Citi Research Highlights AI Software Winners and Losers as Enterprise Budgets Shift

Artificial intelligence is dividing the software sector into distinct winners and losers as corporate IT budgets shift toward AI projects, according to Tyler Radke, co-head of US software equity research at Citi. <br><br> ## AI Budget Shifts Drive Market Divergence <br><br> Speaking in a Bloomberg Television interview, Radke explained that AI is driving growth for market winners including Microsoft, Palantir, and cloud data provider Snowflake. Conversely, Adobe and smaller application vendors are experiencing pressure as enterprise information technology budgets are diverted directly to AI projects. Earlier this year, even the lowest-performing chip stock in its sector outperformed software's top performer. <br><br> Radke expects Microsoft's revenue growth to top 20%, following 18% revenue growth in the quarter ended June 30. He noted that Microsoft bundles its Copilot AI assistant and security tools in Office for under $100 per month, whereas competitors charge hundreds of dollars monthly. A Citi survey of chief information officers (CIOs) indicated that Microsoft's in-house AI models perform close to leading dedicated research labs. <br><br> ## Consolidation and Financing Pressures <br><br> Pressure on weaker software vendors is accelerating industry consolidation. On Tuesday, a filing revealed that Salesforce agreed to buy customer engagement platform Braze for $47.50 per share in cash. Although Salesforce shares rose about 20% after its last quarterly report, questions remain whether six major acquisitions can accelerate organic growth. Market dynamics are shifting as Goldman Sachs named defensive stocks amid AI slowdowns, highlighting broader sector reallocations. <br><br> Key takeaways from Citi's research include: - Microsoft, Palantir, and Snowflake lead top-line growth, with Microsoft projected to exceed 20% growth. - Adobe and smaller application makers face margin pressures from diverted IT funds. - Salesforce agreed to acquire Braze for $47.50 per share in cash. - 2026 capacity at AI cloud providers is completely sold out. <br><br> ## Why It Matters <br><br> This market split demonstrates that platform scale and bundled pricing are becoming essential survival metrics as corporate IT spending concentrates on AI infrastructure. While higher borrowing costs and wider credit spreads create headwinds—as Fairlead Strategies founder Katie Stockton noted regarding market warning signals—well-capitalized giants maintain pricing leverage over specialized app providers. Because 2026 AI cloud capacity is already sold out, buyouts by private equity and strategic buyers will likely accelerate for smaller firms struggling to sustain organic growth.