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Artificial Intelligence (AI) has not yet had a negative impact on the earnings performance of software-as-a-service (SaaS) companies, according to a report by CLSA.
The report analysed the guidance and recent quarterly performance of various SaaS companies to assess whether the rapid adoption of AI is affecting their business performance and profitability. According to CLSA, most SaaS companies have either maintained or increased their revenue and margin guidance for the upcoming financial year. The report also noted that these companies have largely exceeded consensus earnings-per-share (EPS) expectations in their latest reported quarters. "This implies no negative impact of AI visible yet," the report said. CLSA noted that while AI is changing business models within the software industry, the shift has so far been more visible in pricing structures rather than financial performance. The report said AI has led many software providers to move from traditional seat-based pricing models to consumption-based pricing models, where customers pay based on actual usage. Despite this transition, software companies continue to report healthy business momentum. According to the report, IT services companies that maintain strong partnerships with SaaS providers are also likely to benefit from continued demand for product engineering, implementation and related technology services. CLSA categorised SaaS companies into three broad groups -- Systems of Record (SoR), Systems of Engagement (SoE) and Systems of Workflows (SoW). The report explained that Systems of Record are less vulnerable to disruption from AI because these platforms require deterministic outputs, where the same input consistently produces the same result. In contrast, AI models are probabilistic in nature, meaning their responses can vary even when asked the same question multiple times. As a result, CLSA believes AI is unlikely to directly replace Systems of Record. Instead, AI is more likely to enhance such platforms by acting as an additional interface layer that improves functionality and user experience. However, the report said Systems of Engagement and Systems of Workflows face a relatively higher risk of disruption from AI. According to CLSA, AI can directly substitute some of the outputs generated by these categories of software platforms, making them more exposed to competitive pressures from emerging AI-driven solutions. Despite these potential long-term risks, the report indicated that current earnings trends, revenue guidance and profitability metrics across major SaaS companies remain resilient, suggesting that the financial impact of AI disruption has not yet materialised. (ANI)
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