As AI stocks continue to slide after an astounding two-year bull run, the tech industry is facing a moment of reckoning.
It’s no longer enough for startups to pitch a compelling story about their AI solutions. Investors and end clients now expect tangible results and real revenue, say industry insiders.
“Clearly, the market is entering a more mature phase of GenAI,” Concentrix (CNXC stock) President and CEO Chris Caldwell said in a Q1 earnings call on Wednesday.
“The headline-driven hype has abated with clients. They don't want flashy unproven demos and can't afford more failed AI pilots.”
Caldwell noted during the earnings call that as macroeconomic conditions worsen, clients are looking to consolidate their AI service providers.
This means that the market could begin to narrow for AI startups who have unproven products.
“Clients are really looking for new tech solutions around GenAI that are practical and usable and actually drive returns versus just being flashy demos,” Caldwell said.
“And so we're seeing that kind of motivate some of our clients to consolidate with us.”
GenAI startups will claim a smaller pie of money
In a report released last year by Andreesen-Horowitz partners Justin Kahl, David George and Alex Immerman, they touched on this narrowing market for startups in the GenAI space.
“The entire pie of software spend is just smaller: net-new dollars up for grabs for startups have been cut in half,” they wrote. “Unless you’re selling cybersecurity or databases whose growth rates have remained strong, your life has gotten a lot harder.”
They added that “startups are competing with new gen AI-native startups—which, in turn, effectively limits the size of their opportunity even further.”
Concentrix posted a profit for the three months ended Feb. 28 of $70.3 million, or $1.04 a share, compared with a $52.1 million, or 76 cents a share, in last year's comparable quarter.
The company's earnings per share (EPS) was $2.79, beating the $2.58 EPS analysts polled by FactSet had forecasted. Revenue fell 1.3% to $2.37 billion, but came in ahead of Wall Street’s consensus projection.
The company raised its full-year revenue outlook to $9.49 billion to $9.64 billion, compared to its prior outlook of $9.47 billion to $9.61 billion.
“We're starting to see a solid start to the year, reaffirming our confidence that we have the right strategy and the right model to drive long-term sustainable growth,” Caldwell said.
“In Q1, we delivered solid financial results with revenue and profit above forecast and year-on-year growth across all key financial metrics.”
Shares of CNX soared 42.4% on Thursday, making it the top gainer by the close of trading. Its stock is up 50.3% this year.
Caldwell said that “innovation and our ability to introduce a broad range of business services has allowed us to consolidate volume from other partners.”
These range of services for their clients include strategy and design, data and analytics, enterprise technology and digital operations.
“They want results and they are turning to the partners they trust, partners that combine human intelligence, domain expertise, global scale and advanced AI productivity tools to take the promise of AI into reality,” he added.
“This is where we are positioned to outperform in the AI-powered world.”
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