Embracing Disruption
AI vs. SaaS: Who Wins the Future of Software
There’s growing chatter in tech circles suggesting that SaaS—Software as a Service—is headed for disruption, if not outright obsolescence. The argument is straightforward: AI will either replicate SaaS functionality at a fraction of the cost or create entirely new paradigms that make existing tools redundant. From an investor’s perspective, the more interesting story is how large, incumbent platforms are positioned to benefit from the AI transition. The hyperscalers among the big US Tech companies are natural beneficiaries. But just as importantly, a select group of enterprise software providers remains central to the digital infrastructure of the global economy.
These companies aren’t just software vendors; they’re embedded within mission-critical enterprise workflows. They have scale, trust, long-term contracts, and most critically, privileged access to structured, compliant enterprise data— the essential substrate for any meaningful AI application. As AI capabilities mature, we’re likely to see a shift from discrete tools to intelligent agents—autonomous software systems that can execute tasks, make decisions, and adapt over time. These agents will start by automating narrow workflows— drafting emails, generating reports—but could eventually replace entire software categories. Think less about productivity enhancements, more about labor substitution.
This has two key implications for capital allocators:
- Value Capture Will Move Up the Stack
As foundation models become commoditized and more open-sourced, the center of economic gravity will move from model development to integration and deployment. The firms best positioned to monetize this shift are those already embedded in enterprise IT—with secure access to data, control of workflows, and a distribution channel to upsell AI-native features. - SaaS Fragmentation Risk Will Rise
Smaller, vertical SaaS players—especially those without deep customer lock-in or defensible data moats—may face increasing margin pressure or displacement as enterprises consolidate around fewer platforms. In many cases, buyers will prefer AI capabilities bundled into their existing software suite rather than layering on niche tools from unproven vendors.
The long-term market opportunity remains enormous estimates peg the combined AI and software market at several hundreds of billion USD by the end of the decade*.
While the number of AI-native startups will continue to grow, value creation may accrue disproportionately to those who already own enterprise relationships—and the infrastructure beneath them.
We’re still early in this transition, and execution risk remains high across the board. But one trend is clear: as AI takes on more operational tasks, the total addressable market for software expands. The question for investors isn’t whether AI will reshape the software landscape, it’s who is best positioned to monetize that shift at scale.
Active investors may find that the coming AI-driven shifts in enterprise software create meaningful dispersion in outcomes making this an environment where disciplined stock selection could outperform broad passive exposure.
