The Next Big AI Investing Opportunity in 2025: From Hardware to Software

The AI Investing Pulse

November 28th, 2024

The Next Big AI Investing Opportunity in 2025: From Hardware to Software

This week’s analysis examines the anticipated shift from hardware and infrastructure dominance in 2024 to a focus on software and application opportunities in 2025. As AI infrastructure investments mature, industry experts predict a software led wave in the AI sector.

Hardware's Reign in 2024

This year, hardware and infrastructure stocks, such as NVIDIA (NVDA), delivered exceptional performance. This surge was driven by unprecedented demand for AI computing power as organisations built infrastructure to support large language models (LLMs) and generative AI. However, recent analyses indicate that while AI hardware spending continues to grow, the rate of growth is decelerating compared to previous years. Consequently, the focus in 2025 is shifting towards monetising these investments through software applications.

Why Software is the Next Big Opportunity

Cathie Wood, CEO of Ark Investment Management, has emphasised that software companies represent the next significant opportunity in the AI industry. She predicts that for every dollar spent on AI hardware, software providers could generate eight dollars in revenue. This perspective underscores the potential for software applications to drive substantial value as businesses seek to leverage their AI infrastructure investments.

Proactive Investors also notes that the "next AI party phase" is expected to benefit software firms such as Snowflake (SNOW), Elastic (ESTC), and Palantir Technologies (PLTR). While infrastructure is critical for AI enablement, the true value lies in applications that directly enhance productivity, customer engagement, and operational efficiency.

Zacks reports that enterprise adoption of AI software had lagged behind infrastructure buildout, but this is changing rapidly. Companies are now prioritising user-friendly applications that offer a clear return on investment (ROI). Key drivers include:

• Generative AI Applications: Tools like ChatGPT have sparked interest in business specific applications, from marketing content generation to advanced analytics.

• Vertical AI: Industries such as healthcare, finance, and retail are demanding specialised software to address sector specific challenges.

• Automation and Workflow Tools: AI-powered solutions for automating repetitive tasks are seeing increased adoption across enterprise environments.

Stocks to Watch in 2025

Analysts and experts have identified several software companies poised to benefit from the next phase of AI development:

• Snowflake (SNOW): Snowflake's focus on embedding generative AI capabilities into its data cloud platform positions it as a top pick for enterprises seeking advanced analytics tools.

• Palantir Technologies (PLTR): A leader in AI-driven decision making software, Palantir has expanded its presence in government, healthcare, and defence sectors.

• Elastic (ESTC): Elastic leverages AI to power its search and data visualisation tools, which are increasingly integrated into enterprise operations.

• Amazon (AMZN): Highlighted by Cathie Wood for its comprehensive AI strategy, Amazon aims to dominate AI infrastructure, large language models, and software, positioning itself as a significant player in the AI sector.

As 2024 concludes, the hardware driven boom in AI investments appears to be transitioning to a new phase of software led growth in 2025. The spotlight is now turning to companies that can unlock the true potential of these infrastructure investments. While risks such as macroeconomic headwinds and inflation persist, software firms offer scalable, high-margin opportunities that warrant close attention from investors in 2025.

TOP AI STOCKS

TOP AI ETFs

WEEKLY AI STOCKS IDEAS

6 stocks that will benefit from the next wave of AI development, Bank of America says - Market Insider - Microsoft, Salesforce, ServiceNow, Adobe, Hubspot, Intuit.

A once in a generation opportunity, 2 AI stocks Wall Street loves - The Motley Fool - Google, Pinterest.

10 Best AI stocks according to Morningstar - Morningstar - Microsoft, Google, Snowflake…

AI STOCKS & ETFs NEWS 

Looking for durable, needle moving growth in the AI tech stack - T.RowePrice - AI will be disruptive, growth investors should focus on what creates value over the long haul.

There's a hidden risk lurking for AI stocks in 2025 - Markets Insider - Companies are facing rising depreciation costs from their massive chip investments, Barclays says.

How a breakup could upend Google and the tech world - Yahoo Finance - Google has a lot at stake if the Justice Department succeeds in breaking up its empire.

AI STARTUPS

5 AI startups shaping the future - Boss Magazine - From simplifying investments and improving health outcomes to creating immersive digital content, these companies are unlocking possibilities previously thought unattainable.

A16z in talks to lead $200M round in Black Forest Labs, the startup behind AI images on Grok - BNN Bloomberg - Black Forest Labs, the German AI startup that helps Elon Musk’s Grok produce images, is in talks to raise as much as $200 million less than four months after it launched.

Former Google, Stripe executives raise $56m for AI agent startup - Silicon ANGLE - AI agents are an advanced evolution of current large language models that are designed to process information and execute tasks without human intervention.

AI TRENDS

AI and machine learning trends in healthcare - Healthcare Leader - Data science academic Dr Russell Hunter looks at the top trends that healthcare leaders need to know.

Software development AI global market trend report - The Business Research Company - Software development AI market outlook, critical Insights, trends analysis, key players and forecast to 2033.

Why Quantum AI is the next big thing for the future of AI - AIthority - The integration of quantum computing takes AI abilities to an entirely new level.

OTHER

AI and the R&D revolution - FT.com - How can this fast changing technology help providers update products more efficiently and successfully at each stage of R&D.

How to redesign work for the age of AI - MIT - Leaders from Google, ING, and Capital One advise avoiding the “gold rush mentality” around AI and following these six steps instead.

AI-Powered Growth: How to invest in the future of global markets with Linqto - finimize - If you're looking to invest in AI, it's essential that you understand the companies that are out in front. The AI landscape can be divided into three main categories.

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The information contained on this site does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.