Automating Software Development
LLMs can automate much of the Software Development process
U.S. fiscal year-to-date deficit: $457,627,225,860 (October 1st - through November 30th). This translates to a $2.69 Trillion deficit on an annualized basis. The Federal Government is supporting the U.S. economy at these spending levels.
Regarding the private sector, I don’t see robust growth, but AI data center construction seems to be perhaps the healthiest economic segment. When I think of large Gen AI use cases, Software Development is the obvious example. When I think of the addressable market, it is Software company R&D spend.
MSFT’s R&D spend is $33 billion annualized.
ORCL’s R&D spend is $10 billion annualized.
GOOG’s R&D spend is $61 billion annualized.
META’s R&D spend is $61 billion annualized.
SAP’s R&D spend is $8 billion annualized.
That’s $173 billion in R&D spend across these Big 5 Software companies. I believe half of that spend could be automated today - which would justify the hundreds of billions of dollars in AI data center construction - but (this is a big “but”), I believe it will take companies approximately 10 years to realize this automation because companies will be slow to change internal culture to one that demands that Software engineers leverage AI tools as part of the Software Development and Maintenance process.
There are many software engineers that want no part of AI in their process. Many engineers do not want the expectation placed upon them that they turn a product around in 3 hours rather than 3 weeks. I have heard these stories. There will be internal resistance to AI adoption.
Few CEOs among established companies will force AI adoption among the engineering ranks in a manner that would leverage AI tools to their fullest potential.
New Software companies will rise that leverage AI tools to their fullest, and will have the operating margins to prove it. I believe we will see new Software companies with 70-80% Operating Margins in the near future. These companies will run lean and will leverage AI tools to their fullest potential across Software Development, Sales & Marketing, Corp. Finance and every other discipline.
Keep an eye on that Software Development / R&D expense line as companies report earnings in 2026.