Unfazed by the "sell-off"? Legendary investor: the software industry is disrupted every 10-15 years. Tech stocks are about to soar again!

Driven by anxiety surrounding artificial intelligence (AI), global software stocks have recently experienced a historic sell-off and have further spread to broader technology stocks. Although AI-driven sell-offs have been common during the three years since ChatGPT sparked the AI craze, many experts remain concerned that a severe liquidation is imminent.

However, Rick Sherlund, one of Wall Street’s most renowned tech bankers and research analysts, and founder of the AI software investment bank Sherlund Partners, sent an “optimistic signal,” stating that despite recent pullbacks in tech stocks, the market remains on the verge of a significant rally.

In a recent interview, he said, “While investors are focused on the increasing capital expenditures of large tech companies, I believe that the potential demand for AI infrastructure makes these investments necessary rather than excessive.”

Sherlund was previously a star analyst at Bank of America Merrill Lynch, known for leading Goldman Sachs’ technology research team through the 2000 internet bubble. Last October, he joined Wedbush, a well-known investment bank specializing in disruptive technology, media, and sports.

Throughout his distinguished career, Sherlund has been recognized as one of Wall Street’s most influential sell-side analysts, ranking first 17 times on the “All-Star Software Analyst” list published by the renowned American financial magazine Institutional Investor.

As an outstanding technical analyst, Sherlund has guided investors and companies through several platform transformations in the computing field, from the dawn of personal computers and client/server era to the shift toward cloud computing, mobile, and SaaS (Software as a Service).

Recent earnings reports from Alphabet and Microsoft have raised concerns about potential bubbles, with Alphabet forecasting capital expenditures between $175 billion and $185 billion this year—more than double its spending in 2025.

However, Sherlund dismisses these concerns, pointing out that the real issue is not whether demand will materialize. He said, “Demand exists. The question is whether capacity can keep up.”

Sherlund believes that understanding current market dynamics hinges on the fact that AI applications are shifting from consumer-facing to enterprise applications. As companies deploy AI agents and inference-intensive applications, the demand for inference computing will explode.

“Inference technology is just beginning to develop,” Sherlund explained, adding that enterprises using inference models “will consume a large amount of computing cycles.”

Meanwhile, the broader software industry is undergoing the predictable transformation described by Sherlund.

He pointed out that “the software industry experiences a major upheaval every 10 to 15 years,” citing previous platform shifts, such as PeopleSoft being replaced by Workday and Siebel Systems being overtaken by Salesforce. He added, “The current transition from traditional SaaS platforms to AI-native platforms also presents similar confusion for investors.”

Sherlund warns against oversimplifying the threat to mature software companies (especially those with complex enterprise workflows). While “vibe coding” may make simple applications easier to replace, companies like German software giant SAP, with “extensive integration and supply chains,” have a larger moat to protect their business.

“Coding itself may only account for about 20% of a software company’s workload,” he added.

Vibe coding is an AI-assisted programming approach explicitly proposed by computer scientist, co-founder of OpenAI, and former AI director at Tesla, Andrej Karpathy.

Looking ahead, Sherlund expects AI-native companies to begin going public later this year to seek funding for expanding data center capacity. While this may pose challenges to traditional software vendors, as more enterprises leverage large language model technology, Sherlund remains optimistic about the overall market trajectory.

(Source: Kechuangban Daily)