Public software companies are having a banger of an earnings season. We’ve read through 30+ earnings calls. Below are the key themes.
Theme 1. AI conversations in enterprise software are now about actual performance. Zeta’s CEO put it well when he said “customers want to invest in applied AI, not road map AI”. At the same time, AI without systems, workflows and data is slop, as Palantir’s CEO alluded to. The model is the commodity while the data and underlying workflow layer from enterprise software are what matters. As Klaviyo’s CEO put it: “agents are only as good as the systems beneath them” and Dynatrace’s CEO refers to customer requirements for “answers, not guesses.” Incumbents like Braze, Snowflake, and JFrog are benefitting from thoughtful architecture which allows enterprises to have real use cases for AI.
Theme 2. CEOs are being candid about AI’s impact on their organizations. For instance Amplitude’s CEO said “the existing thing we have, frankly, isn’t valued much” and paused the entire company to rebuild workflows from scratch. Others, like Palantir’s CEO sounded angry on their calls about the disrespect for software. No software company is standing still, and betting against software’s evolution and value is to bet against technologists like Karp.
Theme 3. AI is splitting companies into two camps: i) you’re either using AI as an excuse to cut headcount (looking at you Cloudflare, Freshworks, Health Catalyst, Block); or ii) you’re using it to drive the product roadmap faster (ZipRecruiter, Figma, Datadog). Bet on those in the second category. Those in category one sound like they’re coyly still shedding employees from covid over-hiring.
Theme 4. One of the things we didn’t appreciate until now is the TAM expansion argument. Agents that access software are now users, and are being charged as such. Traditional services TAMs are also becoming markets software can serve with their own agents. AI proliferation that theoretically threatens to commoditize software is creating new markets for it. Theme 5 expands on this below.
Theme 5. AI is simultaneously creating more of the problems that incumbent software solves which expands the market for solutions. For instance, AI generated content requires more brand safety software (Double Verify), AI coding tools need more observability software (Datadog, Dynatrace), AI agents need more permissions and governance that software provides (Sailpoint), more agentic traffic across the internet means more edge infrastructure from incumbent software (Fastly, Cloudflare). The same AI wave that allegedly threatens these businesses is actually driving their product offerings.
Theme 6. We’re seeing lots of repositioning; MongoDB is repositioning as “the memory layer for AI agents.” PagerDuty is repositioning as “the control plane for AI operations.” ZoomInfo is repositioning as a data infrastructure layer rather than a seat-based platform. One way to make the market understand software’s importance is to reposition it. Financial performance largely supports the repositioning as most of these companies are posting record quarters.
Theme 7. Software companies are putting up excellent numbers, beating estimates, accelerating growth, and raising guidance. ServiceNow, Zeta, Freshworks, DigitalOcean, Procore, Amplitude, Datadog, Cloudflare, Klaviyo, Figma, JFrog, Backblaze, Dynatrace, Braze, Zscaler, SentinelOne, UIPath, and MongoDB did one or all of the above.
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