MIZUHO SECURITIES USA LLC  |  US EQUITY RESEARCH

Summary

In evaluating recent artificial intelligence/machine learning (AI/ML) trends and innovation put forth by enterprise vendors, we see incremental benefit for CRM, NOW and SPLK. Though HDP is well-positioned, we believe the window of opportunity is narrow. Across the stack, we think the revenue opportunity lies with application vendors that address specific business problems or analytical tool providers that help enable a solution. The core AI engine layer of the stack will likely be dominated by large vendors such as Amazon.com, Apple, Facebook, Google and Microsoft; smaller players are likely to either get acquired or run into significant headwinds, in our view.

Key Points

Persistent trend toward enterprise automation. The current trend of accelerating AI/ML innovation continues the decades-long push to further automate enterprise workloads. We look at the evolution of key technologies over time as well as current leading innovations in the space from the large cloud players and emerging vendors, alike. Based on our conversations and industry analysis, we assess potential supporters and detractors of greater adoption in the near- to medium-term.

Standalone AI seems like a hard model to commercialize. As with those in the open-source space today, we believe business models reliant solely upon traction of core AI are likely to face similar scaling challenges. While we believe monetization strategies are very much in flux today with different models being tested, the near-term opportunity lies in tools that enable such workloads and end-user applications that solve specific business problems.

Mixed takeaways for core AI and analytics. In our view, 1) AAPL continues to embed AI functionality into its products, though incremental revenue opportunity remains limited; 2) big data capabilities required to support ML implementations is supportive of HDP's growth; however window of opportunity seems narrow for them; 3) SPLK seems to have multiple ways to win in this space and will be among the top vendors to gain from the trend; 4) DATA seems to have a very limited opportunity in the space.

CRM and NOW appear very well-positioned. We note that 1) CRM continues to be one of the biggest proponents of machine learning, with early organic investments plus robust M&A; Einstein is seeing strong interest from customers but production deployments could take some time; 2) NOW is likely to sustain momentum as it pushes for deeper enterprise automation across functional areas with investments in product.

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