Pure Storage Stock: Software Eats Hardware

June 2. 2023. 6 mins read

AI algorithms are only as good as the big data you feed them. ARK Invest’s fearless leader, Cathie Wood, told Bloomberg today that software companies will be the true beneficiaries of the AI explosion. UiPath (PATH) is learning about how knowledge workers work, and this allows them to perform more advanced automations, perhaps even with industry specializations. Teladoc (TDOC) uses their telehealth offering to generate lots of healthcare data which can potentially be used to build new products. Both firms may utilize AI hardware to train algorithms on, but the real value is in their data.

ARK’s point is that software is where the real value is realized for disruptive tech themes, a belief mimicked in the adage, “software eats the world.” It’s why we’re particularly suspicious of hardware-only business models. Recurring revenue streams should be developed concurrently with growth so investors can see the potential unfolding. It’s like companies that sell consumables. If you’re selling hardware, and consumables aren’t becoming an increasingly important component of revenues over time, then something is wrong with your razor-blade model. And if you’re selling a high-margin hardware product, you better be developing a software/services component to fill the margin gap when pricing pressures drive down your gross margins.

Pure Storage-as-a-Service

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