According to Baird's Ted Mortonson, software companies are struggling to monetize AI while hardware companies are thriving. He explains that while significant investments are being made in GPUs for large language model development, there are few applications that can deliver a significant return on investment for software companies. This, coupled with tight IT budgets and a shift in spending towards GPU hardware, suggests that hardware stocks will continue to outperform software stocks through 2025.
Key takeaways:
- Hardware tech stocks are outperforming software tech stocks by 30 percentage points due to the fast-growing adoption of generative artificial intelligence (AI).
- Software companies are struggling to monetize AI, while hardware companies are enjoying a boom in business, as companies race to buy AI-enabled GPU chips from hardware providers.
- Software companies are also dealing with tight IT budgets as their customers reprioritize their spending away from software and towards GPU hardware.
- Hardware stocks are expected to continue outperforming software stocks through 2025, according to Baird managing director and tech strategist Ted Mortonson.