In software land, it’s getting harder and harder to call out a singular vibe shift when the vibes keep shifting every 24 hours. On Thursday, when news broke that Silver Lake was in talks to acquire Workday, the human resource software company’s stock shot up 19%. Such a deal would be a big vote of confidence in a prominent software firm and, combined with a 55% appreciation in Workday’s shares since late June, a possible sign that the AI-driven SaaSpocalypse is ebbing. But on Friday, the buzz seemed to have worn off. Workday’s shares sank almost 4%. The stocks of other software companies, which similarly spiked on Thursday following the Silverlake-Workday reports, also widely dropped.
Thanks for reading The Briefing, our nightly column where we break down the day’s news. If you like what you see, I encourage you to subscribe to our reporting here.
Greetings!
In software land, it’s getting harder and harder to call out a singular vibe shift when the vibes keep shifting every 24 hours.
On Thursday, when news broke that Silver Lake was in talks to acquire Workday, the human resource software company’s stock shot up 19%. Such a deal would be a big vote of confidence in a prominent software firm and, combined with a 55% appreciation in Workday’s shares since late June, a possible sign that the AI-driven SaaSpocalypse is ebbing.
But on Friday, the buzz seemed to have worn off. Workday’s shares sank almost 4%. The stocks of other software companies, which similarly spiked on Thursday following the Silverlake-Workday reports, also widely dropped.
Prepare for more mood swings in the coming weeks.
Some of the recent bounce in SaaS stocks may stem from technical trading: money coming out of stocks with high momentum and into the “relative losers of late,” which have been software stocks, said Jackson Ader, managing director of software equity research at KeyBanc Capital Markets, last week on TITV.
The next big data point comes in two weeks when Salesforce reports results. Analysts polled by Refinitiv expect revenue to rise more than 10% to $11 billion. But as with past quarters, most of the attention will be on growth from its AI products.
Software stock analysts have been bracing for more pain. Karl Keirstead, head of AI and software equity research at UBS, says the executives of many blue chip companies he speaks with are “absolutely articulating a view that, given the performance improvements in these AI models and the ability to custom-build alternatives, they would like their spending with software company X, Y, Z to be down 30% over the next three years.”
“I‘m in the camp that it’s going to be a rocky ride for the next 12 months,” he said in mid July.
A takeover offer for Workday—whose shares are still down 7% this year—would show there’s a path for out-of-favor software companies. Generally, a company like WorkDay would be catnip for PE firms: While its stock has suffered, it throws off plenty of cash. (WorkDay generated $2.8 billion in free cash flow for its year ended in January.) But as we reported in January, these institutions have held off on acquisitions because they’re wrestling with private portfolios of software companies that are as under threat of AI as their publicly held peers.
A WorkDay acquisition would also set a valuation multiple for other potential software buyouts. Notably, the Reuters report on Silverlake’s acquisition interest did not include an actual purchase price, leaving that multiple unknown. Still, shares are 13% higher than before the report emerged—indicating investors are betting this SaaS story has a happy ending. —Akash Pasricha contributed to this report.
Here’s what else is going on
More clarity is emerging about how Nvidia is using its financial heft to help customers like OpenAI—while it tries to avoid spooking Wall Street with commitments that could tank its stock and credit rating.
On Friday, we reported that Nvidia was close to an agreement to provide around $100 billion in credit support for OpenAI to lease a data center in Ohio that would be among the biggest of its kind.
That’s a lot, but it’s lower than an earlier report that it could backstop $250 billion—and just a fraction of what the project will cost. The $100 billion would cover the first phase of the project; Nvidia would be incentivized to help guarantee the second phase, but it's technically not on the hook for the rest and could wait a couple of years to decide.
Nvidia wants to limit its credit exposure to the Ohio project to 25% of the total financing, we reported. That’s the same ceiling it announced on Monday, when it unveiled a partnership with six of Wall Street’s biggest firms to raise $500 billion to help customers buy Nvidia chips.
Then on Saturday, we reported that Nvidia is discussing investing $3 billion into the IPO of SB Energy, the SoftBank unit that is developing the Ohio site. SoftBank, of course, is a major OpenAI investor: Including past and committed investments, it is sinking more than $64 billion into the startup. And Nvidia is also investing in Lancium, the power developer behind OpenAI’s separate Stargate Texas campus.
All told, this suggests Nvidia isn’t exactly backing off using its financial might to support chip customers. (As of April, Nvidia had more than $80 billion in cash and marketable equity and debt securities on its balance sheet as of April and generated a whopping $49 billion in cash just in the April quarter alone.) But it’s trying to make sure it doesn’t look like it’s taking all of the risk.
In Other News
Anthropic’s revenue rose around 14 times in the second quarter from the same period a year ago, the company has told investors. More here.
Join us to explore the real-world shifts, new architectures, and enterprise strategies defining the next era of AI. Secure your spot today to hear directly from top minds at Google DeepMind, OpenAI, Atlassian, and more.
Tickets on sale now: The Information returns to Napa Valley October 27–28 to convene senior women across tech, media, and finance. Join us for two days of intimate, candid conversations with the leaders navigating today’s global shifts.
