The shift from cloud computing to generative AI will bring software margins down further, to roughly 60%, the analysts estimated.
'Long-term software gross margins will structurally be lower as a result of GenAI,' they wrote in a research note.
When software went from 'on-premise' to the cloud, gross profit margins fell from 90% to 75%, according to RBC.
In the software business, gross profit margins have traditionally been in the 90% range. That sounds like a lot, but this is why this sector is so attractive to investors.
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