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Amid growing concerns about an investment bubble in artificial intelligence infrastructure, the next phase of AI growth will come from private software companies that are already realizing significant productivity gains, said Robert Smith, CEO of Vista Equity Partners.
Soaring valuations Nvidia, Meta, microsoft, alphabetOpenAI and other hyperscalers and large-scale language models have dominated the discussion of AI opportunities and risks. But Smith, who is also the founder and chairman of Vista, said some of the biggest investment opportunities in AI will be in privately held software companies that use specific agents, or “agent AI,” to perform enterprise tasks.
“AI sucked a lot of oxygen out of the atmosphere for a lot of investors and dragged them into magnitude 7,” Smith told CNBC. “These hyperscalers are now starting to build out their infrastructure and capabilities. Some might argue that they are overvalued in some respects. [next] wave is the application provider. And that’s typically how these cycles play out. Application providers typically earn the lion’s share of the economic rents in the long run as technologies become popular and popular in their markets. That’s exactly where we are in the cycle. ”
Vista’s aggressive approach to application and agent software highlights one of the fastest growing areas in AI trade and alternative investments. Unlike the AI infrastructure sector, which includes dozens of publicly traded companies, hyperscalers, and LLMs, the vast majority of companies creating AI applications are privately held. Smith said 97% of enterprise software companies are privately held.
Vista aims to be at the forefront of the enterprise agent revolution. The private equity firm, which has $100 billion in assets under management and more than 90 portfolio companies specializing in enterprise software, has built an “agent factory” to deploy AI across its enterprise and transform its business. Smith said 30 of Vista’s companies have profited from converting to agent AI, and 30 or 40 more will convert in the coming months.
“Over two and a half years ago, we built the infrastructure,” Smith said. “We now have the right partner to make this happen. Hyperscalers have the capabilities and technological capabilities that they can inject into each company to make this happen.”
One example is a Vista portfolio company called SimplePractice. The company’s software helps mental health professionals by using agents to record sessions, transcribe them, and draft notes. Another Vista company, Reslinc, helps businesses assess potential rate risk and meet regulatory requirements.
Vista’s approach challenges the theory that AI will “eat software,” as NVIDIA CEO Jensen Huang famously predicted in 2017. While this could undermine many Software-as-a-Service companies, allowing companies to code and perform many software tasks themselves, Smith said agenttic AI will accelerate the growth of enterprise software tools that can perform tasks with a high level of precision.
“AI enables enterprise software to use services,” he said.
The productivity and profit gains from agent AI are already clear. Vista portfolio companies have seen a 30 to 50 percent increase in code production productivity, Smith said. Some tasks that would take humans hours to complete can be completed in seconds with AI, he said. He said 20 cents worth of “inference,” or running an AI model, could lead to savings of up to $10.
Of course, some jobs will disappear, but others will be created or reinvented, Smith said.
“All knowledge workers will be affected in some way,” he said. “For some people, that job will disappear. And for others, their capabilities will increase exponentially. I tell people, AI won’t replace your job in some businesses, but someone using AI will replace your job.”
