Software that is built for a specific sector is referred to as vertical SaaS. These platforms design workflows around the realities of a niche such as construction, life sciences, hospitality or field services. They build tools that account for compliance rules, technical language and daily operational routines unique to that trade.
Research from L40° explains that vertical SaaS companies differentiate through specialisation, custom workflows and a deep understanding of regulation. When AI is embedded into these systems, the category becomes vertical AI SaaS. This means industry specific platforms integrate AI into core workflows, using proprietary data and domain context to automate tasks, surface insights and improve decision making.
The distinction is important because general AI tools, for example, may struggle in areas like healthcare coding or insurance risk scoring, where terminology and regulation are tightly defined. Vertical platforms already structure this information. That structure gives AI models clearer context and produces more reliable outputs.
Examples show how this works in practice. Procore has introduced AI to scan drawings, change orders and safety reports, flagging inconsistencies across thousands of documents. Veeva uses AI to review regulatory language before human experts step in. ServiceTitan applies AI to scheduling and quote generation. Toast integrates AI into menu management and staffing.
Why Are Investors Worried About AI And SaaS?
Software stocks have fallen quite a bit in recent weeks amid fears that AI could replace traditional SaaS providers. The Register reports that the iShares Expanded Tech Software Sector ETF, which tracks 114 large software stocks, is down 19% from a month ago and nearly 30% off its September high.
Large vendors have lost huge amounts of market value. Adobe, Microsoft, Salesforce, SAP, ServiceNow and Oracle shed more than $730 billion in combined value as of a recent market close. Microsoft alone lost more than $450 billion over the last month.
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Lisa Lawson, analyst with Omdia, told The Register, “I think that investors are uncertain about SaaS stocks and how they create value. SaaS has been so lucky in that they’ve experienced double-digit [revenue] growth for a very long time. Like pretty impressive double-digit growth for a long time. Now that growth isn’t just based on how they can be more efficient. It’s that they have new competition in the form of OpenAI and Anthropic. So yes. Investors are concerned about how SaaS can continue to grow, and prove its value and price points.”
Satya Nadella added to that debate last year. On the Bg2 Pod he said, “I think the notion that business applications exist, that’s probably where they will all collapse in the agent era, because if you think about it, they are essentially CRUD databases with a bunch of business logic. The business logic is all going to these agents.” He argued that once the AI tier holds the logic, companies may start replacing back end systems.
Does AI Threaten Vertical SaaS Or Strengthen It?
Not everyone agrees that SaaS will collapse. Charles Betz, vice president and principal analyst at Forrester, told The Register, “I don’t subscribe to his point of view for this simple reason: there are about 20,000 legal jurisdictions worldwide and complying with applicable regulation is a major reason why people trust vendors like SAP.” He added, “At the very least, we are many years away from agentic systems being able to ingest regulations and comply with them in the systems they are going to generate on the fly.”
Chris Jones, Managing Director at PSE Consulting, takes a similar line for specialist platforms. He said, “A growing market narrative suggests that AI will ‘eat’ specialist SaaS. But for vertical SaaS platforms that have already embraced payments, such as Shopify and Lightspeed, the opposite is more likely to be true.”
Jones argues that AI driven shopping requires structured product data, trusted seller networks and modern payment rails. “Those are precisely the assets that embedded finance platforms like Toast already deliver,” he said. “These SaaS platforms provide a single point of aggregation with a pre made ecosystem for AI shopping agents to access at scale.”
He believes AI will speed up embedded payments. Shopify once charged 2% to 4% for payment processing and now charges an extra 4% to source AI customers, moving its margin profile closer to marketplaces that charge 10% to 15%. In his words, “I don’t believe AI will replace the infrastructure of commerce. It will accelerate it.”
