4 days ago
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Last month’s drop in the share prices of many cloud-based software companies has been partially reversed after several software companies reported good figures.
The big dip in SaaS providers’ share prices was caused by claims that companies would soon be able to develop their own applications using large language model-aided development tools. Many in the industry speculated that in-house development would enter into its own, given that hobbyists and small teams were able to produce simulacra of applications for which many businesses were paying large monthly sums.
The iShares Expanded Tech-Software traded fund rose 8% in value last week, up 21% on May. Data management provider Snowflake was a notable name among the high performers, rising close to 50% in value in the last week of May. Okta, the identity verification and security tool provider gained 30% in value on the last trading day of the month.
Both companies may be experiencing upticks in their popularity due to their common use in AI applications, with Snowflake’s data layer and Okta’s role in verifying machine identities being put to use in AI-first applications. Snowflake’s $6 billion deal with Amazon also helped bolster its figures.
Asana, Workday, ServiceNow, Atlassian, and Shopify also gained value, in an apparent rebuttal to previous speculation that their market shares might decline as businesses develop their own applications, or use new, cheaper, ‘vibe-coded’ alternatives to the big cloud SaaS platforms.
However, there is a world of difference between a project created by an LLM over the course of a few days that can perform some of the tasks of the world’s complex ERPs/CRMs, and the reality of deploying such code at scale, in the open. Considerations such as security, updates, maintenance, the addition of new features, scalability and elasticity, customer support, sales efforts, and identity verification mean that the majority of vibe-coded SaaS ‘replacements’ remain little more than basic minimum viable products (MVPs).
Since the early 00s, the markets, venture capital firms, and private investors have regarded cloud software companies as safe bets, with a tacit assumption that the few thousand users of every new startup SaaS platform would inevitably grow to millions of daily users willing to pay a monthly subscription. However, with the majority of held stakes in thousands of cloud service companies now yielding lower or break-even returns, markets needed little persuasion to begin an exodus from the sector, even if claims of a ‘SaaSpocalypse’ were exaggerated.
Argus Research, per CNBC wrote, “We think Snowflake may actually be a beneficiary of genAI development as enterprises increasingly need to unify and harmonize data [to] exploit the benefits of GenAI.” As companies look to monetise on their data reserves, providing a clean and accurate data layer is being portrayed as important for the efficacy of organisations’ AI projects – presenting such a data resource is Snowflake’s bread and butter. Similarly, the Okta platform’s verification of human and machine identities is an integral part of allowing multiple agentic instances safer access to data.
Even if the claims of SaaS replacements springing up thanks to LLM-coded software development were to become true in the future, the value of the large providers’ deterministically-coded business applications looks set to hold for the time being. Companies providing underpinning services on which the smartest AIs depend also look to be holding their value.
(Image source: Pixabay, under licence.)
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