In software these are the ‘AI proof’ companies, according to analysts

While the hype around generative AI continues to rattle the software sector, more specialized software companies may be one of the most resilient players and the most undervalued players.

RBC Capital Markets wrote on Wednesday that vertical software – tools that are specially designed for industries such as health care, insurance and industrial design – AI disturbance could endure in the short term and can benefit from it in the long term.

These software suppliers benefit from deep domain expertise, legal knowledge and workflows that are difficult to replicate, the analysts wrote to investors in a memorandum.

“Vertical software is a bag of software that is likely to be seen as ‘AI-proof’ (for the time being),” wrote the RBC analysts, led by Rishi Jaluria.

‘Need-to-have’ software

Vertical software often supports critical functions and is usually seen as “need-to-have”, not only “nice-to-have”, the report explained.

With high customer retention it can take years before these companies are threatened by AI startups, even in a best-case scenario, the analysts argued.

Such a company, Clearwater Analytics, has gross income retention (GRR) from 98% to 99%, demonstrating the loyalty of its customers to the product. Gross revenue retention is a common measure for subscription -based companies and software companies, and measures how effectively they retain their existing income basis.

Moreover, many of the industries that these companies still serve in the early stages of modernizing their technology. This makes customers less inclined to take AI-driven replacements in the near future.

In the longer term, RBC sees vertical software suppliers play a key role in shaping the next phase of AI acceptance. Instead of just delivering data, they can offer context to train and refine AI models, which leads to industry-specific AI tools that stimulate real productivity gain.

Goldman Sachs’ View

During a recent Goldman Sachs Tech conference last month I asked Kash Rangan, the company’s software analyst, about which companies could survive the AI ​​challenge.

He emphasized ServiceNow and praised CEO Bill McDermott’s Battle Tested Leadership. He also pointed out intuitive to make value for his existing products by subtly adding AI.

Salesforce received a more reserved assessment. Rangan said that while CEO Marc Benioff is ‘in battle’, the company still has to prove that his new agent force AI product is grip with customers and that they are willing to pay for it.

In an industry dominated by flashy AI bets, RBC emphasizes a quieter reality: although vertical software may not be immune to threats by AI companies, the combination of industry and domain-specific potential makes it a rare, AI-proof niche. For now, anyway.

RBC’s AI Software Survivors

Here are the vertical software companies that RBC has recommended on Wednesday. RBC assesses them all “better than”, with reference to their defense and their ability to innovate around AI:

• Autodesk: a design software company that is best known for AutoCAD and other tools used in architecture, engineering and production.
• Bentley Systems: offers infrastructure technical software for the design, construction and operation of roads, bridges, utilities and other large -scale projects.
• Clearwater Analytics: offers cloud -based investment accounting and reporting software for asset managers, insurers and companies.
• Guidewire: develops cloud and software products for real estate and victim insurers to manage insurance, claims and invoicing.
• Hinge Health: a digital health company that specializes in musculoskeletal care, which offers virtual physiotherapy and pain management programs.
• Samsara: offers Internet of Things (IoT) platforms that help companies to manage physical activities, including fleet management, logistics and industrial monitoring.
• PTC: supplies software for product management, industrial IoT and augmented reality to support manufacturers in designing and maintaining products.
• Veeva Systems: supplies tailor-made cloud-based software for the Life Sciences industry, including solutions for clinical tests, compliance with regulations and customer involvement.

Register for bi’s tech memo -newsletter here. Contact me via e -mail at [email protected].