Salesforce unveiled Agentforce 2.0 Tuesday, a week after Google unwrapped Gemini 2.0. The tit-for-tat highlights how the battle over artificial intelligence is heating up even as a key question emerged: Can the technology actually help software giants grow in 2025, propelling AI stocks higher?
The strong consensus is yes, AI will definitely help with revenue growth. But one view on how big a boost tech giants should expect comes across as both underwhelming and overwhelming.
"In our conversations with investors or people in the industry, the rule of thumb people use for materiality of AI contribution is 1%," KeyBanc analyst Jackson Ader said in a client note, upgrading Salesforce to overweight from sector weight.
AI Stocks: A 1% Boost?
Investors and partners "have wondered aloud about when AI will become material for this company or that — most recently with Salesforce given all the optimism around Agentforce. You would be surprised to know how often '1%' comes up as a reasonable expectation for contribution," Ader wrote.
"Can AI drive 1% tailwind to overall growth for XYZ Software company or the sector overall?" he said. "Our gut says, 'One percent? The number one is so small.'"
But not so small if one considers the tech behemoths involved, Ader adds.
"You apply it to a company like Salesforce or Microsoft 365 commercial business or Adobe and realize that means AI would have to toss in hundreds of millions of dollars to these firms in the NTM (next twelve months.)," he wrote. "One percent is so much money."
Doing The Math
International Data Corp. President Crawford Del Prete agreed.
"Think of it this way: Windows has a large installed base, say over 1 billion devices," he told Investor's Business Daily.
"If Microsoft converts 5 million of that installed base to the $360/year version of Copilot, that's almost $2 billion alone. That's just off the PC installed base, not counting phones. It also does not count revenue from other sources like Azure AI platform."
A 1% growth rate is certainly possible, Del Prete said, "But it is a big number."
AI Stocks: The Monetization Question
The debate underscores what's expected to be a heightened focus on AI monetization in 2025, Year 3 of the frenzy triggered by the launch of ChatGPT.
Wall Street is increasingly interested in seeing clear signs that the huge sums being invested in AI chips and data centers are paying off — even as AI spending continues to surge.
Wedbush analyst Daniel Ives estimates that AI capital expenditures will "exceed $1 trillion alone in 2025."
"We expect many enterprises and governments to aggressively head down the AI path with our view that AI cap-ex budgets will exceed $1 trillion and catalyze the next wave of use case and software buildouts across the consumer and enterprise landscape," he said in a client note.
Broadcom's blockbuster earnings report, which pointed to a "massive" opportunity in AI, highlights the tech trend's momentum.
But the chip powerhouse's report also underlined a key point about AI: it's a long game. Investors must be patient.
"2027 AI Revenue Potential Is Massive," Melius Research analyst Ben Reitzes said in a client note. "The master stroke here is getting investors focused on 2027 EPS power — which is potentially $9+. How can you care about the minutiae of near-term noise?"
AI Stocks: Noise Over Monetization
Still, the noise over AI monetization lingers. And it will likely get louder.
"Generative AI monetization is on hold," Monness Crespi Hardt analyst Brian White argued in a note downgrading shares of data software company MongoDB to sell.
"The gen AI propaganda of 2023 has proven to be a revenue wasteland for enterprise software in 2024," he said in a client note.
AI powerhouses, from the cloud giants led by Microsoft, Google and Amazon to the software giants like Salesforce and Oracle are slugging it out to prove that their AI tool is better.
That explains the back-to-back announcements from Google and Salesforce. Salesforce called Agentforce 2.0, "the first digital labor platform for enterprises."
"The demand for Agentforce has been amazing — no other company comes close to offering this complete AI solution for enterprises," CEO Marc Benioff said in a statement.
When Google introduced Gemini 2.0 last week, CEO Sundar Pichai said, "We're excited to launch our next era of models built for this new agentic era."
Battle Of AI Tools
Piper Sandler said a recent survey found 84% of chief information officers are "testing, planning to implement, or implementing" Generative AI tools.
"Google improved materially compared to the prior two surveys, surpassing Microsoft and OpenAI as the most strategic vendor on strength," the Piper Sandler analysts said in a note. But ChatGPT and Microsoft Copilot "remained the top two" software-as-a-service offerings.
Meanwhile, KeyBanc analysts offered a different view, telling clients: "We are fans of agents over copilots as an AI medium, have had optimistic conversations with partners and wrote recently that Salesforce is in a sweet spot where Agentforce hype does not yet have to lead to tangible revenue."
But Rebecca Wettemann, CEO and principal analyst of Valoir, said tech giants must still grapple with an important issue: trust.
The reason: there have been spectacular AI fumbles since the trend exploded.
AI Stocks: 'Fear of Messing Up'
One of them happened a few months after ChatGPT's November 2022 launch. A marketing glitch marred Google's unveiling of a new chatbot meant as a response to OpenAI's wildly successful tool. The blunder sparked a sell-off in shares of Google parent Alphabet, shedding $100 billion of the tech giant's market cap in a single day.
Another high-profile stumble happened last summer involving McDonald's AI drive-thru tool developed by Microsoft and IBM.
"I hate to harp on the trust thing, but that's the real battleground for agents," Wettemann told IBD.
Microsoft and Google, she said, "really did the world a disservice by putting out AI that wasn't ready for prime time."
Saying, "'Yes, but it really works now' isn't something a business leader wants to hear when they're entrusting their digital and business transformation to a vendor," she argued.
Besides, there are signs that companies are proceeding with caution about embracing AI.
"Corporate compliance and safety review cycles for this stuff are long, and they're often the biggest barrier to adoption in large organizations right now," Wettemann said.
Fear of missing out, FOMO, in AI, she said, has been replaced by FOMU: "fear of messing up."
"No one wants to be the next McDonald's," Wettemann said.
