Software maker Dynatrace on Thursday formally completed the acquisition of six-year-old AI startup Arize of San Francisco, and Dynatrace’s CEO, Rick McConnell, was kind enough to chat with me for a few minutes about the deal.

Dynatrace makes tools in the “DevOps” and “Observability” categories of software that help IT to monitor and remedy issues when software is running in production, such as wether an application is live or has gone down. Arize sells tools to software developers who write the code, long before it goes live, to let the developers run “evaluations” that tell if the output of an artificial intelligence model is erroneous or off-topic or some other bad thing.

These two worlds are colliding, says McConnell. Increasingly, IT people need to coordinate with developers in an ongoing fashion in order to determine not just whether a program is running okay in the basic sense that it’s live, but also whether it’s running correctly, in the sense of not serving up erroneous AI answers.

“AI is forcing companies to address a broader array of questions and issues than they've ever had to address before,” says McConnell. Historically, the questions of applications were simple ones such as, Is it up and running? Can you get money successfully from the ATM machine?

Shares of Progress Software, makers of tools to connect software to a company’s data sources, are down about 6% Thursday following a Wednesday evening third-quarter earnings report that was well-received generally but for the blemish of a lower forecast for profit.

The profit forecast is somewhat diminished because Progress just closed the $400 million acquisition of Domo, a publicly-traded, sixteen-year old maker of “middleware” software that is complementary to what Progress does.

They didn’t buy the whole company, they bought the assets, and they are bringing over most of the employees and the customers. Founder Josh James, who previously founded and sold measurement company Omniture to Adobe, is taking the money to build his next venture, which for the moment is called Huckleberry dot AI and will trade under the ticker “HUCK.”

What’s more interesting to me is how the Domo business may change the nature of Progress’s business.

My concern for semiconductor companies such as Nvidia, Advanced Micro Devices, Micron Technology and others, for a long time now, has been that promised spending on semiconductors for artificial intelligence data centers may never materialize as expected. The numbers are fantastically large, and they depend on financing and things such as power generation falling into place, none of which is assured.

An upbeat report on Wednesday from Merrill Lynch chip analyst Vivek Arya reaffirms both my optimism about the chip companies and my concern about the whole spending matter. I don’t think it’s time to dump Chip stocks, but I do think it’s important to be very aware of the risks here.

I’ll come to the chip stocks in a moment but first let me explain what Merrill Lynch has found.

After having beaten expectations for profit and revenue by double digits for two quarters in a row, it was only natural that Micron Technology would see a rather muted reaction to Wednesday evening’s fiscal fourth-quarter report, which delivered revenue merely 6% ahead of consensus. Hence, the shares are down in early trading by 1% at $1,052.50.

The average investor has seen the headlines of spiking prices for DRAM and NAND flash chips all year long, and they know that it has to run its course at some point. And so, a lot of money has gotten up and walked away from Micron after a 273% gain the stock this year.

The stock price has merely tracked the market in the past three months, rising 3%.

The fundamental circumstances, however, have gotten better for Micron and its industry than they were three months ago.

Price targets are once again rising. The average is now $1,600, up from $1,400 back then. Price targets are creeping above $2,000 to $2,100, $2,200.

And the real question for discussion moving forward may be what to do with the enormous balance sheet that will approach $100 billion in cash sometime this quarter.

It’s been a busy twenty-four hours for analysts covering SpaceX stock as the company on Monday live-streamed the first successful launch into orbit of its “Starship” rocket, and CEO Elon Musk gave an update about the company’s plans to build out lots of computing capacity.

Starship is the thing that fascinated analysts, but the meat-and-potatoes of their financial forecasts are all about the timeline of AI compute.

THEY LIKED THE ROCKET

Allow me to explain. The response to the Starship Launch 14 as it’s called, on Monday, was favorable because getting Starship into orbit is a major validation of the technology of this newest generation of rocket, and Starship’s significance will ultimately be to carry a lot more satellite payloads into space. (You can relive the drama of Launch 14 in the posted video of nearly four hours.)

Monday evening, after a busy day in which Jensen Huang’s Nvidia had announced a massive increase in its buyback authorization and also a security initiative for artificial intelligence, Huang was honored at an event in lower Manhattan held by the Korea Society. I was among a group of journalists at the event who took part in a press Q&A backstage.

When it came time to answer questions backstage during the Q&A, Huang didn’t have anything of great substance to offer. Over the years I’ve been watching him, he is both resolutely positive on any issue, and also resolutely a salesperson for his company’s chips. The world increasingly wants Huang to be a deep thinking about the AI wave he is leading, but that’s really not his forte.

Nvidia, which has lately been dogged by the “doomerism” about artificial intelligence, chose two methods on Monday to reassure everyone: Talk up security and give everyone a bunch more money!

The company issued a press release regarding an “Open Agent Safety Platform,” including some software to control agentic AI tasks, but it’s probably the separate announcement of an additional share repurchase authorization of $150 billion that is lifting the stock today by a couple points to $230.03 while many other AI-linked names trade down.

ere’s the catch for Intel and AMD: Although Nvidia mentions that OpenShell, being open-source software, can run on Intel processors, and those from ARM Holding, the release mentions first Nvidia’s own CPUs, Vera.

After a brutal few years for software investors, the group returned to favor in the past ninety days or so, with numerous software vendors articulating how they will survive and even thrive in an era of AI.

It started with a revival for cyber-security firms such as Palo Alto Networks and Cloudflare; tools vendors such as DigitalOcean and JFrog; and, now, some of the makers of conventional application software, programs used by a person to do a job, have found their groove, demonstrating newfound relevance.

I met earlier this month with one such application vendor, Asana, an eighteen-year-old maker of scheduling and workgroup software based in San Francisco. The stock struggled for most of this year, down 34%, but the past three months have seen a 26% jump, to a recent $8.79, as investors have taken interest in the way the company is rolling out new AI-based products.

Next month, on October 14th in New York, Asana will host a customer conference to discuss several of the new offerings, including something ambitious called “Dash” that aims to be a kind of overlord of all the AI agents.

The big bet being placed by Rogers is that he can shift the company from charging only on a per-seat basis to use his software to what is known as a hybrid model, where some costs are incurred by the customer only when the outcome of an AI agent is satisfactory.

This past Thursday afternoon, September 24th, I had the pleasure of chatting with Patrick Zammit, chief executive of the world’s largest electronics distributor, TD Synnex, following his company’s fiscal third-quarter results in the morning.

What I most wanted from Zammit was an update on how his company is doing implementing artificial intelligence internally.

It turns out he may have come up with a recipe that actually works and can bring advantage to the business.

TD Synnex’s job is to connect giant vendors of technology such as Dell to resellers of that technology who will implement it for the end customer such as a corporation that needs PCs. That’s eighty percent of the business; the other fifth of the business is what’s called Hyve Solutions, where the company assembles racks of equipment for the cloud computing giants.

When I first talked with Zammit, in June, he was focusing on getting all his employees to be literate in AI, to understand the technology and be comfortable starting to use it. He told me then that he expected it would take a lot longer for AI to automate the various processes that go on inside TD Synnex.

This time around, Zammit had a surprise for me.

“For workflow optimization, the team is moving faster than I would have expected,” he tells me. “They’re already starting to look at processes end to end.”

I’ve never used an Oura ring, the electronic health and wellness finger band, but I’ve met people who swear by it. It has lots of sensors on the inner edge of the ring that monitor things such as how you’ve slept and your heart rate. Some customers featured by the company testify to the ring having saved their lives by, for example, sending them to a doctor when low heart rate was detected.

Now, Oura, a thirteen-year-old company originally founded in Finland and now based in San Francisco, is going public, aiming to raise half a billion dollars. Given the devotion I have heard people express, I was surprised to learn in its prospectus for the IPO that the “retention,” the number of those who pay $5.99 for a membership, versus those who leave, averaged over twelve months, is 87%. (Membership lets you get analysis of the data collected by your ring to form a larger health profile of yourself. The company says, vaguely, it uses AI to shape analysis of the data.)

An 87% retention rate means that 13% of people who sign up to pay $5.99 for membership churn away over twelve months. That’s a fairly high rate of churn for a subscription business. Most software-as-a-services businesses have a retention rate on the order of 97% or so; even The Technology Letter manages about 97%. That low rate of retention includes cases where Oura is able to get someone to come back to the product after they quit, known as a “winback.” The real rate of churn is presumably therefore something higher.

I dropped shares of Everpure (formerly Pure Storage) from the TL20 group of stocks to consider in March, and what a mistake: the stock is up 110% since then, better than fourteen of the twenty names, including a jump Thursday of 18% to $129.92, following an upbeat “analyst day” presentation to the analysts covering the company.

How could I have been so wrong?

When I rebalanced in March, the stock at the time of that rebalancing was down 8% for the year, and it had merely tracked the Nasdaq in the preceding twelve months. I concluded that the stock couldn’t work because investors would only appreciate Everpure if they won a second deal with a cloud giant on top of their existing deal with Meta Platforms.

Shares of “connectivity” specialist Amphenol are down half a point Wednesday at $82.44 despite a favorable initiation of coverage by Bernstein analyst Varun Govindaraj, who assigned an Outperform rating and a $99 price target. Amphenol is one of the TL20 group of stocks to consider, having been added with the year-ago rebalancing. The stock is up 51% since then.

Govindaraj has two main points: the stock is expensive but justifiably so, and, two, the company will be just fine even though investors are worried about whether its electrical products will be made obsolete by fiber-optic-based connections.

I think he makes a decent case on both counts.

Elsewhere in data centers, UBS analyst Karl Keirstead Wednesday makes a vigorous defense of CoreWeave, the neocloud data center operator, assigning a Buy rating and a $120 price target, which would be a pretty decent return from a recent price of $87.73.

The past twenty-four hours have seen a steady stream of intense interest in a new app from Meta Platforms, called “Muse,” with many predict epic payoff for the entire technology industry.

Muse was first unveiled two weeks ago, and, at the time, I noted that the early response from stock analysts was very favorable, and that the expectation was that Muse is among a bevy of “personal AI” things that will become a solid trend in tech going forward. These kinds of apps will take on tasks for a user such as navigating to a Web site automatically and placing an order. (Think of personal shoppers, etc.)

The fervor has now reached escape velocity since Muse was identified in the past week as the most popular free download from Apple’s App Store.

WHAT IT MEANS FOR META

First priority is assessing the impact for Meta, and the enthusiasm among Meta stock analysts is growing by the day.

AMSC’s chairman and CEO Daniel Patrick McGhan once again sits down with me to talk about the business of supplying semiconductor factories and mines and utilities around the world. Trillions of dollars are being spent on energy and upgrading the electrical grid and on moving supply of critical materials from China to the Western hemisphere. The opportunity for the company is selling larger and larger orders, often by showing up when existing customers need more from AMSC for a semiconductor fab, say. Having reached $90 million per quarter in revenue and two years of continued profit, McGhan says “the company is now really designed and built” to sustain growth and profitability.

A week ago, I met with management of one of the best-performing software stocks this year, Backblaze, whose shares are up 182% at Friday’s close of $13.16.

The performance is in no small part because in late June, Backblaze won the equivalent of the AI lottery: a multi-year deal to supply AI hosting firm CoreWeave worth $335 million.

Backblaze is getting paid by CoreWeave to manage the hard disk drives that store customer data in the cloud. Nineteen-year-old Backblaze has spent years refining ways to arrange files across multiple disk drives. It’s intellectual property makes movement of data fast and efficient, making best use of drives and networks. That has made Backblaze newly relevant in an age of AI that needs to store a lot more stuff.

In New York, I met with Backblaze co-founder and CEO Gleb Budman and CFO Marc Suidan following the company’s first-ever “analyst day” presentation. The analyst day is an event where company management pitches the stock analysts on the company’s strategy and how it will pay off financially.

Probably, upside from here hinges on satisfying a couple of concerns. Can a relatively small company, $950 million in market cap, continue to serve giants such as CoreWeave without being dis-intermediated in an area, storage, that is traditionally a commodity? And, what about all the concerns of the AI euphoria going away?

We are now past most of corporate earning season for technology companies, which means, it’s time for … analyst day season!

The analyst day meetings, which usually take up an entire day, usually at a hotel, with mini-muffins and abundant coffee, are for management of tech companies to regale stock analysts with rosy projections.

I call these “Dog & Pony” shows because the companies’ management preen and try to be pretty and get the award for most promising.

We had a bunch of these this week, and I thought I’d give you the highlights. The big picture is that every company is talking about how the raging AI trade is going to mean bright things for the business for years to come.

CIENA’S BRIGHT PROSPECTS

First, the good news. Ciena, the dominant vendor of fiber-optic gear, continues to dazzle. The company’s stock was already very solid coming into Wednesday’s presentation at its analyst day event, held in Ottawa, Canada, where Ciena has its R&D facility. It gained a couple points on the event to close at $344.25 on Thursday, a 47% gain this year.

Micron Technology and SanDisk, and competitors Samsung Electronics and SK Hynix, have all done superbly well this year as supply of DRAM and NAND flash chips have failed to keep up with raging demand, driving up prices of the chips dramatically.

Can demand keep going higher? The companies themselves refuse to tell us. Management at Micron and the others are no longer forecasting total demand in their market because they can’t even meet current demand.

Into the breach, analysts at Citigroup this week took a stab at measuring supply and demand.

Chip analyst Peter Lee and team conclude — surprise! — demand is headed much, much higher.

The team forecast, for example, that the total number of bits of “high-bandwidth memory,” or, HBM, the fastest DRAM, used in AI, that the world will need is going to surge by 62% in 2027 versus this year’s level of demand, and another 69% in 2028.

Folks, I wish I could say that a highly intelligent, well-coordinated effort to regulate artificial intelligence in the best interests of society is about to take place. I suspect that is not the case, however.

There is no leadership in Washington, D.C., and the companies that are calling for a slowdown of some kind, including Anthropic (CEO Dario Amodei’s blog post) are really so full of self-congratulation that they will not pursue anything on their own.

‘EDGE’ CHIP MARKET COMES INTO FOCUS

Speaking of AI chips, four years ago, I was writing for ZDNet about the market for so-called edge computing, running artificial intelligence on battery-powered devices. That was a very hot market for venture-backed startups until the market imploded. Most of those companies failed to make progress and went away or were acquired. Assets of Flex Logix, one of many startups I interviewed, which made a form of “field-programmable gate array,” sold its key assets to Analog Devices, one of the TL20 stocks to consider, in 2024. Hailo Technologies was bought by Microchip Technologies in July. Untether AI of Toronto, Canada, filed for bankruptcy in October of last year after Advanced Micro Devices hired some of its key people.

(0:05) We’ve pretty much come to the end of earnings season, and I’ve spent the last week tallying the software names that stand out.

(1:21) From an initial list of 460 companies I’ve narrowed it down to almost 60 that saw a “pop” following their reports and are therefore worth considering.

(3:11) The point of the list is to divine which ones could be winners, and there are two basic groups one can identify in software names, “infrastructure” and cyber-security.

(3:51) Infrastructure includes names such as Snowflake, one of the TL20 group of stocks to consider. Its shares jumped 17% following its September 2nd earnings report. After selling off 8% since then, the stock is still up 50% for the year. Snowflake is a good example of an infrastructure winner.

Oracle had fallen 24% since its June report, through Thursday’s close of trading, but the stock is up 6% Friday morning at $161.75, a reversal of the sell-off that was seen back in June. The key factor is that profit margin hasn’t eroded as much as expected, and the company didn’t raise its forecast for spending or for how much debt it will raise, even as the business of hosting GPU chips continues to grow fast.

No news is good news, in other words!

Back in June, the company’s CFO, Hilary Maxson, had told analysts to brace for a decline in gross profit margin. While it was lower this quarter, at 61%, it didn’t fall below 60%, as some expected.

She even had good things to say about margins moving forward, which is that as some of Oracle’s cloud contracts - most of which is now renting GPUs to people who want AI computing — come up for renewal, a lot of that can come in at a higher price, actually helping margins.

The unveiling in April by AI giant Anthropic of its “Mythos” software program, and its companion cyber-security initiative, “Project Glasswing,” was a landmark for the cyber-security industry. At the time, stocks of traditional security vendors swooned. Investors assumed that by automatically detecting cyber flaws, Mythos would make traditional cyber-security firms obsolete.

The opposite has happened: it has made cyber-security firms more relevant than ever.

“This is the hottest market,” says Jay Chaudhry, chief executive of cyber-security vendor Zscaler, in an interview he and I had last week following the company’s fourth fiscal quarter financial report on September 3rd.

“Mythos was probably the biggest event I have seen in cyber-security in a long time,” says Chaudhry. “Every board meeting, and at the level of finance ministers” in countries around the world, “they were talking about it,” trying to gauge the consequences.

Shares of Apple ended fractionally lower on Wednesday at $315.34 as the company formally unveiled the long-awaited “foldable” iPhone with a starting price of $2,000, the iPhone Duo.

The limp reaction of the stock is in contrast to the fairly positive reaction of analysts covering the event.

The most important element for the Apple bulls was the price, which was lower than the $2,100 starting price that bears such as Jefferies’s Edison Lee hypothesized last month.

The fully-loaded model, I should note, with two terabytes of storage, is in fact as expensive as Lee predicted, $3,100. $3,100 for a phone!!

At any rate, a lower entry price is perceived as a a good thing because it may lift the volume of sales of the device. Bear in mind that Apple offers two different payment options to ease the price. The standard financing for the $3,100 model comes out to $90 per month for three years while the recently introduced “Upgrade” plan for Apple devices comes out to $93 per month for two years.

OpenAI’s announcement this week of its token spend looks a little like science, which is the impression that’s intended, but it’s real yet another self-congratulatory press release. At least it’s good news for the chip makers such as Nvidia.

Software stocks are making a comeback, lifted by the artificial intelligence trade. We’ve seen that in two places in particular: stocks of companies selling “infrastructure” software, meaning, tools to build things, and cyber-security stocks. 

Wednesday, I met with a company doing both. Software maker JFrog is known principally as a tool for programmers to manage what’s called a “binary” file. When a programmer is done writing code, they push the compile button, and their instructions are converted into a machine-readable file, a collection of ones and zeros, hence, binary. The binary is what the microprocessor executes to run the program. 

JFrog keeps those binary files organized and protects them from mischief and corruption as programmers are working.

In February, JFrog, along with many software names, looked to investors like a casualty of multiple new software offerings from Anthropic and OpenAI. A consensus took shape that traditional tools would be rendered obsolete as the AI giants just re-created it all with “agents.” Stocks swooned.

What a difference six months has made. JFrog stock is up 113% since then at a recent $87.60.

We got another ample serving of software firms reporting Thursday evening, and I’m delighted to see that Samsara, a name that was in the TL20 up until this past March, has gotten a strong response to its healthy report, up almost 14% in pre-market trading at $44. Price targets are rising to as high as $55 this morning. ‍ ‍

Samsara makes software and hardware sensors that allows fleets of vehicles to be remotely directed (more here.)

However, Samsara has mostly gotten favorable responses in past to earnings only to see its stock slip later on, as I have noted before. The shares have been trailing the market this year, up just 8% prior to last night’s report.

The cloud computing giants, Amazon, Microsoft, and Alphabet, have been joined by a second-tier cohort of companies that are chasing opportunity where the giants leave crumbs on the table.

Some of those crumbs are now sizable. By serving up AI capabilities, for example, CoreWeave, the best known of the so-called neoclouds, has amassed a backlog of $104 billion, it said last month. Its larger competitor, Nebius Group, has $40 billion of backlog. These have overnight become substantial operations.

And some think they will take an even more prominent role.

“We would like to go win more neoclouds,” says Rajiv Ramaswami, CEO of software maker Nutanix, in a chat we had last week. “I think they are a great alternative to hyperscalers in terms of making GPU capacity available to the enterprise easily.”

It’s another funny evening of earnings Wednesday similar to Tuesday night, with even decent reports being sold off. That includes Broadcom, down 1%, and Hewlett Packard Enterprise, which is benefitting from artificial intelligence just like Dell Technologies but not seeing the same stock gain tonight.

The star of the evening, I’m happy to report, is TL20 stock to consider Snowflake, its shares up 23% in late trading at $376.60, adding to a 39% year-to-date gain prior to the report.

BROADCOM’S CEO HELPS THE NEEDY

The hyperbole in AI is really something else these days.

Back in June, there were two issues of concern for Broadcom. One was pressure on gross profit margin, the other was CEO Hock Tan’s soliciting hedge funds Apollo and Blackstone to finance his customers Anthropic and OpenAI.

UPDATE: Palo Alto Networks’s after-hours gain Tuesday night has melted away, the stock down 2.5% at $353.07 in early trading. That’s in spite of analysts raising their price targets as high as $450. Catharine Trebnick of Rosenblatt Securities, who has a Buy rating on the stock, attributes the sell-off to worries about gross profit margin. She notes that the company’s “Cortex” product, which is the root of its security management practice, and a showcase for Palo Alto’s AI efforts, has a lower gross profit margin than the traditional application firewall business at Palo Alto.

Bulls advise staying the course. Remember, Palo Alto had nearly tripled this year heading into the report.

Shares of Dell Technologies have given up a little of their gains overnight, but the stock is still up 8% in early trading at $460.55. Price targets on Dell this morning are going as high as $650 at Bernstein, which would be a 41% gain from here.

The really big gainer of the evening turns out to be GitLab, whose shares are now up 22% in early trading at $55, with price targets zooming to as high as $70 at Canaccord Genuity.