Lyon Securities: Concerns about AI causing "software extinction" are exaggerated, SaaS moat remains strong.

In a deep thematic report, CLSA pointed out that despite concerns in the market about the disruption of the software industry by the rise of artificial intelligence models, Software as a Service (SaaS) is far from dead. However, before investor confidence returns, the industry still needs to undergo profound changes. The Hong Kong-based capital markets and investment group launched research coverage on several SaaS giants on Monday, including Microsoft Corporation (MSFT.US), Adobe (ADBE.US), Oracle Corporation (ORCL.US), Salesforce, Inc. (CRM.US), ServiceNow (NOW.US) and Workday (WDAY.US). Analysts Bhavtosh Vajpayee and Hangyul Son of CLSA stated, "The share of software in IT spending has grown 2.5 times over two decades and is now facing a moment of reckoning brought on by the rise of AI. This round of reality check, though brutal, is necessary." Vajpayee pointed out, "We are surrounded by business details managed by software, compliance requirements, and information filters. The idea that AI 'vibe-coding' can eliminate all of this sounds unrealistic. We find moats everywhere - ServiceNow's workflow directory, Salesforce, Inc.'s sales associates, Oracle Corporation's precise databases, Microsoft Corporation's ubiquity, Workday's HR expertise, and even Adobe's font library." CLSA gave Microsoft Corporation and Adobe "outperform the market" ratings with target prices of $535 and $300 respectively; gave Oracle Corporation and Salesforce, Inc. "hold" ratings with target prices of $145 and $165 respectively; gave ServiceNow and Workday "underperform the market" ratings with target prices of $72 and $92 respectively. Vajpayee added, "Among the six companies we cover, we recommend Microsoft Corporation as 'outperform the market' due to its omnipresence, despite its Copilot being a bit clumsy, and even having shades of Clippy. Adobe also receives our 'outperform the market' rating - its stock price already reflects market concerns, but its moat is being overlooked by the market in cases where performance exceeds expectations. Salesforce, Inc. must show growth before valuation recovery, and Oracle Corporation's ambitious AI expansion seems more like a gamble, so we prefer to observe. Both are given 'hold' ratings. ServiceNow is the market darling, supported by resilient indicators, but its valuation is still high; Workday's moat is weaker compared to most of its peers."