2025 Picks – a Year of AI Software Infrastructure

Summary of Key Points from the Conference Call Industry Overview - The focus for 2025 is on the growth of AI infrastructure software, with a noted rotation from AI hardware to AI software infrastructure already in progress. The transition to AI applications is expected to occur in 2026 [1][3] - The technology sector is experiencing a shift, with early cycle winners being replaced by software companies. Notably, NVDA has remained flat since June, while MSFT has decreased by approximately 9%, contrasting with the IGV index which has increased by about 30% since summer lows [3] Company-Specific Insights Top Picks for 2025 - Snowflake (SNOW): Expected to benefit from AI as a significant tailwind, with a projected durable growth rate of over 20% due to the ongoing shift to cloud services [3] - Datadog (DDOG): Positioned to sustain over 20% revenue growth, leveraging its observability software as enterprises migrate to the cloud and adopt new AI tools [3] - JFrog (FROG): Anticipated to see growth from its security add-on and GitHub integration, with a favorable setup for 2025 as AI tools boost code creation [6] - Commvault (CVLT): Despite outperforming the IGV by approximately 66% in 2024, it trades at a 20-30% discount compared to similar SaaS peers. Expected to achieve mid-to-high teens organic ARR growth through FY27 [3] - Zeta Global (ZETA): Currently trading at less than 4x 2025 revenue, despite showing over 20% growth for 13 consecutive quarters. Positioned to benefit from upselling opportunities and the legacy marketing cloud replacement cycle [6] Growth Projections and Financial Metrics - CRM's 2025 organic growth: Any growth exceeding the current 9% consensus is considered AI-driven, requiring an incremental $1 billion to achieve over 11% organic growth [3] - Datadog's AI-native customers: Approximately 6% of ARR comes from AI-native customers, which may present near-term optimization risks but is expected to provide long-term growth support [6] - Phreesia: Expected to achieve 14% revenue growth in 2025, with a market valuation significantly below its peers [6] Market Dynamics - The transition to AI applications is viewed as premature due to challenges such as data structure, governance, privacy, and talent shortages [3] - The overall sentiment is that AI infrastructure providers will perform best in 2025, as they address the data needs essential for successful AI tool deployment [3] Additional Insights - The report includes a recap of coverage performance in 2024 and aims to expand coverage from 65 to 75 software companies in the upcoming year [1] - The analysis highlights the importance of company-specific growth stories that may be misunderstood or underestimated by the market [3] This summary encapsulates the critical insights and projections from the conference call, focusing on the technology sector's dynamics and specific company performances expected in 2025.