If AI really is coming for the software industry, which companies have the best chance of making it through? This has been on my mind again this week after the gruesome acquisition of Airtable. This former SaaS startup darling was valued at more than $11 billion during the pandemic tech boom in 2021. It sells a tool for organizing work and related information. On Tuesday, it was acquired for $1.3 billion.
Later in the week, HubSpot, a major SaaS vendor, plunged after disappointing guidance. But Atlassian surged after much better results.
The SaaS sector has been pummeled this year by investors worrying whether some of these companies will even survive. So, how do you spot survivors in the wreckage?
Barclays strategists tried to answer that question by looking backward instead of forward. They studied five major technology shakeups from the past: the rise of digital advertising, streaming, smartphones, online shopping, and shale gas. They looked at what separated the companies that survived from the ones that didn't.
The answer wasn't what you might expect.
The winners weren't necessarily the fastest-growing companies or the ones that spent the most money. Instead, the survivors tended to share four traits: healthy profit margins, strong cash generation, low debt, and high employee productivity. Those qualities gave management more room to adapt when their industry suddenly changed.
It's a useful reminder as the SaaSpocalypse debate gathers pace. Much of the conversation around AI has focused on who has the smartest models or the flashiest product demos. Barclays argues those may not be the defining factors. When an entire industry is under pressure, financial strength and operational discipline may matter more than rapid growth. Companies with healthy profits can absorb shocks. Those carrying less debt have more flexibility to change direction. Efficient businesses simply have more options.
Using those characteristics, Barclays created a "Resilient Software" basket. AppLovin, Freshworks, and InterDigital ranked highest across the broader software universe. Looking only at software companies that Barclays already rates positively, Datadog, Veeva Systems, and Zscaler came out on top, followed by Microsoft, Intuit, PTC, Autodesk, Salesforce, Palo Alto Networks, and ServiceNow. No screen can predict who will win the AI era. But this framework offers a refreshing way to think about the software industry. The companies most likely to survive may not be the ones racing fastest. They may simply be the ones with the strongest balance sheets and the most room to maneuver as AI rewrites the rules.
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