The Rise of AI
- Nicholas Rundle
- Feb 27
- 2 min read
This week has seen the plenty of market moving views. Perhaps the biggest was a thought piece from Citrini Research on the impact of AI on the US economy and investment & bond markets.
It’s a long read but interesting.
This prompted a few responses that they were just a little bit crazy (they admit at the end of the doom & gloom article most of it probably won't happen) but it clearly articulates why the market has been aggressively selling off software stocks, which we have covered over the last 2 months.
We are now and in the final days of reporting season and one of our largest and thanks to their founder Richard White, most controversial, software companies Wisetech (WTC) reported. The report was good enough.
The summary reads:
1H26 Highlights
1H NPAT: $114.5m (+2% YoY)
Revenue: $672m (+76% YoY), boosted by the E2open acquisition
Organic revenue growth: ~7%
They also reaffirmed FY26 guidance for:
EBITDA +44% to +53% to $550 million to $585 million
Revenue +79% to +85% to $1.39 billion to $1.44 billion
Ebitda margin 40% to 41%
It’s on OK report. Organic growth 7% is ok, not great. NPAT +2% is ok, not great. I mean, CBA and the other banks beat it, hardly high growth stocks.
What caught the eye (or perhaps ear) of everyone was on the conference call following the release of the half-year report where CEO Zubin Appoo noted that AI is not a threat to WiseTech’s model, but a tool to fundamentally reset its cost base and development economics. More over, thanks to AI WiseTech will reduce their workforce by (up to) 2,000 roles (~30% of their workforce) over the next two years under what management calls a “deep AI transformation”.
This is the change AI is making to software companies.
Appoo gave examples of AI-driven productivity gains that are already reshaping their business. He noted that projects that once took six to seven months can now be completed in a day. WTC can now roll out global customs capabilities in new countries six to seven times faster than before.
For software companies its becoming clear how they will operate, fewer people, faster product delivery, and materially better operating leverage. Margins should improve, not disappear.
In my Economic Evening presentation last week I noted that our view was this margin expansion was a greater possibility and that the Resmed (RMD) example of the impact of the Ozempic weight-loss drug on the need for Sleep Apnoea equipment was a prime example of how markets can latch on to a story and punish a stock only for time to prove that, in fact, the complete opposite outcome (Ozempic has highlighted the need for increased Sleep Apnoea related assistance) to be the truth.
The market is still unconvinced, but the argument of software destruction is no longer one way. We remain of the view that great buying opportunity is coming but as the WiseTech chart shows, there is long way to come back.
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