How AI Is Rewriting the Rules of Software Investing | Insights from SaaStr 2025

Want to stay ahead while AI rewrites the rules of business? Here's what we're learning from the front lines at the SaaStr conference. I'm Brian Dress, Director of Research here at LeftBrain, joined as always by our CEO and Chief Investment Officer, Nolan Langford. Nolan, welcome to the program.

Thank you, Brian. Uh, it's good to be here. Good to be here. Excited to talk AI and SaaStr and the holiday Memorial Day is right around the corner. So official summer kickoff. All good things, my friend. All good things.

Yes. Ready for summer to start. Um, not so ready for the kids to be outta school, but we'll see how it goes. Um, so Nolan, let's just jump right into it. You went to the SaaStr conference for the second time out in San Mateo, California, and I'll, we'll open it up with a simple question. What's SaaStr and, uh, what's going on out there?

SaaS, acronym software as a service. I think Lemkin at the end is cutesy, put the TR there, but it's the software as a service conference. And it is kind of a big ordeal. A lot of the big publicly traded companies are software companies. Salesforce.com, Microsoft, Adobe, Oracle. The list goes on and on. And many others. So software is a large part of the market. It is a growth sector of the market. So it has our attention. And there's a lot of themes that even if they're not software, that flow through software like cybersecurity and AI. So this is a way for us to go spend a few days here from a lot of CEOs and get some information that would otherwise be hard for us to glean.

So Nolan, we're growth investors to a large degree, so a lot of the things that we look at and take a deep dive on are software companies. So I'm glad you're out there learning more about what's going on, uh, you know, on the front lines of the business. So the first thing I want to ask you about, you know, you were there last year, you came back with kind of the thoughts and the takeaways that people were pretty downcast in software. Talk about the mood you felt out there, what people were saying, and kind of the difference between this year and last year from that perspective?

Definitely a different, a different tone for sure. Taking you back to September of last year, you know, software really was continuing like the third or fourth year of struggle. Even Microsoft itself didn't have a great year last year out of the Mag Seven. So software really, it had been having a hard time. And then, you know, you had ChatGPT that popped up on the scene in October of 2022. And immediately people use that as a force against software, thinking that eventually it will be a huge competitor to software. And so you start to see this cloud over software, over software. And certainly you could feel that mood when I was there in September last year. Okay.

Well, it's good to know that things are looking a little bit more up on the— from the from the sentiment point of view in the software business. So what's interesting about software, you know, 5, 6 years ago we were looking at software companies, they were growing 30, 40% a year. You know, a number of them were with regularity. And, you know, now a lot of these companies are getting a little bit more mature. And so, you know, naturally you'd expect some slowing growth. So talk about what, you know, what they're saying about growth rates generally in the industry out there.

You know, you're right, Brian. I remember those good old days when we were writing up businesses with 30, 40, 50% growth rates. Remember the Zoom growth rate back during COVID So it's incredible. But normally a good rate for software companies at mature— well, before maturity is, you know, if you're in the 20s to 30s, depending on, you know, where you are in your growth curve. That's generally a really healthy rate. And if you look now, software companies, you know, 10% is kind of the, the Mendoza line. And that was a common theme that I heard amongst many software people that were presenting. I think it's just tougher for them. You know, deal cycles are getting a little bit longer. It is getting more competitive. And one of the things that they did say is with the dawn of AI, they are starting to see a lot more competitors. And so it's not killing their business, but at the margin, it's death by a few cuts. So anyway, 10% now is, you know, if you're growing above that, that's a really good number. So that was interesting to hear because also interesting to hear the opportunity that exists because growth rates have slowed. So interesting times.

Well, you mentioned AI. Let's talk about AI and where it fits into this whole picture. So Seems to be AI is important in a number of few, in a few ways, Nolan. First of all, AI is causing companies to have to spend money on AI. And what does that mean for software in terms of, you know, being part of the tech stack for a lot of these enterprise customers that are the big, you know, that really drive revenue for these companies? And then you got to talk about AI in terms of how it manifests in terms of software development. So as far as how they build their products too, that's going to be a big change. So Tell us a little bit about more, more about what you heard on the front lines about how AI is impacting software.

So I think, so one is it is early. So one of my takeaway, I'm just making myself a note so I don't forget here, 'cause I have a nugget I wanted to share with you, how AI is impacting software. So, you know, on the one side, it's very early and I mentioned that the mood is different this year than last year. Last year was doom and gloom. This year I'm gonna say it was optimism, but there was also paranoia. Okay. And the paranoia was brought on by AI. People were just really very focused and paranoid that some upstart with better AI can pretty much put you out of business. I mean, you could hear that was the common theme throughout SaaS this year. So how is AI impacting software? On the one side, it's making software really look in the mirror and validate itself. You know, AI is very helpful for them. You know, AI can write code, it can write its own software code. And if you're a software company, you know, a big part of your cost is code development. And so if a lot of your costs are starting to shrink, that is really good. That means if all else is equal and your margins are flat, you should do very well. But that also means that you can have more competitors and more competitors quickly or at a cheaper price. So I think it's still early days, but I think they're on it. Now, what was interesting is they are starting to— some companies are developing AI revenue models where if they're building an agent for you or something, this is a new product or new service that they can offer you and they can charge a fee for it. And we are, we are starting to, we are starting to see that. You know, I think about even ChatGPT, ChatGPT, you know, it's $20 a month really. If you want to, and the more you use it, you know, the more it costs. So that tells you people will pay for AI features. And that's just us as individual users. Enterprises will pay for it too if AI improves productivity, which is what we're going to talk about when we talk about HubSpot and her nugget on how much productivity one gets when they start using AI.

So, Nolan, we've heard the number trillion dollars thrown out. We already have quite a few companies that are AI-related that are trillion-dollar companies, and there are going to be quite a few more created. So it's almost more, uh, it almost makes more sense to talk about AI as a multi-trillion-dollar revolution. So tell me a little bit about that from a general point of view, and what do you expect, um, in terms of AI and software and how that might lead to kind of the next, uh, big thing in the market?

So The intersection of it is probably going to happen. You know, we own companies like ServiceNow, and ServiceNow is another one of those companies that are incorporating AI into its offerings. And so they expect this to be— continue to drive revenue growth for them. HubSpot, same thing. So I think on the one hand, the integration of it for the winners, for the winning companies, I think you're going to see multiple expansion. You're going to see where you could see revenue growth for the winners. The key is, you know, key is the winners picking the winners. I would say you're right about the multi-trillion dollar opportunity in AI. If you think about the internet, it really wasn't the internet that did it. Look at all the trillion dollar companies or the, you know, big companies that were built on the, on the back of it. You know, Google, Meta, Amazon, you know, even to a large extent, Apple. And so with the AI companies, I think you're right, it has the opportunity to be multiples larger than that. Right now, we don't exactly know who they are. I mean, I think we are comfortable that the one we like in hardware and the one we like in AR software, but I think there are going to be many, many, many, many more. And I'm glad I went to SASTR because it really gave me a lot of confidence that we're on the right track, continuing to spend time in this area. There wasn't a CEO who spoke— and these are publicly traded companies— who didn't have this as their number one priority. And they say all of their customers are asking for it. So we're at the very, very beginning of something that's going to be very substantial and the biggest technological change we've had since the internet.

So Nolan, you went out there to kind of get feet on the ground and learn what's going on at the business level, um, both companies that are using AI, companies that are incorporating AI, companies that are selling software on the back of AI, and, and, uh, I guess other software companies that are using, uh, technologies that aren't necessarily AI, but The point was is that you went out there and spoke to a number of companies. And so what I'm interested in is who did you speak with? Who was interesting? And what did you learn from those people?

Yeah, a few of them I'm gonna break out for you. So it was a lot of presentations that happened on the SaaStr main stage. A lot of CEOs spoke, a lot of keynotes, a lot of fireside type chats, a lot of presentations. So there was a lot of them. The one that stood out to me, though, there were three that stood out to me: Rubrik, HubSpot, and Nevious. And they're all a little bit different, but they're still exciting growth companies. Rubrik is in cybersecurity. They had an IPO here recently, I believe in the last year or so. And speaking to the Rubrik CEO and founder, interesting that cybersecurity is— I mean, we know it's an area that's big and it's growing, but just how mission critical it is, how many attacks get forged every day. And there's a lot of cyber companies we follow a lot that we like, but there are many more that are doing very, very well that, you know, we haven't purchased yet. And it just reminded me of how substantial the cybersecurity industry is. And how long that growth will probably be there. Also, I talked to another CEO of a privately held company, which is a Canadian company, who mentioned some tariff talk had been impacting them with some winning some new deals. But she also mentioned that cyber was very strong and her business was focused on mid-markets in Europe. And so it's a global phenomenon. And I liked hearing from Rubik. Rubric. The other one that I heard from was HubSpot. HubSpot, for those who don't know, have a tool very similar to Salesforce for tracking sales and productivity. But generally Salesforce, you're going to be a big company or a big institution because you're going to need a tech and an IT staff and a very long time to customize it. Where HubSpot's mainly built for small and mid-sized companies without an IT staff. So it's a little more simplified. And so it's more plug and play. But it's a sales and marketing software tool. As companies grow their business, HubSpot's the platform that they can use to help them do that. I call them a young Salesforce. So interesting talk with HubSpot as well, as well as Nebbius and AI.

Okay, wonderful. So we'll bring it home here, Nolan. So what does it all mean for investors? So you spoke to a number of companies, you heard from a number of CEOs and their outlooks on the business of AI, of software. And everything along those lines. What does it mean for investors and what are we looking for in terms of, for our clients?

So our first takeaway is AI is real. It's here to stay. You're going to see it accelerating, especially as the costs come down. You're going to see the usage go up a lot and there will be winners because of it. All of the winners haven't shown themselves yet, so we don't know all of them. But we do know we're keeping our eye on some of them that should benefit in the short and medium term. So AI is here. You know, the takeaway from AI is it's going to produce a lot of winners and we want to be there when it does. And I just think sentiment is much better. And when you're looking at the markets, yes, it's fundamentals, but it's also sentiment. And the fund— the fundamentals we've been arguing have been rock solid for a very long time. And now you're starting to get the sentiment that perks up. So I think software is an interesting place to invest. I think AI is, you know, what we think about cybersecurity. And then another area is digital advertising, which is another big theme that wasn't covered here at Saastr directly. But digital advertising is another kind of secular growth theme that we're following. So I think the takeaway is software is in good shape. I think look for a software— I would look for a software bounce back. For software stocks. And it's still early days on AI, but keep your eyes and ears peeled for AI names that, that look promising.

Excellent. Nolan, and one last thing is, you know, we, we participate with a number of companies with— in terms of investing with AI and software, always looking for new ideas. And obviously part of the part of the reason you were out there at SaaS Tour is looking for new companies that might be worthy of investment. Just explain a little bit how you think about the process of finding new investments and how you go about doing that.

Yeah, thank you, Brian. So we're looking for companies that can, that do very, they can do very well over time. They have a common, a couple of common themes. One is that they have really big markets that they can address. So markets that are growing. And companies' growth rates generally exceed the overall growth rate of the market. So you can have the twin engines of growth working for you. So we need big markets. The other thing that we need is good business models, meaning that, you know, companies that are showing profit and if they're showing profit earlier in their life, that's really good because as sales grow, the margins should get better. So the ability to grow should accelerate. We'd really like to see a founder CEO if we can. The man or woman who started the enterprise, it's still there and dedicating their time to making sure this enterprise is successful. And then we want to see a catalyst. You know, we're looking for something over the next 6 months or so that we think is not in the story that could propel the shares higher at some point after we, you know, after we buy them. And we're looking for business models that we think are durable or are going to get better, or things that are, things that are going to improve versus something that's stagnant. And so those are the things that we're looking for when we look for these not only software names, but growth names in general.

Perfect. Nolan, any final thoughts as we close things out here for the viewers?

Now, as we head to summer, as we start our summer vacations, We've been through a lot this first 5 months of the year, and psychologically we can all use some time at the beach. And I'm going to be getting mine the next couple of weeks. So enjoy the summer. The NBA Finals are starting. Left Brain thinks the economic backdrop is improving rapidly and we're looking for positive results this year. So hopefully we can do it with a lot less volatility.

Nolan, I want to thank you for your time. Thank you for being out at the Saster Conference. Thanks to the folks at SASTR for holding the conference, and a special thanks to our temporary producer here, Freddy Garcia, for manning the cameras for us. I'm Brian Dress. Thank you for being with us. We ask you to like and share the video if you find this video useful, and hit the bell for notifications. That way you can find out next time we're out. With that, we'll see you again next time.