It's not just Nvidia: These companies are finally making real money from AI

By Jon Swartz

Enterprise-AI sales are starting to have an impact on tech sales

Hype is slowly becoming reality.

Generative AI, hailed for more than a year now as tech's new frontier, is steadily scoring enterprise sales. And it isn't just Nvidia Corp. (NVDA) that is racking up stratospheric revenue and margins.

"It is unquestionably the theme of every [chief information officer] discussion," said Aaron Levie, chief executive of Box Inc., which announced its first $1 billion fiscal year on Tuesday along with a new integration with Microsoft Corp.'s (MSFT) Azure OpenAI on Box AI.

"This creates a new chapter for our company," Levie said in an interview with MarketWatch on Tuesday, pointing to a rush of customers upgrading to Box AI, a new suite of capabilities that will natively integrate advanced artificial-intelligence models into the Box content cloud. "The last decade-plus was about building out the cloud. And the next decade-plus will be about the journey of AI transformation."

Corporate customers are snapping up AI servers, software and cloud-computing services, based on quarterly results the past few weeks and comments from executives announcing those results.

Front and center is the $800 million in AI servers sold by Dell Technologies Inc. (DELL) during its recently completed quarter. That figure would have been even higher, Chief Operating Officer Jeff Clarke said, if the company had been able to meet the immense demand. "We have positioned ourselves well in AI," Clarke said, noting that more customers were demanding PCs and servers with AI capabilities.

Read more: Dell's big quarter, fueled by surge in AI-server demand, sends stock soaring 19%

"Real, incremental AI revenue is emerging. It will take a few years for it to pan out fully, but it is a good start," Patrick Moorhead, chief analyst at Moor Insights & Strategy, said in an email. He pointed to the adoption of AI technology from Microsoft (productivity software, collaboration and cloud-based services), IBM Corp. (IBM) (generative AI and scientific-data platform), Salesforce Inc. (CRM) (marketing and sales cloud), Oracle Corp. (ORCL) (enterprise resource planning), Box (document management) and HP Inc. (HPQ) and Dell (commercial PCs).

HP CEO Enrique Lores signaled an AI cycle for his company that was slightly slower than Dell's but buoyant nonetheless. He said he expects that the impact of new AI PCs in the second half of 2024 "will be small," adding, "We need to have the PCs and the hardware ready. But more important, we need the applications to be ready. And this is going to take time. So this is why we think the adoption will be gradual."

Read more: HP meets estimates and sees PC market stabilizing in 2024, but stock still falls

Indeed, market researcher IDC expects 2024 to be a growth year with the introduction of AI PCs, which will drive the market to 292.2 million units in 2028 with a compound annual growth rate of 2.4% from 2024-2028.

Most enterprises are still in the early part of the journey and will take a more gradual approach than smaller businesses.

"Companies want to spend and they are experimenting" in making the best use of AI, Nutanix Inc. (NTNX) CEO Rajiv Ramaswami said Wednesday, when his company announced strong quarterly results. He pointed to increasing demand for generative AI for such tasks as customer support, documentation, assisted technology and fraud detection.

"We're in the early innings with AI, but there will be a drumbeat over the next few months," Autodesk Inc. (ADSK) CEO Andrew Anagnost said in an interview.

Like most software companies, Autodesk has emphasized adding gen-AI software to its applications, such as technology that lets designers quickly create rough 3-D models from a drawing or photographs.

SAP (SAP) is fusing generative AI into its intelligent-enterprise movement - "a continuum of what we are doing," Irfan Khan, president of SAP's platform and technologies division, said in an interview.

SAP's powerful human-resources software, SuccessFactors, is increasingly being used by customers to recruit candidates and monitor workflow. One SAP customer, BMW (XE:BMW), is using the technology for planning related to its workforce, financing and supply chain.

Some tech companies are further along, particularly those that pivoted hard to AI before the most recent wave of hype and hyperbole.

A diffusion of AI innovation that started at the silicon layer is quickly being disseminated to infrastructure from the cloud to edge computing to devices with "the ultimate vision of being able to run applications that can leverage exponential data volumes for consumers and enterprises," said Daniel Newman, principal analyst at Futurum Group. Among the early winners, he counts Salesforce, ServiceNow Inc. (NOW), Oracle, IBM, Workday Inc. (WDAY), Snowflake Inc. (SNOW), Databricks and Dell.

Tom Siebel, CEO of C3.ai Inc. (AI), said revenue growth has accelerated in the past five quarters and the company has eclipsed its own revenue guidance in every quarter since it went public in late 2020. "I don't think this enterprise-AI opportunity is ephemeral," he said. "This is the real deal, and C3.ai is a real player."

Still, there are some holdouts who insist the transition will not be immediate as customers navigate the promise of AI as well as its perils, which include deepfakes, socioeconomic inequality, algorithmic bias caused by bad data, and what are known as hallucinations - incorrect or misleading results that AI models generate.

Read more: Salesforce's disappointing guidance overshadows earnings beat, stock slips

Salesforce CEO Marc Benioff took a different tack during a 30-minute filibuster following the company's earnings release last week. He dubbed 2024 the "year of the data cloud" while casting aspersions on some AI models.

"In the enterprise, you need deep integration of data and metadata for the AI to understand and deliver the critical insights and intelligence that customers need across their business, across sales, service, marketing, commerce, whatever it is," Benioff said. "That deep integration of the data and metadata, that's not so easy."

There is little debate, however, among customers and vendors on the immediate future of tech - and that is genAI is the new reality.

-Jon Swartz

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03-09-24 0637ET

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