Vista Equity says it’s reinventing the way companies use AI

A version of this article appeared in CNBC’s Inside Alts newsletter, a guide to the rapidly growing world of alternative investing, from private equity and private credit to hedge funds and venture capital. become a member to receive future editions straight to your inbox.

Given fears about the growth of an investment bubble in AI infrastructure, the next phase of AI growth will come from proprietary software companies that are already delivering large increases in productivity, according to Vista Equity Partners CEO Robert Smith.

Rising valuations Nvidia, Meta, Microsoft, AlphabetOpenAI and other hyperscalers and large language models have dominated the debate on AI opportunities and risks. Still, according to Smith, Vista’s founder and chairman, some of the biggest investment opportunities in AI will be in non-publicly traded enterprise software companies that use specific agents, or “agent AI,” to perform company tasks.

“AI has sucked a lot of the oxygen out of the air for a lot of investors and pulled them into Mag 7,” Smith told CNBC. “These hyperscalers are now starting to develop infrastructure and capacity. Some might argue that they are overvalued in some ways. But [next] There will be wave application providers. And that’s how these cycles often happened. Application providers often capture the lion’s share of the economic rent in the long run once the technology has spread to and from these markets. That’s where we’re really in the loop.”

Vista’s aggressive investment in applications and brokerage software highlights one of the fastest-growing corners of AI trading and alternative investments. Unlike the AI ​​infrastructure sector, which includes dozens of publicly traded companies, hyperscalers, and LLMs, the vast majority of companies building AI applications are private. Smith said 97% of enterprise software companies are private.

Vista aims to take the lead in the corporate representation revolution. The private equity firm, which has $100 billion in assets under management and more than 90 portfolio companies specializing in enterprise software, has created an “agency factory” to deploy AI across its companies and transform their businesses. Smith said 30 of the Vista companies have generated revenue by switching to agency AI, and another 30 or 40 will convert in the coming months.

“We built the infrastructure over two and a half years ago,” Smith said. “We now have the right partners to do this: hyperscalers with the capacity and technological capability that we can inject into each of our companies to make this a reality.”

One example of this is a Vista portfolio company called SimplePractice. The company’s software helps mental health professionals by using agents to record sessions, transcribe and create note drafts. Reslinc, another of Vista’s companies, helps companies assess potential tariff risks 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 it could weaken many software-as-a-service companies and allow companies to code and perform many software tasks themselves, agency AI will accelerate the growth of enterprise software tools that can perform tasks with a high level of accuracy, Smith said.

“Artificial intelligence will enable enterprise software to serve,” he said.

The productivity and profit gains from agency AI are already evident. Smith said Vista’s portfolio companies have seen productivity gains of 30% to 50% in coding. He said that some tasks that take hours for a person to do can be done in seconds with artificial intelligence. He said 20 cents worth of “inference,” or running an AI model, could save up to $10.

While some jobs will of course disappear, Smith said others will be created or reinvented.

“All knowledge workers will be affected in some way,” he said. “For some, this job category will no longer exist. For some, this will hyper-accelerate their capabilities. I tell people that in some businesses, AI will not replace the job, but the person using AI will replace your job.”