In the mid-2000s, we began to observe a shift that could affect our investment theses across several of our holdings and create new opportunities on our investment watchlist. When we began our investment journey (all those years ago!), if someone wanted to purchase software, you went to Circuit City (really showing our age now!) and plunked down money for a box with several discs that we used to install the application on our computer. By the mid-2000s, a movement began in which software no longer resided on our computers but was hosted on a remote entity called “the cloud”. Goodbye discs. Goodbye to updates from additional discs. Goodbye to those afternoon runs to Circuit City. Instead, the applications became known as software-as-a-service (SaaS). This new model revolutionized software providers, from the largest, such as Microsoft and Adobe, to the most niche vendors. This move from software to SaaS underpinned many of our investments, ranging from Guidewire (GWRE) in P&E insurance to Veeva (VEEV) in life sciences informatics.
We are now at the beginning of a new era in technology. In the past several years, the idea of SaaS has been gradually replaced by the recent rollout of fully functional artificial intelligence (AI) technology. Will it be as powerful as SaaS was? Who knows. Technologists and investors alike are harkening it to the creation of the Internet. That’s pretty powerful!
What is artificial intelligence?
So, what exactly is artificial intelligence (AI)? We think NASA has done a great job of creating a working definition that is easy enough for us laymen to understand.
“Artificial intelligence (AI) is a branch of computer science dedicated to creating systems capable of performing complex tasks that typically require human intelligence, such as reasoning, learning, problem-solving, perception, and decision-making. These systems, including machine learning and neural networks, analyze data to identify patterns, make predictions, and act autonomously.”[1]
They list the four major components of AI as:
Learning: AI systems, particularly through machine learning, improve their performance over time by analyzing data rather than relying solely on explicit programming.
Reasoning & Problem-Solving: AI can process information to make decisions, solve puzzles, or deduce conclusions.
Perception: Technologies enabling machines to interpret visual data (computer vision) or audio (speech recognition).
Autonomy: The ability to operate under varying circumstances without continuous human intervention.
The use and scope of AI are nearly unlimited. It is expected that AI can replace millions of jobs and streamline business processes. Entire segments of the national economy can be improved and, in some cases, eliminated through full integration into our nation’s economic systems. Of course, one of the major issues in the stock market today is which industries will be most adversely affected by this adoption of AI. In terms of our portfolios, the greatest impact will be with our software/SaaS-based vendors such as Veeva (VEEV), Guidewire (GWRE), ServiceNow (NOW), Arista Networks (ANET), and F5 (FFIV).
The threat and opportunity posed by artificial intelligence
AI poses a serious, transformative threat to traditional SaaS by shifting value from user interfaces to automated agents, which is forcing a move away from per-seat pricing. While AI will not "kill" SaaS, it threatens to commoditize basic software, disrupt business models, and reduce headcount-driven revenue. However, enterprise SaaS with deep data moats and workflows will likely adapt by integrating AI rather than being replaced. A great example of this is Veeva. The company is deeply embedded in nearly every mission-critical process in the pharmaceutical and biotechnology industry. Ranging from drug discovery and development to product sales and promotional support, Veeva is unlikely to be replaced by AI, but rather enhanced by its capabilities.
The following are the key components of the AI threat.
The "SaaSpocalypse": We think the markets are overreacting to the potential impact of AI on the SaaS business model. Over the past several months, we have seen a bloodbath in software stocks – from some of the larger firms to privately held companies in private equity portfolios. This led to the “Saaspocalypse” you’ve been hearing about in the financial media. While we think AI could have an impact, we don’t expect wholesale destruction in the software industry. (See our previous description of Veeva.)
Workflow Automation: We think this will be one of the greatest areas of impact. We could see AI “agentic” offerings automating everything from simple to relatively complex workflows. This could make companies that build human-facing user interfaces (UI) redundant.
Pricing Models: Many SaaS models are billed per seat (i.e., per user). It is assumed that AI's ability to perform the work of several individual users will significantly impact revenue due to the loss of billable seats. This is what the industry calls “agentic work unit” pricing.
There are some more general risks that AI presents to the SaaS model. These include:
Commoditization of Software: AI lowers the barrier to entry, enabling rapid, low-cost development of competing products, which pressures existing SaaS companies to differentiate.
In part 2 of this article, I will discuss how our portfolio holdings companies are addressing the encroaching risk of AI. We are comfortable that all of our holdings are either building out AI into their offerings or face little risk.
As always, please let us know any questions or comments you have on this article.
Disclosure: Nintai Investments currently owns shares in Veeva, Guidewire, ServiceNOW, and Arista Networks.
[1] Executive Order 13960, “Promoting the Use of Trustworthy Artificial Intelligence in the Federal Government”,
Section 238, National Defense Authorization Act of 2019
We are now at the beginning of a new era in technology. In the past several years, the idea of SaaS has been gradually replaced by the recent rollout of fully functional artificial intelligence (AI) technology. Will it be as powerful as SaaS was? Who knows. Technologists and investors alike are harkening it to the creation of the Internet. That’s pretty powerful!
What is artificial intelligence?
So, what exactly is artificial intelligence (AI)? We think NASA has done a great job of creating a working definition that is easy enough for us laymen to understand.
“Artificial intelligence (AI) is a branch of computer science dedicated to creating systems capable of performing complex tasks that typically require human intelligence, such as reasoning, learning, problem-solving, perception, and decision-making. These systems, including machine learning and neural networks, analyze data to identify patterns, make predictions, and act autonomously.”[1]
They list the four major components of AI as:
Learning: AI systems, particularly through machine learning, improve their performance over time by analyzing data rather than relying solely on explicit programming.
Reasoning & Problem-Solving: AI can process information to make decisions, solve puzzles, or deduce conclusions.
Perception: Technologies enabling machines to interpret visual data (computer vision) or audio (speech recognition).
Autonomy: The ability to operate under varying circumstances without continuous human intervention.
The use and scope of AI are nearly unlimited. It is expected that AI can replace millions of jobs and streamline business processes. Entire segments of the national economy can be improved and, in some cases, eliminated through full integration into our nation’s economic systems. Of course, one of the major issues in the stock market today is which industries will be most adversely affected by this adoption of AI. In terms of our portfolios, the greatest impact will be with our software/SaaS-based vendors such as Veeva (VEEV), Guidewire (GWRE), ServiceNow (NOW), Arista Networks (ANET), and F5 (FFIV).
The threat and opportunity posed by artificial intelligence
AI poses a serious, transformative threat to traditional SaaS by shifting value from user interfaces to automated agents, which is forcing a move away from per-seat pricing. While AI will not "kill" SaaS, it threatens to commoditize basic software, disrupt business models, and reduce headcount-driven revenue. However, enterprise SaaS with deep data moats and workflows will likely adapt by integrating AI rather than being replaced. A great example of this is Veeva. The company is deeply embedded in nearly every mission-critical process in the pharmaceutical and biotechnology industry. Ranging from drug discovery and development to product sales and promotional support, Veeva is unlikely to be replaced by AI, but rather enhanced by its capabilities.
The following are the key components of the AI threat.
The "SaaSpocalypse": We think the markets are overreacting to the potential impact of AI on the SaaS business model. Over the past several months, we have seen a bloodbath in software stocks – from some of the larger firms to privately held companies in private equity portfolios. This led to the “Saaspocalypse” you’ve been hearing about in the financial media. While we think AI could have an impact, we don’t expect wholesale destruction in the software industry. (See our previous description of Veeva.)
Workflow Automation: We think this will be one of the greatest areas of impact. We could see AI “agentic” offerings automating everything from simple to relatively complex workflows. This could make companies that build human-facing user interfaces (UI) redundant.
Pricing Models: Many SaaS models are billed per seat (i.e., per user). It is assumed that AI's ability to perform the work of several individual users will significantly impact revenue due to the loss of billable seats. This is what the industry calls “agentic work unit” pricing.
There are some more general risks that AI presents to the SaaS model. These include:
Commoditization of Software: AI lowers the barrier to entry, enabling rapid, low-cost development of competing products, which pressures existing SaaS companies to differentiate.
In part 2 of this article, I will discuss how our portfolio holdings companies are addressing the encroaching risk of AI. We are comfortable that all of our holdings are either building out AI into their offerings or face little risk.
As always, please let us know any questions or comments you have on this article.
Disclosure: Nintai Investments currently owns shares in Veeva, Guidewire, ServiceNOW, and Arista Networks.
[1] Executive Order 13960, “Promoting the Use of Trustworthy Artificial Intelligence in the Federal Government”,
Section 238, National Defense Authorization Act of 2019
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