Needham: AI Spending Shift to Benefit Next Wave of Software Firms

A new report from investment bank Needham identifies a group of infrastructure software companies positioned to benefit as enterprise spending on artificial intelligence broadens. The analysis suggests the market is moving beyond the initial beneficiaries of the AI boom, creating opportunities for firms whose AI-driven revenue growth is expected to accelerate in the near future.

Beyond the GPU Trade

In a note titled "Beyond the GPU Trade: Who Gets Paid for AI in Infrastructure Software?", Needham analyst Mike Cikos argues that while early AI spending flowed to companies like Snowflake and Datadog, a second wave of beneficiaries is emerging. The report force-ranks companies that are awaiting an inflection point in AI-related revenue as enterprise adoption moves from experimentation to production-scale deployment.

Key Companies Highlighted

Needham outlined several companies, assigning timelines for when they expect AI to become a more significant revenue driver:

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• Dynatrace (DT) and Elastic (ESTC): As observability platforms, both are expected to see a broad-based tailwind from the massive increase in applications, data, and logs generated by AI. Needham noted that both firms, which have Hold ratings, have bolstered their AI observability offerings.
• MongoDB (MDB): The Buy-rated database company is positioned to gain from large-scale AI applications, agentic workflows, and vector search. Needham anticipates these benefits will begin to materialize in fiscal year 2028, once enterprises overcome hurdles related to security and governance.
• GitLab (GTLB): While the DevOps platform is at the "epicenter of AI adoption," usage has not yet translated into monetization. Needham, which rates the stock a Buy, believes a new hybrid consumption pricing model will start to capture this demand in the second half of fiscal year 2027.
• ServiceNow (NOW): Described as a "Platform of Platforms," the Buy-rated company has seen strong AI uptake. However, due to the sheer size of its business, Needham does not expect a significant impact on revenue until calendar year 2028.
• Nutanix (NTNX): The firm expects the trend of managing AI costs to drive repatriation of workloads to on-premise infrastructure, benefiting the Buy-rated company. Its AI readiness is also seen as a key advantage in winning business from competitors like VMware.

Market Implications

This analysis points to a second-order effect of the AI investment cycle, where the financial benefits are expected to ripple from chipmakers and hyperscalers to the software layer that enables and manages AI applications. Several of the highlighted companies have recently reported strong results, with MongoDB and GitLab raising their full-year guidance, suggesting that momentum may already be building ahead of the anticipated inflection points.