B (3:48)

As we kind of look about this. As you said, it's starting to h, show up in, in companies like you said in this etf. And for a lot of the part it's happening mostly on valuation. We haven't really seen a whole lot of, I would say like tangible evidence of it across the entire SAS universe, but there are some isolated examples. And Matt, maybe you could walk through maybe some of the core examples of companies that actually have been disrupted by AI so far.

C (4:20)

Yeah, well, I mean the online homework help and tutoring platform Chegg is probably the most extreme example of this so far. The stock is down by 99%, not even misspeaking, down by more than 99% since peaking in 2021. Essentially, free AI tools that are available like ChatGPT have literally replaced its core product. Even Google, since it shows AI in search results, it's done that. Revenue is falling by 40% year over year. Right now, traffic from its users is dropping even faster. But with most of the stocks that we're covering, including the two that were mentioned by the listener that have been beaten down, nothing has really happened yet except investor fears. It's estimated that more than $2 trillion in market cap has been wiped out by SaaS businesses in the first quarter of 2026 alone. But some of the most vulnerable businesses that we'll get into in a minute are still seeing revenue climb and more businesses adopt their platforms. I mean, for example, ServiceNow stock has dropped over 50% over the past year despite growing subscription revenue by more than 20%. Datadog is down nearly 40% from its high and bookings surged by 37% year over year in the latest quarter. Adobe is another one that's trading for roughly one third of its historic price to earnings valuation. Now, I'm not saying that these companies aren't going to be impacted by AI, but in a lot of cases so far, there's a disconnect between the stock performance and, and the actual business results we're seeing from the company.

B (5:58)

Let me go in a little bit of a scenario planning situation for investors and I'll direct this back to you, Matt. So spelling out kind of the best case, worst case scenario here, as you're looking at the space, what are is kind of like the doom and gloom scenario for SaaS companies. And what is the Pollyanna, hey, this is probably good for us sort of situation.

C (6:22)

Yeah. So I mean, the worst case scenario, simply put, is that AI renders a lot of these SaaS businesses essentially worthless or at least a lot less useful than they are right now. Like I mentioned a minute ago, we're already seeing signs of disruption in a few popular SaaS businesses, but not many. But for example, it would be terrible for companies if, like Atlassian, if AI just allowed businesses to simply code their own workflow automation. But it's important to note that even in a worst case most SaaS businesses, they wouldn't go to zero. It's just some of their highest paying customers could either take a DIY approach or need fewer seats or something like that. The best case scenario would be that AI ends up being a lot more of an advantage than a threat to these SaaS businesses. And several industry experts, including Jensen Huang, the CEO of Nvidia, recently said that the market got it wrong on SaaS. He said he believes that AI agents won't replace enterprise software, but the agents themselves will use the tools specifically called out. ServiceNow, cadence, synopsys. But his logic could apply to Most of the SaaS companies we're talking about. Not Chegg, obviously.

B (7:31)

Yeah, unfortunately, I think Chegg might end up being the punching bag that we talk about the most today when it comes to this topic. After the break, we're gonna talk about some of the ones that we don't think are in much trouble. We'll also get into some of the ones that we really think are in trouble. But before we do, I, I really want to make sure that we get Scott's question answered here because he was specifically asking about HubSpot and Constellation. So John, running the gamut of SAS companies today, where do you see HubSpot and Constellation kind of landing on that spectrum of hey, it'll be okay versus this? These companies are absolutely doomed.

A (8:10)

The truthful Answer is, I don't know. You look at a business like a HubSpot, you look at something like a Constellation Software. So HubSpot, you know, this is the customer retention, management, platform, marketing, sales, all that kind of stuff. You can make a very good case that AI can do this. Well, and the same thing with Constellation, it owns so many different software products that it's logical that at least some of them can be replicated with good AI coding. And so I understand the fears when it comes to those two businesses and I would understand if an investor would take an outside look and be like, you know, I'm a little bit nervous here. Again though, I will circle back to something that Matt did say. There's a case where Chegg is already seeing the disruption, but there are many businesses and these two are included where it's fear that but AI is not eating the lunch yet. Both of these companies that you look at, their trailing twelve month revenue, both are at all times highs. You look at free cash flow, both of these companies are at all time highs. The only thing that has changed so far for Constellation and HubSpot is the valuation. Right now Constellation trades at 3 times sales. It hasn't been this cheap since the great financial crisis. HubSpot wasn't around back at the great financial crisis. It actually trades at its lowest valuation ever since going public at four times sales. So it has had a huge reversal in the valuation. So remember what I said at the outset, these are great businesses, great margins, so they enjoyed very high elevated valuations. And now investors are like, there's no future here. And so they've gone completely the opposite direction. Maybe the pendulum has swung. If investors are right, right now investors are saying that Constellation and HubSpot don't have a future. If investors are right, then we will see that show up in the financials and it's only a matter of time. But if investors are wrong here, these two SaaS companies, if they can thrive in the age of AI, then this is a fantastic contrarian opportunity here. But it really depends on how you see it specifically for these two. I don't know personally, so I would stay on the sidelines personally.

B (10:25)

Even though like SaaS is a unique business model, there is obviously a very wide gamut of possibilities of companies that are using this particular business model to do what they do. And so after the break we're going to kind of dig into some of the companies that are on our radar as potential victims of disruption.

D (10:45)

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B (11:49)

As I was saying before the break, there is a lot of options when it comes to SaaS. It isn't necessarily a type of business. It's a way that a lot of software companies have modeled their businesses today. But as we're looking at potential companies, parts of the SaaS universe that are going to be disrupted by AI, I wanted to toss the question to both of you. As you're looking at the AI revolution, maybe it's not just that AI can displace what they do, but maybe it's also the businesses to which they're selling could be radically different and that could result in big problems for these particular companies. So as you're looking at the entire SaaS universe right now, I'm going to start with you, John. What is one company that you're really looking at closely as a potential victim of the AI disruption?

A (12:46)

Yeah, I'm worried about Asana ticker symbol A S A N Generally speaking, workplace or enterprise productivity or workflow software. You know, I never really found that whole genre personally very useful and I think it's even more in danger now. It seems like AI really is coming in here and providing a lot of tools and making a lot of this software less useful or perhaps more obsolete. Look, Asana, when it comes to this space in general if we zoom out, Asana is one of the smaller companies. It's smaller than many of its competitors. And even though competitors are bigger, they have superior growth rates. That's already a problem. And you look at Asana's net retention rates, they've already dropped below 100%. And so this basically means its existing customer base is spending less money now than it was last year. The company has a pay per seat business model. And if you think about this like big picture, let's say that AI comes in and makes companies more efficient. Their workers, they need less tech workers because existing tech workers are using AI tools and they're becoming more effective at what they do. That turns into fewer seats needing Asana's technology. And Asana is a pay per seat platform. And so just thinking about how AI could disrupt it even there just by making its customers more efficient, those customers would have fewer seats than to buy from Asana. And I think that that's what we're already seeing playing out in the numbers for Asana. It seems like it's a declining opportunity. It already seems like it's one of the weaker players. So yeah, considering all these things, it's does seem to paint a bleak outlook for Asana and its shareholders.

C (14:33)

I went in a very similar direction and it's a company whose products I've actually used three times so far today. So it's a company that I enjoy their products, I find them very useful. But I have to call it Atlassian here. Ticker symbol is Team T E A M. So if you're not familiar, this is the company that provides the JIRA workflow platform. They have other tools like Confluence, both of which I use regularly. In this case, it's not necessarily that the product itself will be replaced by AI, like John kind of alluded to this, it potentially could, but that's not the primary concern. The primary concern is that pricing model John mentioned, the pay per seat model. And it's not just employees are going to become more efficient. You're going to need fewer employees. That's absolutely the case. But like Jensen Huang said, with AI agents potentially using these things themselves, can you really charge a seat license if A company has 10 AI agents working on you that you know, that's not 10 seats. Atlassian, they charge subscription fees on a per seat basis. If the humans that use the product are replaced or supplemented with a bunch of AI agents. Well, like I said, AI agents don't need a seat license. So if agentic AI allows a company to function with 100 seat licenses instead of 300 while accomplishing the same amount of work. It's bad for business. Even if the platform is just as useful as ever, even if Atlassian does a great job of incorporating AI functionality into its platform, if its customers need fewer seats, it's a losing situation. Now to be fair, in its most recent quarter, Atlassian had 23% year over year revenue growth. So some of this is fear at this point. But for the first time ever in its history, Atlassian showed a decline in its enterprise seat counts. So that is a big alarming thing for shareholders. It's one of the reasons why the stock is plunging. So I'm not surprised to see a negative reaction and it's one that I'm not going to count them out just yet. But I've said before, There are some SaaS companies that should be worried and the workflow productivity software companies like the two that we just mentioned, they're two of them.

A (16:51)

I think that that's such an interesting fact there Matt, and a reason why we should kind of circle back to why, why did we kind of go in the same direction here? It's because these two SaaS companies, they have the same revenue model and I think we should point that out for our listeners that just because Something is a SaaS stock, not all SaaS stocks are created equal. There are different billing methods, there are different revenue models, there's usage based models, et cetera. The pay per seat models, especially for more a tech facing software product, that would be something that I would look at with a little bit of suspicion, a little bit of worry in this age that AI is coming in and changing things. If it's a pay per seat model, that's something to look at cautiously.

B (17:39)

You know, I'll take that even one step further too. Not only is it just like the seat license sort of thing, I think what also it lays bare is the idea that the current business model doesn't work on a per person basis. Maybe it starts to get down to like a almost like a metered usage sort of basis and would actually kind of fundamentally change the way that a lot of these businesses are charging how they work. Just thinking out loud right now Claude, for example, you know you have you burn through tokens to as like sort of a usage sort of case. I would not be surprised to see if we if companies that are staring down this thing where it's like yeah, we know that they are using fewer seats but because they're using AI agents, they're actually using our product more that they start to go to some sort of like token usage based sort of model that is more reflective to a business's actual use case versus you know, the per person basis for it. So perhaps something to watch in the coming years as we see these businesses evolve in the AI. Coming up next, what we think are the real survivors in this AI disruption era.

E (18:52)

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B (20:03)

Quints.com motley hey just a reminder, you know we're doing this particular pre recorded show because we are getting questions from our listeners and we want to love to hear from you as well. So you have a question for Matt, John, myself, anyone else on the team. Maybe you want us to do a deep div on some other topic or maybe you have a little bit more of a one off. Hey, what do you think about this stock? We love your questions. We like doing segments. We like even doing these full types of shows available on Listener Feedback. We want to hear from you. So please if you want to get your question answered on the air send us an email@podcastsool.com just our one request is always keep it foolish. That email again is podcastool.com podcastsool.com all right, so we're going to go around the horn again and instead of looking at what we say the the highest likelihood of victim of being in the AI world. I want to think of the survivors. What are the companies that you think based on their current business models are, I wouldn't say set up to thrive necessarily, but set up to weather the storm relatively well in the world of AI?

C (21:13)

Well, I would say thrive for a couple of them. So I'm not sure how popular this opinion is right now, but I do think that the cloud based cybersecurity companies, specifically Zscaler and Crowdstrike ticker symbols are ZS and CRWD are set up to thrive in an agentic AI world. It's not as much of a threat to these businesses as it is a tailwind. And it's being perceived as a threat to both of these just based on their stock performance. So for one thing, the global cybersecurity market is expected to roughly triple over the next seven years. And although AI is widely expected to do a lot of the things that these platforms do, like identify bugs and software and threats that we already know about, it also can create new threats that will need to be dealt with. Malicious prompts are being inserted into LLMs right now. Magentic AI will be able to create its own malware and it can do it quicker than threats are being developed before. An AI native solution like CrowdStrike in particular is in an excellent position here, and so is the zero trust access that Zscaler provides. It's going to be so much more important to its enterprise clients than ever. CrowdStrike's management has even called AI the largest opportunity in cybersecurity yet. And the company's revenue growth is expected to accelerate this year. Zscaler is in a similar position. I mean, management has quantified this by estimating that securing agentic AI operations is a $19 billion untapped market opportunity just by itself, not including whatever else they do. So with both companies, there's also the trust factor. People trust these companies. The majority of The S&P 500 uses these two platforms. Assuming that both companies are able to keep up with the ever evolving landscape of threats, they're in a great position to keep growing. And Zscaler and CrowdStrike, they're down by 60% and 30% respectively from their recent highs. And I think this is a massive overreaction by the market.

A (23:11)

First, I want to go on record and agree with Matt. Second, I almost went safe here with my idea. I almost went really safe. I think Autodesk may be one that is really safe. I don't see construction workers really changing gears Altogether in the world of AI, I think that they stick with the CAD software. But I decided to go with something more controversial and more spicy with my idea for something that's going to be okay. The survivor from me is Duolingo ticker symbol D U O L. The Stock is down 80% from its 52 week high. Supposedly AI is going to allow people to recreate a language learning app that is truly rivaling Duolingo's platform. And I just don't see that happening. But let's assume that you can. Let's assume that you can make an app that is just as good as Duolingo's app if you can do that with AI. First of all, if you're an app developer and you do that, why would people start using your app over the Duolingo app? A few things we have to consider here. There's branding with Duolingo. There's also a network effect with other users. So your new app doesn't have that. And usually speaking your, your new product has to be an order of magnitude better to get people to switch. It can't be just as good, it needs to be even better. So I don't know if an app developer is going to do that and then a user, why would I, as a language learner, why would I create my own language learning app when Duolingo is already free to use? So it just doesn't make sense to me. If you look at what has happened to Duolingo over the past year, it's gone from trading at 32 times sales to 4 times sales. Okay, so from very optimistic investors to very despondent. And you know, in fairness, management did come out and say, listen, we're going to focus on the free tier here in the coming year. So they have a paid tier, a free tier. As a result, they're expecting lower bookings growth in 2026. So there is that. There is that. Now from management's perspective, it's just because they're focusing on the free tier. So naturally that does lead to lower bookings. They want to improve that user experience. It's still forecasting incredible three year growth. Maybe it's all management smoke and mirrors that that does happen in publicly traded companies. But I think that this company is far more resilient than investors are giving it credit for. I think what it's doing is reasonable. I don't think AI is going to replace it. And I know that that's a controversial take, but hey, I like to keep it a little bit spicy.

B (25:52)

You know I was going to jump in with my concluding thoughts on what I thought was but something as controversial as Duolingo as the AI Survivor, I can't top it. So I'm just going to bow out and say that this is all the time we have for today. As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and is not a approved by advertisers. Advertisements are sponsored content and provide for informational purposes only. To see our advertising disclosure, please check out our show notes. Thanks for producer Dan Boyd and the rest of the Motley Cruel team for Matt, John and myself. Thanks for listening and we'll chat again soon.