Citi's Tyler Radke Sees AI Dividing Software Sector

Artificial intelligence is splitting software companies into gainers and laggards, in the view of Citi's Tyler Radke. He forecasts Microsoft's revenue expansion will exceed 20%, even as Adobe comes under strain because AI initiatives are eating into corporate spending.

The bank's co-head of US software equity research, Radke, said on Bloomberg Television that the sector's picture earlier in the year was far different. Then, even the weakest chip stock in its group outperformed the best software name.

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During the same Bloomberg conversation, Radke pointed to Microsoft, Palantir, and Snowflake — a cloud data business — as companies where AI is boosting growth.

Adobe and smaller application suppliers, by contrast, are feeling the squeeze as information technology (IT) budgets move toward AI, according to Radke.

His argument rests on Microsoft: Office costs less than $100 per month and includes security plus Copilot, the company's AI assistant.

At the same time, competitors charge several hundred dollars a month, giving Microsoft scope to increase monetization, he argues.

By way of comparison, Microsoft recorded 18% revenue growth in the three months through June 30.

He added that a Citi poll of chief information officers puts Microsoft's proprietary AI models close to the top research labs.

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A new case emerged Tuesday: Salesforce, according to a filing, agreed to acquire Braze, a customer-engagement platform, at $47.50 a share in cash.

Radke observed that Salesforce stock climbed roughly 20% following its most recent quarterly results.

Still, with six big acquisitions already done, the issue is whether Salesforce can accelerate growth from its own operations, he says.

More expensive financing could intensify the squeeze. Citi's neocloud debt thesis attributes the selloff in AI cloud providers to bond yields rather than weak demand.

Radke also said capacity for 2026 at those providers is fully booked, which makes a complete AI collapse difficult to imagine.

In his view, scale will determine which players remain, and bigger providers are likely to hold up longer than smaller rivals if capital remains expensive.

Katie Stockton, who founded the research shop Fairlead Strategies, counts widening credit spreads among three caution flags for stocks.

Should financing remain expensive, the divide Radke outlines could grow, with strategic acquirers and private equity firms seeking out companies under pressure.