36% of the companies in the S&P 500 cited “AI” on their Q2 2023 earnings calls. (Figure 1). This portion decreased to 30% in Q3, however, both quarters still sit well above the 10-year average of companies that cite AI in their earnings calls, which is 8%. We believe that artificial intelligence is here to stay and companies that can appropriately leverage the technology will differentiate themselves in the marketplace.
We analyzed commentary from various firms and concluded that some companies are going to be AI “enablers” while others are AI “users.” While AI users can drive efficiency, we are more focused on AI enablers to whom AI is a revenue driver. Well known AI enablers include Nvidia, Microsoft, Google, and Amazon.
We looked beyond these four and found three unique software companies that can benefit from the secular trends that artificial intelligence creates.
Elastic N.V
Elastic is a search and data analytics platform that is used to analyze, manage, and monitor cloud based and on-prem databases. Their three main solutions include observability, security, and search, all of which are mission critical functions for IT departments and businesses. Its observability solutions help IT departments monitor and visualize their cloud environments. Security solutions hunt for threats in the cloud and enable professionals to investigate any security vulnerabilities. At the core of Elastic’s search technology is the ESRE model (Elastic Search Relevance Engine). The model is a suite of machine learning tools that software developers can use to build AI-powered search applications integrated with large language models (LLM). With Elastic, companies can build proprietary LLMs by using private and public data. Companies find this attractive as they do not want to use public LLMs for security reasons.
Varonis Systems Inc.
Varonis is a data security and analytics platform that is focused on protecting enterprise data such as sensitive files, emails, customer data, financial records, and intellectual property. Their three main use cases are data protection, threat detection & response, and privacy & compliance. All of these can be applied to data, applications, and infrastructure in a cloud and on-prem environment. Cybersecurity is a top priority for IT departments as cyberattacks can lead to significant disruptions in business operations. According to the Cybercrime Magazine and Security Magazine, on average, there is 1 cyberattack every 39 seconds which costs companies around the globe a total of $8 trillion annually.
Artificial intelligence will change how cyberattacks happen as hackers leverage AI to launch faster and stealthier attacks. Users of Microsoft, Salesforce and Amazon AI products will need to secure their environments as more data will be at risk.
Nutanix, Inc.
Nutanix provides a hybrid multi-cloud platform that simplifies the cloud infrastructure of companies. Their use cases include hybrid cloud infrastructure, multi-cloud management, database services and desktop services. The platform helps companies create hybrid clouds by integrating on-premises and public cloud environments. Nutanix sees a favorable market environment as companies adopt more hybrid multi-cloud architectures since they do not want to “lock-in” with a single cloud provider (Google, Amazon, and Microsoft).
From a strategic standpoint, Nutanix is positioned to enable AI for edge applications and on-prem data centers. Migrating data for AI models from on-prem to a cloud provider is inefficient so most of it will be processed in large data sets on-site. Some companies won’t be comfortable with sharing their data with LLMs in the cloud, so the AI model processing will happen on-premises. Nutanix developed GPT-in-a-Box which is an AI solution for organizations wanting to implement Generative Pre-trained Transformer (GPT) capabilities while maintaining control over their data and applications. This solution equips users with the tools to prepare their data infrastructure so it’s ready for AI deployment. Nutanix reported that >50% of the company’s customers expressed interest in running AI on Nutanix infrastructure.
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