Robert Smith, the founder, chairman and CEO of Vista Equity Partners, believes that software companies will be the ultimate beneficiaries of AI but only those that control their own data sets.
Vista, along with rival Thoma Bravo, was one of the first private equity firms to focus on enterprise software. The firms have historically been very profitable. Vista and its portfolio companies have made about 600 transactions in the firm’s 25-year history, Smith said during the CAIS Alternative Investment Summit Tuesday. Vista currently has more than 85 portfolio companies and $100 billion in assets under management.
Smith told an audience of private equity executives at the Beverly Hilton that he views generative AI as not only fascinating but highly productive. Gen AI “is going to be adopted globally in many respects. Some parts are going to be constrained by the government on certain things. There's going to be a massive economic and investing opportunity,” he said.
Gen AI is creating a complete shift in how enterprise software will be used in the future, said Smith, who is a chemical engineer by training. In every paradigm shift of technology, hardware vendors are typically the first to benefit, Smith noted, pointing to the mobile internet tech transformation of the late 2000s and the 2010s. Initially chip makers like Arm and Qualcomm benefited from this tech change, while the second wave helped device makers like Apple and Samsung, and then the third wave saw software and services companies like Google, Amazon, Microsoft and Uber gain.
One of the biggest beneficiaries of the current tech shift is Nvidia, which is developing platforms and software to support gen AI. Nvidia’s stock price has jumped about 183% this year. “The hardware and the semis are now capturing the value in the public markets,” Smith said.
The rise in gen AI means there will likely be major investment in infrastructure. Goldman Sachs in June estimated that leading tech giants and other companies will spend around $1 trillion over the next few years on data centers, grid upgrades, semiconductors, and other AI infrastructure.
Smith predicts that enterprise software will be one of the last groups to benefit from AI but the gains could be huge. There are about 100,000 tech and software companies around the world. About 97% are private, Smith said. Vista found that the products that its portfolio companies sell to its customers produced an average ROI of over 640%, Smith said. But when those companies used gen AI, ROI increased another 50% to 70%.
Gen AI will create “a massive, massive economic gain and opportunity for these enterprise software companies,” he said. Companies, however, must have “sovereignty and dominion over the data sets and workloads,” Smith said.
Companies that have their data sitting outside of their environment, or don’t have control of their data, risk having a gen AI-enabled group or individual taking and finding that data and creating a set of products that they sell to your customer base, Smith said.
About 80% of Vista’s portfolio companies have deployed or developed a gen AI tool, Smith said. “By the end of this year, we will be at 100%. I think that's an important statistic, because the more you use this tool, the better at [it] you become and the more utility you actually get from it,” he said.
