Software – Favour Companies with ERP Exposure
Software industry is a clear AI beneficiary. In 2023, software accounted for 37% of the total global AI market, surpassing hardware’s 24% share. The ERP (enterprise resource planning) software ...
Chief Investment Office - Hong Kong version21 Aug 2024
  • Global software market is projected to grow by 12% over 2024-2032 and reach USD1,789bn by 2032
  • ERP market is expected to grow at 14% CAGR, compared to CRM’s 13% over 2024-2032
  • ERP software solutions are essential for business operations, making companies with ERP exposure more resilient
  • Major software players delivered adjusted earnings in line with market expectations for 1Q24 (calendar year); cloud centric players provide better-than-expected revenue guidance
  • Software companies have begun to monetise their AI products; expect companies with higher ERP exposure to outperform
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Software industry is a clear AI beneficiary. In 2023, software accounted for 37% of the total global AI market, surpassing hardware’s 24% share. The ERP (enterprise resource planning) software market is expected to grow at a CAGR of 14% over 2024-20321, reaching a market size of USD239bn by 2032. This growth outpaces the 13% CAGR projected for the CRM (customer relationship management) software market2 and the 12% CAGR forecasted for the global software market3.

ERP integrates a wide range of business processes into a single cohesive system, encompassing accounting, procurement, risk management, compliance, and supply chain operations. This expansive scope makes ERP solutions critical for businesses seeking to improve efficiency. In the era of Industry 4.0, characterised by automation, data exchange, and advanced manufacturing technologies, ERP becomes increasingly crucial in managing complex operations and data flows. In contrast, CRM systems focus on niche areas such as sales, marketing, and customer relationship management.

Many software players started monetising their AI offerings last year. Salesforce is charging users USD50 per month for its Einstein GPT which helps customers automate tasks.4

Solid revenue growth ahead. Major software players reported adjusted earnings in line with expectation for 1Q24 (calendar year), driven by operational efficiency. Revenue growth was primarily fuelled by cloud, AI, and analytics solutions. However, the outlook is mixed across the industry. Leading CRM vendor is guiding revenue growth below that of market expectations, citing elongated deal cycles, deal compression, and heightened budget scrutiny. On the other hand, cloud-centric players have guided for robust revenue growth, exceeding market expectations due to robust backlog.

Preference for players with ERP exposure. Many ERP players are incorporating AI tools into their existing core products at no additional charge. As more features are added, we expect them to adopt consumption-based pricing. Companies with higher exposure in the ERP segment have experienced an increase in share prices by 30-40% YTD, while leading CRM share prices remained flat. This trend of outperformance by ERP companies is expected to continue.

1Fortune Business Insights, 2Fortune Business Insights, 3Precedence Research, 4Salesforce

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