Software valuations remain squeezed amid dire predictions of ‘SaaSpocalypse’. But the real future of the sector is likely to be more complex, as RBC’s recent Canadian Private Tech Conference underlined. In this episode, Software Analysts Paul Treiber (Canada) and Rishi Jaluria (U.S.) reflect on the competing visions presented at the event, and consider how AI’s impact on the sector – and other industries – is playing out.

Key Points

• Innovation will be the key differentiator for software companies’ survival as AI disruption continues.

• AI is targeting companies’ labor budgets rather than IT spend.

• Software M&A remains subdued, pending a recovery in valuations.

• Power constraints are limiting the scaling of AI.

• Introductions [00:06]

Paul Treiber introduces colleague Rishi Jaluria for a discussion about the RBC Canadian Private Tech Conference, which featured 25 differentiated tech companies.

• Software’s future [00:40]

The conference presented competing views of AI’s impact on software. Some foresee the ‘SaaSpocalypse’, with software headcount shrinking as AI self-compounds. Others are harnessing AI to move faster and say their customers are expanding software use. Vertical software firms in regulated, workflow-dense environments are better insulated from disruption.

• Labor impact [03:09]

Rather than eating into IT budgets, AI is cannibalizing labor. Beyond software, entire industries are being disrupted. Some believe financial intermediation may disappear.

• Constraints on AI [04:43]

AI processing is accelerating, but memory is growing more slowly and interconnect failing to keep pace, acting as a constraint.

• M&A [05:15]

M&A activity is subdued and will only revive with a recovery in valuations.

• Sovereign clouds [05:52]

Sovereign clouds are seen by some as a tailwind for Canadian companies. Others believe local hosting will prove unnecessary.