Beyond the Hype: Emerging AI Opportunities Observed from US SaaS Q4 2024 Earnings

The recent earnings season for Q4 2024 is coming to an end, with all major SaaS companies having posted their results (except for ADBE, though I don't expect much incremental information from it). The focus this season has been on the commercialization of AI applications. The SaaS sector rallied during the last quarter due to AI Agent hype. Now it's time to validate this excitement with actual financial results.

TLDR: AI Agents still remain more hype than substance without significant business contribution, but real AI opportunities emerged in Data Infra, Marketing Spend, and Productivity Tool

ServiceNow and Salesforce are two major large-cap SaaS stocks with the biggest Agent hype, and neither impressed the market this quarter:

1. NOW beat market estimates for its Q4 results but missed on next quarter guidance. Meanwhile, the visibility of its AI commercialization is becoming increasingly blurry, and the TAM remains unjustified.
2. CRM was even more disappointing, missing both Q4 results and Q1 2025 guidance. Its Agentforce product was perceived as one of the most impressive offerings in the market; however, this still cannot significantly influence customers' purchasing decisions and is even selling at deep discounts. This reflects a much gloomier reality than what the market expected regarding AI Agent commercialization progress. It still has a long way to go...

Despite the disappointing AI Agent results, several vectors have delivered impressive outcomes and demonstrated huge future potential:

(1) Data Infrastructure

I consider this a natural extension of previous computational infrastructure development. Now that constraints from GPU and data centers are easing, data is becoming increasingly important to unlock LLM models' potential in enterprise use cases. Additionally, LLMs have unlocked the potential of unstructured data, increasing the TAM in the data domain. Therefore, enterprises are decisively increasing their spending in data-related areas, contributing to data software companies' outperformance.

1. Snowflake is the most representative name here, as reflected in its earnings results. It beat both Q4 results and guidance, achieving ~30% revenue growth in 2024 at a scale of nearly $4bn in annual revenue, and confidently guided toward growth acceleration for H2 2025. This presents a stark contrast to NOW and CRM. The two major drivers behind SNOW's growth are its Data Engineering product Snowpark and Data AI tools Cortex AI, with the former delivering real numbers and the latter representing a compelling upside. To better unlock AI's potential, enterprises are accelerating their data development at an unprecedented pace and will keep contributing to demand for storage and compute.
2. Palantir is also classified as a data infrastructure play in my framework because, at its core, the Ontology is essentially a proprietary method that helps enterprises process complicated business data and construct business logic across different types of data. It also delivered an impressive quarter, beating both Q4 results and next quarter guidance and achieving ~30% yearly revenue growth at a scale of $3bn. However, its astronomical valuation remains unjustifiable regardless of how strong the fundamentals are.
3. Other smaller players: Confluent, which focuses on real-time data streaming solutions, and Elastic, which focuses on RAG and hybrid search, both delivered strong quarters. I'm confident that unicorn Databricks is also performing exceptionally well, though actual numbers are inaccessible.

SNOW and PLTR perfectly represent two types of business models: one providing more standardized modular cloud services, and the other providing customized one-stop services for clients. SNOW's approach is more focused and scalable, while PLTR can help clients navigate undefined AI use case exploration (though I'm not sure how much of this is emotional value).

(2) Marketing Spend

This is the area closest to monetization, where every dollar invested can be reflected in ROI results. While AI's business potential remains uncertain in many areas, those with the highest ROI naturally become the focus of enterprise investment. Especially under a gloomy macroeconomic environment, enterprises are increasingly focused on ROI.

1. Meta: I include it in the SaaS sector although it's normally considered an Internet firm, as its main revenue growth is driven by its Ads platform. Meta delivered a strong quarter, performing best among big tech peers, with a beat on Q4 results and in-line next quarter guidance. The phenomenal growth of its Ads platform came from years of efforts in GPU-enabled recommendation algorithm upgrades, Gen-AI enabled Ad tools, and data accumulation. As a result, key metrics including average screening time and conversion rates improved significantly. Meta definitely has the highest ROI for its tremendous CAPEX among peers. Looking back from Meta's crisis period years ago to its current success, it has really come through. This reinforces my belief in the potential of founder-led companies, especially during an era of disruptive change such as the current AI revolution. Zuckerberg has demonstrated exemplary leadership guiding Meta through this transformation.
2. Applovin: This is one of the strongest performing stocks across any U.S. public companies, with its stock price increasing by more than 7x. The momentum continued into this quarter. By beating both Q4 results and guidance, Applovin has proven its capability to tap into the e-commerce market and address investors' concerns about low take rates. The company's core edge comes from its AI-enabled ads engine AXON. With years of foundational architecture and data accumulation, Applovin has created a system integrating DSP-Mediation-SSP with powerful attribution algorithms, empowering customers to achieve significantly higher ROI compared to peers.
3. Zeta: An AI-enabled marketing cloud whose stock price rallied during last year's election season. AI is not a new add-on product module for this company. It has been building an AI-powered marketing platform for seven years, delivered impressive ROI for customers across different verticals, and maintained very stable customer relationships. It beat Q4 results but missed next quarter revenue guidance by 1%, followed by a strong guide toward 2028 projecting a 20% CAGR. This company has managed to beat and raise its earnings for 14 consecutive quarters. From 2021-2025, it has achieved 20+% annual revenue growth with improving FCF margins - only 8 U.S. public tech firms have managed the same feat. However, its stock price is deviating from its strong fundamentals. It was targeted by a short report last quarter, and its stock has declined by 60% since. The management team is buying back shares at an aggressive pace, using 100% of their Q4 free cash flows and claiming to further accelerate the buyback because, according to them, "it right now is the best investment for us for our cash in the current environment."

(3) Productivity Tool

I've studied only one public name in this field: Monday.com. After the emergence of AI, I strongly believe that individual productivity has been disruptively improved and that small teams with agile development will revolutionize future ways of working. This will further shift how people work and collaborate - everything will become lighter, more agile, and more customized. One of my personal favorite products, Notion, is developing based on this belief. After following many of its enterprise use cases, I discovered Monday.com, which I see as Notion for the enterprise sector, with both sharing many similar development philosophies.

For products, Monday.com started with Collaborative Work Management software and has now launched new offerings for CRM, low-code development, and service management. Starting in 2025, it also launched AI and Agents products. For customer acquisition, it adopted a unique approach—starting with SMBs and even individual teams within organizations, then gradually expanding throughout the entire organization. Starting from 2024, it also strengthened its GTM strategy and database infra to tap into large enterprises.

Monday.com meets many of my expectations for AI software: AI-enabled work transformation and software development productivity improvements. It has achieved impressive product speed-to-market, customization capabilities, and attractive pricing. I believe AI's benefits lie at least as much in internal development productivity improvements as in external monetization values, and there's still huge room for growth. On pricing alone, Monday.com can influence many customers' purchasing decisions, contributing to accelerated adoption of its products. Based on what I've heard, its newly launched AI functions are being adopted at an even faster rate.

The company delivered impressive earnings, beating both Q4 results and guidance and achieving a Rule of 40 score close to 60. This coming year will see strong product portfolio expansion, with its Service and AI products not factored into the guidance but already contributing meaningful revenue. The company's stock has been mispriced since last November due to concerns about weakening EU macroeconomic conditions (~20% EU revenue exposure) and internal GTM weaknesses. The stock price dropped from $320 to $220, presenting an attractive entry point. At its current scale, the company shouldn't be so closely tied to macroeconomic concerns, as it still has considerable room to maneuver, and the management team has consistently demonstrated strong execution. In recent earnings, they managed to expand their U.S. market presence and large enterprise client base, improve their GTM approach, and accelerate product launches.

I remain bullish on these opportunities going forward as enterprises continue accelerating their spending on AI-related development. We may even observe another wave of acceleration. At the same time, I hope we'll soon see significant breakthroughs in the AI Agents space, as it remains the most important prospect for realizing AI's future potential.