In a recent talk at the CAIS Alternative Investment Summit, Robert Smith, founder and CEO of Vista Equity Partners, shared his insights on the future of enterprise software in the age of artificial intelligence (AI). While he believes that these software companies will ultimately benefit significantly from AI, he warns that this profit will take time to materialize.
The Evolution of AI in Enterprise Software
Smith, whose firm has a long history in enterprise software, emphasized that the companies that will thrive are those that control their own data sets. With Vista managing over $100 billion in assets and a portfolio of more than 85 companies, Smith has seen firsthand the transformative potential of generative AI.
“Gen AI is not just fascinating; it’s highly productive,” he stated. He anticipates global adoption, though he acknowledges that some aspects may face regulatory constraints. According to Smith, the AI revolution presents a massive economic opportunity for savvy investors.
Historical Perspective on Tech Transformations
Smith compared the current AI shift to past technological revolutions. In previous cycles, hardware companies, like chip manufacturers, often reaped the early rewards. For instance, during the rise of mobile internet, companies like Arm and Qualcomm were the first to benefit, followed by device makers like Apple and Samsung, and eventually software giants like Google and Microsoft.
Nvidia stands out as a major player in today’s landscape, with its stock surging by 183% this year as it develops AI platforms and software. Smith noted that hardware and semiconductor firms are currently capturing much of the market value in the public sphere.
Future Investments in AI Infrastructure
With AI on the rise, Smith predicts a substantial investment in infrastructure. Goldman Sachs has estimated that major tech companies and others will spend around $1 trillion on data centers, semiconductor upgrades, and other AI-related infrastructure in the coming years.
Enterprise Software’s Long Game
While Smith believes enterprise software firms will be among the last to see the financial benefits of AI, he argues that the potential gains are enormous. Of the roughly 100,000 tech and software companies worldwide, 97% are private. Smith highlighted that the products from Vista’s portfolio typically deliver an impressive return on investment (ROI) of over 640%. When these companies leverage generative AI, their ROI can jump by an additional 50% to 70%.
“Generative AI will create massive economic opportunities for enterprise software companies,” he said. However, he stressed the importance of having control over data. Companies that rely on external data sources risk losing their competitive edge as others may use that data to create similar products.
The Road Ahead for Vista’s Portfolio
Smith mentioned that about 80% of Vista’s portfolio companies have already implemented or developed generative AI tools. He expects that number to reach 100% by the end of the year. “The more you use these tools, the better you become at utilizing them, leading to greater overall benefits,” he explained.
In summary, while enterprise software companies may take longer to capitalize on AI advancements, those that can harness their own data will stand to gain significantly in the future.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.