Software Spend Goes Parabolic

The great budget inversion

For decades, software quietly crept into company budgets. AI is about to rewrite them entirely—and faster than anyone expects.

Since the Industrial Revolution, productivity gains have shifted costs from labor to technology. The spinning jenny replaced weavers. ERP systems replaced clerks. But no wave will transform costs like AI. Previous shifts moved predictable work to machines. This one will automate judgment itself.

Even after ~doubling in eight years, software remains a fraction of most companies' payroll. That's about to change. As AI eliminates routine cognitive work, spend will shift dramatically from labor to software. AI won't just automate tasks—it'll automate decisions.

OpenAI's 10x price hike signals what's coming. Conformative software companies are going from zero to $20M in revenue in just three months. Companies have cut customer service staff by 70% using AI agents. Microsoft's $80B infrastructure bet shows big tech sees it too.

Previous waves needed physical transformation—factories, machines, infrastructure. This one doesn't. Work is already digital. Data is already structured. AI slots right in. While humans take months to reskill, agents tune instantly. And for the first time, non-developers will build and consume software at massive scale. Compute constraints will ease as markets adapt. Energy remains the real bottleneck—the one constraint markets can't solve overnight.

Per-seat pricing won't survive when AI does the work. Want better decisions? Just add more compute. And while humans sleep, AI thinks. With AGI likely soon, this acceleration only intensifies. AI-native companies won't just compete—they'll make traditional software obsolete, offering complete solutions where others sell tools.

Top talent will become more valuable, not less. The premium will move from execution to orchestration—from doing tasks to choosing which problems matter. Revenue per employee will become meaningless when your best performers aren't human. CFOs will face a new reality: compute budgets that could spike 5-10x in a quarter as usage surges.

The companies that survive won't just embrace AI—they'll spend more on software than labor. Multiple companies proved this in 2024, reaching eight figures with small teams and massive AI investments. Software spend won't just grow. It'll go parabolic.