New Delhi [India], September 1 : Artificial intelligence will not mark the end of the software industry, but it will significantly reshape it, according to a report by RBC Capital Markets.
The report argued that AI will benefit some incumbents while leaving others behind, and also pave the way for new large-scale AI-native companies, as well as accelerate AI-focused mergers and acquisitions (M&A).
It stated, "Similar to how software companies went through cloud transitions (some more belatedly than others), whereby we saw growth and margins meaningfully fall (in many cases going negative) before reaccelerating, thus creating stronger companies, we expect the same with AI".
The debate over AI's impact on software has created two camps.
As per the report, one believes that all software will eventually be replaced by agents and multi-agent systems, making many software companies obsolete or irrelevant, with some stocks carrying almost zero terminal value.
The other camp argues that existing software firms, by virtue of their valuable data and distribution, will remain protected and may even succeed in monetising AI over time.
The report outlined five key takeaways.
First, AI will benefit some, but not all, incumbents. Second, the market is likely to see dozens of AI-native companies surpass the USD 1 billion revenue mark in the coming years, although only a handful may scale beyond USD 10 billion.
For context, the report noted that there are currently just eight companies with cloud revenues above USD 10 billion.
Third, lower barriers to entry will help the software sector overall by driving greater innovation. Fourth, AI-driven M&A is expected to accelerate as incumbents modernise their technology stacks.
Fifth, while investor fears of widespread disruption may be overblown, the report cautioned that investors should carefully pick the right stocks and remain mindful of terminal value risks in software.
Drawing parallels with the industry's earlier transition to cloud, the report pointed out that many software companies saw their growth and margins fall, in some cases turning negative, before recovering and emerging stronger.
A similar trend is expected with AI.
The report emphasised that simply adding a copilot or agent to an existing software stack will not be enough. Instead, companies will need to build AI-native products and platforms, even if that means cannibalising their core business as customers increasingly shift from traditional SaaS to AI-native systems.
So the report outlined that AI is not the "death of software," but rather a transformation that will reshape the competitive landscape, creating both winners and losers in the process.
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