Rory O’Driscoll, a software investor with over 30 years of experience, stated at SaaStr AI that software is not dead but has become much harder to succeed in. In 2026, hyperscalers are investing approximately $688 billion in AI capital expenditures, while the revenue generated from AI stands at about $110 billion. This highlights a significant gap between investment and returns in the software sector, particularly in AI.
O’Driscoll explained that of the $110 billion revenue, around $89 billion comes from the two leading foundation model companies on a GAAP basis, with an additional $20 to $30 billion from other sources. His firm has debated these figures extensively and concluded that the industry is spending roughly half a trillion dollars more annually than it earns from AI-related software. This large upfront investment is shaping strategies across the software industry.
The current market context shows that software companies face a challenging environment where massive capital is deployed years ahead of revenue realization. This dynamic underscores why winning in software has become more difficult despite the surge in AI spending. The scale of investment by hyperscalers dwarfs the immediate financial returns, reflecting a long-term bet on AI’s future impact on software revenue streams.
O’Driscoll noted that the industry expects it will take until around 2032 for AI-related software revenues to catch up with the capital expenditures. This timeline frames the strategic decisions software companies and investors must make as they navigate the evolving AI-driven market landscape.