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

Nvidia CEO Jensen Huang said Wednesday that markets miscalculated the AI ​​threat to software companies, hours after the chip giant issued an optimistic sales forecast on strong AI demand.

“I think the markets got it wrong,” Huang told CNBC’s Becky Quick, quelling fears that AI agents will cannibalize the enterprise software industry.

Instead, he expects a wide range of software companies to use agency AI to improve their software and increase efficiency.

In a statement he described as “counterintuitive,” Huang said that AI agents will not replace these software tools, but will use them instead.

“That’s why we say agents are also vehicle users,” he added.

He pointed to his internet browser and MicrosoftCheck out Excel as examples of tools AI agents will use.

“All these tools we use today, whether Cadence or summary or ServiceNow or HANDLEThese tools basically exist for a good reason. This agency AI will be intelligent software that uses these tools on our behalf and helps us be more productive,” Huang added.

“No one will deliver better service than ServiceNow, and they will find agents that are truly fine-tuned and optimized for the job using the tools they have.”

“Ultimately, we need tools to finish their job and put the information back in a way we can understand,” he said.

The comments came after Nvidia reported that its revenue in the fourth fiscal quarter rose 73% from a year earlier to $68.13 billion, beating analysts’ estimates of $66.21 billion.

The company also issued an optimistic forecast of $78 billion (plus or minus 2%) in revenue for the fiscal first quarter; this figure was well above analysts’ estimate of $72.6 billion.

Investors are frustrated that the massive increase in spending on AI hardware may not be sustainable, raising fears of a bubble forming in the industry.

Shares of software service providers have taken a hit in recent months. Opinions on this risk and the fundamentals behind the recent sell-off appear to be divided, with analysts sounding the alarm that AI will “eat” software in the long term.

Software stocks were mixed in after-hours trading following Huang’s comments. Synopsys was down 3.6% after market close, while Cadence was down 0.9%. SAP rose 0.3%, while ServiceNow was little changed.

“People need to remember that everything — railroads, canals, the internet, they all tend to be overbuilt — and then we have to figure out who the winners and losers are going to be,” Dan Niles, founder and portfolio manager of Niles Investment Management, told CNBC after Huang’s interview.

Niles warned that not all companies will emerge unscathed as AI threatens to automate workflows, squeeze prices and lower barriers to entry for new competitors into the market.

“There are some real companies in the software space that will go to zero,” Niles said. He added that the most resilient players will be in the database and cybersecurity sectors.

Nvidia shares rose as much as 2% in extended trading following its quarterly earnings report.

The selloff in software stocks this year has weighed on the S&P 500 software and services index, which was down nearly 23% as of Wednesday’s market close.

But CNBC’s Jim Cramer dismissed the doomsday prediction, arguing that fears of existential threats to software companies from AI are overblown and that the reality is less dire.

“Software companies are survivors. They can merge. They can adapt. They can do anything really necessary to get it, so they can stay in business,” Cramer said Wednesday on “Mad Money.”

“Yet they’re priced for excellence and have, let’s say, a sort of rugby-scrum feel – and we’re not paying for scrum either,” he added.