses to Google's search dominance. The discussion also touches on the broader implications of AI in business, mentioning Perplexity's role in showcasing AI-infused search capabilities. Additionally, the script notes that Microsoft benefits from OpenAI's success, emphasizing the mutual interest in advancing AI technology. The segment concludes with a mention of Service Now and PEGA Systems, both of which have seen significant earnings growth, suggesting a shift in focus towards AI-driven business process automation and optimization.

05:03

💼 AI's Role in Business Process Automation and IT Infrastructure

This paragraph delves into the impact of AI on business process automation, particularly focusing on PEGA Systems and Service Now. It discusses how companies are leveraging AI to optimize processes and improve business efficiency, which is a significant goal for most companies aiming to save money and enhance customer service. The conversation also touches on the potential for AI to cannibalize consulting services, as industry-specific AI tools are becoming more accessible and effective. The script suggests that while AI is not universally beneficial, companies that effectively market and implement AI solutions, like Service Now and PEGA, are emerging as winners. The discussion concludes with a reflection on the potential shift in investment focus from AI infrastructure to software applications, questioning whether an inflection point has been reached in the AI market.

Mindmap

Keywords

💡AI

AI, or Artificial Intelligence, refers to the simulation of human intelligence in machines that are programmed to think like humans and mimic their actions. In the context of the video, AI is a central theme, with discussions around its impact on software and business processes. For instance, the script mentions how AI-infused search engines and business process automation tools are changing the landscape of technology.

💡OpenAI

OpenAI is a research lab that focuses on creating and developing AI technologies. In the script, it is mentioned as launching 'SearchGPT,' which is a search competitor that uses AI to enhance search capabilities. OpenAI's influence and the potential threat it poses to established search engines like Google are discussed.

💡SearchGPT

SearchGPT is a beta test search engine developed by OpenAI, which is mentioned in the script as a new entrant in the search technology space. It signifies the integration of AI into search functionalities, aiming to offer a more advanced and personalized search experience by leveraging information from business partners.

💡Business Process Automation

Business Process Automation refers to the use of software to automate repetitive business tasks. In the video script, PEGA Systems is highlighted as a company that specializes in this area, using AI to optimize business processes and improve efficiency, which is a significant goal for companies looking to save money and enhance customer service.

💡Perplexity

In the context of AI, perplexity is a measure of how well a model predicts a sample. The script mentions 'Perplexity' in relation to AI-infused search, suggesting that it gives users a glimpse of what AI-driven search capabilities look like, indicating the level of understanding and prediction the AI has regarding user queries.

💡ServiceNow

ServiceNow is a cloud computing company that specializes in SaaS for enterprise operations. The script discusses how ServiceNow is making AI easy for users and possibly cannibalizing some consulting services, as their industry-specific AI-driven tools are penetrating certain industries effectively.

💡PEGA

PEGA Systems is a software company that provides business process management and customer relationship management software. The script mentions PEGA as an example of a company that is developing industry-specific, customized AI-driven tools for optimization, which is a strategy that seems to be gaining traction in the market.

💡AI Infrastructure

AI Infrastructure refers to the foundational technologies, tools, and platforms that support the development and deployment of AI applications. The script suggests that there might be a shift in investment focus from AI infrastructure to application layers, indicating a potential maturing of the AI market.

💡Software Factory

The term 'Software Factory' in the script metaphorically describes the process where AI is creating and shaping software development. It implies that AI is not just a tool but a transformative force in how software is produced and consumed, with implications for the future of software creation.

💡Price Inflation

Price Inflation in the script refers to the increase in costs that companies may face when evaluating and implementing AI technologies. It suggests that as AI becomes more prevalent, there may be economic pressures on businesses to adapt and invest in these advanced technologies.

💡AI Coding Assistance

AI Coding Assistance is a feature of some AI systems that helps in the coding process, making it easier for developers to write code. The script mentions this as a factor that could enable new competitors to enter the market, indicating how AI is lowering barriers to entry in the software development field.

Highlights

Alphabet shares are under pressure, down 3% after OpenAI announced the beta launch of SearchGPT, using information from business partners like News Corp. and The Atlantic.

OpenAI has a significant following and people are using it for various purposes, indicating a potential threat to the search engine market.

Microsoft's previous attempt to compete with Google using AI did not succeed, raising questions about the impact of OpenAI's new search competitor.

Perplexity, an AI-infused search feature, offers a glimpse into the potential of AI in search engines.

Service Now's earnings after the end of the day were significantly higher, up around 15%, indicating a successful financial quarter.

Pega Systems, a smaller company in business process automation, is also seeing growth, possibly due to its AI capabilities.

Pega's CEO and founder, Alan Trefler, discusses how AI is leading to increased use of Pega software for process optimization and business efficiency.

Service Now and Pega are developing industry-specific, AI-driven tools for business optimization, which could cannibalize some consulting services.

AI tools that are easy to use and implement, like Service Now, are standing out and becoming winners in the market.

The discussion suggests that AI is not helping everyone and some companies are getting crowded out, while others are solving real problems and gaining an advantage.

Investors are questioned about whether it's time to shift focus from AI infrastructure to application layers in software companies.

Companies like Service Now and Pega are doing well, indicating that there might be an ongoing rotation in the market towards application software.

AI is described as a 'software factory' creating implications and posing a threat to application makers if they don't keep up.

The impact of price inflation hikes is being felt as people evaluate AI, with coding assistance making it easier for new competitors to enter the market.

Old IT hardware companies that do data management solutions are expected to do well in the long term, as rotations in the market continue.

The conversation highlights the importance of companies solving real problems and making AI tools easy to use and implement to stand out in the competitive market.

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