RBC Capital Markets’ annual TIMT Conference in New York gathered experts, investors and company executives – spanning 100 management teams that will shape the outlook of TIMT in 2025. Insights from software, technology, and IT executives reveal a focus on macro stabilization, shifting supply chain demand, and the transformative impact of generative AI.
Hope of economic uplift under Trump
There was positive consensus about the macro and demand environment post-election, underlining the rate-cutting cycle, potential for deregulation and pro-business administration.
Information services and software management teams generally agree that the incoming Republican administration could create a favorable economic cycle driven by lower corporate taxes and software as an efficiency tool for DOGE (Department of Government Efficiency). This hopeful sentiment also extended to capital market recovery with activity poised to steadily increase from a low base in FY24, bolstered by the pro-cyclical environment and the potential for reduced regulatory burdens.
The prospect of increased tariffs doesn’t seem to be a cause for concern among software companies. Hardware products will likely feel the impact more and there may be a costly knock-on effect because hardware imports often rely on software solutions. Potential spending or employee cutbacks in government could also decrease demand for software licenses, especially for user-based pricing models.
Tech M&A is expected to rise in 2025, driven by a saturated software market that is likely to fuel both private equity-based and strategic acquisitions.
Macro trends stabilize for software
For software companies, macros demand trends appear to be stabilizing. Many CFOs noted improved NRR trends, indicating better financial performance among businesses, as well as a drive toward more product development. As GenAI continues to dominate discussions around innovation, many experts alluded to a “new normal” of AI spending.
After years of margin expansion, management teams appear to be in reinvestment mode once again. While they don’t expect a December budget flush, at least until the last weeks of 2024, customers are looking to consolidate spending which could prove advantageous to large-scale platform vendors.
Internal spending trends in S&M and R&D reflect companies’ priority of growth over profitability, which could spell less margin improvement in 2025. However, selling remains a challenge and so it’s difficult to envision a better macro horizon. Investors remain focused on FCF/share as a key metric for evaluating business performance. It’s calculated by dividing a company’s free cash flow by the total number of shares outstanding. Though no single metric is most important, FCF/share acts as a measure of a company’s health and long-term investment potential because it considers both growth and profit.
“We're seeing increased year-end budget availability, particularly in areas like cybersecurity, infrastructure software, and DevOps. This positive trend gives us confidence in our 2025 revenue outlook.”
Matt Hedberg, Head of Global TIMT Research
Shorter software payment cycles
Shorter software payment cycles are also impacting industry profitability. Faster payment terms may be a headwind to deferred revenue and billings but should lead to less seasonality in cash collections. Shorter contract durations can also affect the timing of recognized revenue and metrics like billings and bookings.
Similar dynamics existed during the pandemic, when customers were preserving cash as IT budgets came under pressure, resulting in extended payment terms or restricted contracts (i.e., locking in a more cost-effective rate, for longer).
FCF might be negatively affected as companies receive less upfront payments and over shorter contract durations. Investors need to be aware of these changes and calculate FCF using only the change in short-term deferred revenue. Better indicators for future revenue potential, such as cRPO, could also be leveraged.
Supply chain software demand faces tailwind
Potential trade disruptions and tariff changes under the new U.S. Presidential administration could increase the demand for supply chain software solutions. Businesses may need additional support to manage these impacts, streamline logistics and reduce costs. Potential reciprocal changes to tariffs from trading partner countries may also drive demand for global trade intelligence solutions. Supply chain software may also benefit from near-shoring and on-shoring. More intermediary steps and shipments between countries within global manufacturing could drive demand for solutions to help manage the increased complexity and supply chain footprint.
Technology remains key to the digital transformation of increasingly globalized supply chains.
Today the end customer demands immediacy, and companies have responded by increasing inventories and near-shore sourcing. This ‘Amazon effect’ is driving consumer expectations around visibility and responsiveness, which creates an opportunity to increase speed and agility while also lifting productivity and reducing costs.
GenAI is transforming discoverability
Gatekeepers like Google and Meta have significant control over how users discover content online, underlining the dominance of big tech. However, AI-powered search results are leading to fewer clicks on organic search results, affecting the visibility of websites and businesses.
GenAI’s powerful new discoverability paradigm isn’t necessarily the universal solution across all search types. Vertical-specific tools, although lacking innovation over recent years, could soon play a key role in discoverability, especially within the ecommerce industry.
AI is shifting the balance of power from traditional gatekeepers to consumers, too. By providing more information and tools, AI can empower consumers to make more informed decisions and potentially disrupt existing business models. Indeed, marketplaces that prioritize consumer needs over suppliers, by leveraging AI to improve search and comparison capabilities, will likely thrive.
“Overall, large platforms and innovative upstarts are in the best position to benefit, while commoditized businesses and AI use cases may struggle to stand out from the competition.”
Rishi Jaluria, Analyst
