The SaaS sector may be the sector that benefits most from AI right now
The first signs of strong performance in 2025 are already emerging, as the $WisdomTree Cloud Computing Fund(WCLD)$ , an ETF tracking the SaaS sector, is up 9.65% year-to-date, significantly outperforming $S&P 500(.SPX)$ which is up 9.65% year-to-date, significantly outperforming the $S&P 500 (.SPX)$ by +3.1% and the $ndxby 3.18%.This trend confirms the market's previous expectation of "AI penetration from hardware to software" - AI is shifting from underlying arithmetic support to actual business scenarios on a large scale, becoming an important driver of SaaS enterprise growth.
$Monday.com Ltd.(MNDY)$ Monday.com, which announced its Q4 financial results before Monday, is a typical example:
Total revenues were $216.9 million, up 34% year-over-year, and free cash flow reached an all-time high of $89.9 million.
Pricing model adjustments exceeded initial expectations and net dollar retention stabilized at 110%, at an all-time high.
Included the full rollout of monday sales CRM and monday dev, signaling accelerating account growth, along with the rollout of AI automation, smart columns and AI-driven templates, expanding investments in AI to enhance workflows.
Investment highlights
Deep Integration of AI Functions and User Behavior Nurturing
Since launching the beta version of AI Assistant in 2023, Monday.com has gradually expanded to core functions such as AI Blocks (automation modules) and Digital Workforce (AI agents).By the end of 2024, users had performed over 10 million AI actions through its platform, significantly improving workflow automation efficiency.
The company has adopted a "consumption-based pricing" model that allows users to use basic AI functions for free and pay for the excess on-demand, lowering the barrier to use and paving the way for future commercialization;
Product synergy and high-value customer attraction
The main AI product, monday service, has the highest cross-sell rate across the product line and has the highest average contract value (ACV), indicating that AI capabilities are attracting more large enterprise customers and forming a complementary ecosystem with existing products such as Work OS and CRM.
Dual engine of retention and growth
AI is currently a relatively small direct contributor to revenue, but has become a key tool for customer retention, as evidenced by monday.com's high gross margin (89.33%) and user stickiness (increased share of enterprise customers).Similarly, giants such as Microsoft and Salesforce are reinforcing user dependency through features such as Copilot;
Currently, AI adoption is still limited by arithmetic costs, but technological breakthroughs in models such as DeepSeek are significantly reducing inference costs, and AI adoption by SMEs is expected to increase in the future.
Potential opportunities for valuation revaluation
Market pricing for SaaS companies has partially reflected AI expectations (e.g., monday.com forward PE of 91.83x), but if AI revenues accelerate, the industry valuation system may be further tilted to "high growth premium".
In terms of short-term valuation, Monday.com's price-to-sales ratio reached 13.26 times, significantly higher than the SaaS industry average;
At the same time, $Asana, Inc.(ASAN)$ $Smartsheet(SMAR)$ and other competitors to accelerate the AI layout, the industry moat may be weakened by technology iteration;
Macroeconomic disturbances, with small and medium-sized IT spending is affected by the economic cycle, may slow down the conversion of AI functionality payment
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