CITIC SEC: FDE is expected to promote the entry of Agents into the production environment, leading to a layered upward movement in the software industry's prosperity.

CITIC SEC released a research report stating that the CY2026Q2 financial report indicates a continued positive demand in the U.S. software sector: application software performance and orders remain resilient, effectively alleviating concerns about "AI devouring software"; the guidance for basic software and information security sectors is impressive, indicating sustained high demand in the industry. Looking ahead, the core constraint on the commercialization of enterprise Agents is shifting from model capability to production deployment, with FDE potentially facilitating the transition of Agents from pilot to actual business processes by addressing issues related to proprietary data, business semantics, system integration, and governance. As FDE's plans gradually take shape, basic software and information security are expected to be the first to benefit from the growth in data utilization, network traffic, and security demands. The revenue growth of application software AI and overall revenue is expected to gradually improve from CY2026Q4 to CY2027Q1, and the valuation pricing logic is likely to improve significantly based on the current pessimistic expectations. Q2 Performance: Application software demand shows signs of recovery, with impressive guidance in basic software and information security According to LSEG (including consensus expectations) and company announcements, among the 35 sample software companies surveyed by CITIC SEC, 16 application software, 10 basic software, and 9 information security firms reported average revenues for CY2026Q2 approximately 2.0%, 3.3%, and 3.2% higher than expected, respectively. The average Non-GAAP operating profits exceeded expectations by approximately 10.7%, 20.7%, and 10.2%, respectively, with revenue growth supported by improved cost efficiency. Looking ahead, according to LSEG (including consensus expectations) and company announcements, the average revenue guidance for the three sectors for CY2026Q3 is approximately 0.3% lower, 1.6% higher, and 1.9% higher than expected, respectively; the full-year revenue guidance for basic software and information security firms in CY2026 is approximately 1.1% and 1.7% higher than expected, respectively. CITIC SEC believes that the renewal of application software customer contracts, expansion of existing accounts, and sales of new products remain resilient, but customer decision-making and order conversion have not yet fully accelerated; basic software benefits from AI training inference, data platform, and development operations demands, while information security benefits from upgraded cyber threats, cloud computing, and platform integration, showing relatively higher prosperity and performance visibility. IT Demand and AI Monetization: Orders continue to grow, with AI products gradually shifting from trial to paid and production deployment According to company announcements, the cRPO of Salesforce and Workday at the end of CY2026Q2 grew approximately 14% year-on-year, while the cRPO of Snowflake and MongoDB grew approximately 40% and 73% year-on-year, respectively. The RPO of CrowdStrike and Palo Alto Networks grew approximately 49% and 34% year-on-year, respectively, indicating that enterprises' investments in core applications, data platforms, and information security remain resilient. According to performance call statements, among 14 key application software vendors, 13 believe that demand is stable or robust, with some customers already establishing independent AI budgets. Overall, the monetization of application software AI is still in the early stages, with 6 of the 14 sampled companies achieving certain results and 7 in the early stages; the monetization models are also gradually extending from product bundling to points, token consumption, overages, and results-oriented pricing. CITIC SEC believes that the realization of application software revenue still depends on production deployment, payment conversion, and increased usage; basic software and information security are closer to production loads such as data utilization, network traffic, and security protection, and are likely to benefit earlier. Industry Outlook: FDE is expected to drive Agents into production environments, leading to layered upward movement in the software industry's prosperity The implementation of enterprise Agents requires addressing issues related to proprietary data access, business semantics, system integration, identity permissions, and runtime governance. The traditional SaaS delivery model, which primarily relies on standardized products and configurable implementations, is challenging to fully adapt. FDE starts from customer business needs, embedding engineers into customer teams to complete scenario identification, data access, application construction, and production deployment, while also distilling common experiences into standard components and industry solutions. Referring to Palantir's delivery experience, the project cycle has been reduced from about 9 months around 2021 to approximately 2 months currently. Considering that most application software vendors began to promote FDE layouts starting in CY2026Q2, CITIC SEC expects that related AI loads will gradually materialize from CY2026Q4 to CY2027Q1. The demand for basic software and information security may improve even earlier, while whether the revenue growth of application software can reach an inflection point still depends on FDE delivery efficiency, customer adoption, and the scale of AI consumption.