'We're going through this huge platform shift from SaaS to AI': Walravens

Key Concepts

• SaaS to AI Platform Shift: The transition in the software industry from traditional Software-as-a-Service (SaaS) models to AI-integrated architectures.
• Infrastructure vs. Applications: The strategic preference for infrastructure software (the "plumbing" of AI) over application software, which is more susceptible to disruption.
• AI-Native Companies: Startups and businesses built from the ground up to leverage artificial intelligence.
• Growth Acceleration: A key investment metric where a company’s revenue growth rate increases quarter-over-quarter, signaling strong market adoption.

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1. Market Overview: The Software Sector

Patrick Walravens, Director of Technology Research at Citizens, notes that the software sector has faced significant challenges, with the average software company down 30% year-to-date. He argues that investors have been "throwing the babies out with the bathwater," creating buying opportunities for companies that are successfully navigating the shift from SaaS to AI. His core investment thesis focuses on infrastructure software, which he believes is better positioned to benefit from the AI buildout than application software.

2. Top Picks and Analysis

Twilio (Communications Infrastructure)

• Function: A communications network that powers text messaging and voice services for businesses.
• AI Integration: As businesses implement AI agents, these agents require a communication layer to interact with humans. Twilio provides the necessary infrastructure for these agents to send texts and handle voice calls.
• Performance: The company has shown clear growth acceleration, moving from 14% growth two quarters ago to 20% in the most recent quarter.
• Outlook: Walravens views the rise of voice agents as a multi-year tailwind for the company.

DigitalOcean (Cloud Infrastructure)

• Function: A cloud infrastructure provider that serves as a simplified, user-friendly alternative to Amazon Web Services (AWS).
• Target Market: Specifically designed for "AI-native" companies that require ease of use and transparent, predictable pricing.
• Performance: The stock has seen significant momentum, up 230% year-to-date. Growth accelerated from 18% to 22% in the last quarter, with projections to grow north of 50% next year.
• Valuation: With a current price of approximately $158, Walravens cites an upside case of $245.

Navan (Corporate Travel Application)

• Function: An application software company that utilizes AI to streamline corporate travel booking.
• Real-World Application: Used by large organizations (e.g., Citizens, with 25,000 employees) to automate travel arrangements. It integrates user preferences (airline/hotel status) to reduce booking time from 20–25 minutes to 3–4 minutes.
• Competitive Positioning: While some investors fear Navan will be disrupted by AI, Walravens argues the opposite: Navan is the disruptor. It is actively displacing traditional corporate travel agencies (such as American Express Global Travel) by replacing human-heavy booking processes with AI automation.

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3. Investment Methodology

Walravens employs a specific framework for identifying winners in the current tech climate:

1. Prioritize Infrastructure: Focus on the foundational layers of the AI stack rather than end-user applications.
2. Monitor Growth Acceleration: Look for companies that are increasing their revenue growth rates quarter-over-quarter, as this indicates successful product-market fit in the AI era.
3. Identify Disruption Potential: Evaluate whether a company is a victim of AI disruption or the entity driving the disruption of legacy business models.

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4. Synthesis and Conclusion

The transition to AI is creating a bifurcation in the software sector. While traditional SaaS models face headwinds, companies that provide the essential infrastructure for AI agents (Twilio), simplify cloud access for AI-native firms (DigitalOcean), or use AI to disrupt legacy service industries (Navan) are showing significant growth acceleration. Walravens’ perspective emphasizes that the most resilient investments are those that either facilitate the AI buildout or leverage AI to replace inefficient, human-dependent legacy processes.