As Australia’s profit season unfolds, a unique dance between company executives and investors has emerged. Following the release of financial results, CEOs and CFOs engage in closed-door meetings with institutional investors, aiming to provide deeper insights into their company’s performance and broader strategic narrative. However, this year, a key question is dominating discussions: How will artificial intelligence disrupt software company valuations?
With large corporations increasingly reliant on software, investors are keen to understand the potential for these organisations to leverage AI for in-house software development. While the possibility exists for companies to create DIY versions of key software platforms, several factors suggest this isn’t an immediate threat. Large companies tend to be risk-averse, and the ongoing improvement, maintenance, and updates provided by software companies remain crucial. Furthermore, companies have numerous other AI priorities, and internal AI adoption is currently focused on training staff and managing risk.
Despite these considerations, analysts are evaluating whether Australian tech stocks have been excessively discounted. Eric Choi from Barrenjoey suggests that REA Group, Seek, and Car Group (owner of Carsales) have been unduly impacted by an “AI-pocalypse.” Choi believes that AI will struggle to replicate the unique advantages of these portals and that these companies will harness AI to further strengthen their market positions. REA Group is a digital advertising business specialising in property. Seek is a global online employment marketplace.
Choi’s analysis indicates that the market hasn’t fully factored in the potential for reasonable revenue growth in these companies. His projections, extending to 2037, suggest that the current stock prices may not accurately reflect the companies’ growth prospects. However, accurately predicting the market landscape that far into the future presents a significant challenge.
