Ai-native Software Companies Lead on Growth, but Stronger Economics Have Not Yet Followed

AI-native software firms are growing fastest, but embedded AI delivers better margins and productivity.

What the company is saying

KeyBanc Capital Markets, the investment banking arm of KeyCorp (NYSE:KEY), has published its 17th annual AI x Software Benchmark, highlighting how artificial intelligence is reshaping the private software sector. The release frames AI as a major growth accelerator, with Scott Peterson, Managing Director, emphasizing that AI is speeding up development cycles but that spending is outpacing budgets and profitability is lagging. The benchmark distinguishes between companies selling AI as their core product and those embedding AI in existing offerings, noting the former's higher growth but weaker margins. The announcement stresses that while AI adoption is broad, monetization and measurable financial impact are still at an early stage. The tone is analytical, with a focus on quantified trends rather than promotional claims. The company also underscores its own scale, citing $125 billion in capital raised over the past year and $193 billion in assets as of September 30, 2026.

What the data suggests

The survey data shows that companies selling AI as their main product achieved median ARR growth of 34% in 2025, but with a median EBITDA margin of (12%), indicating weak profitability. Firms embedding AI in broader products grew ARR at 22% and had a much better median EBITDA margin of (1%), while their productivity, measured as ARR per FTE, was $201K versus $117K for core AI product companies. Companies charging separately for AI products saw higher ARR growth (27%) than those bundling AI (17%), but this has not yet led to higher net retention. AI-driven ARR is projected to surge 128% in 2026, up from 74% in 2025, but will still comprise only 12% of total ARR. Overall, median ARR growth was 24% in 2025 and is projected at 23% in 2026, with survey participants expecting acceleration to 40% in 2027. Median EBITDA margin for the sector is expected to improve from (3%) in 2025 to 1% in 2026. 44% of respondents reported AI spend over budget, with 24% exceeding by more than 20%, mainly due to higher token usage. Companies spending over 5% of revenue on AI had a median gross margin of 66%, compared to 78% for those spending less than 2%. AI is widely deployed internally (91% in engineering), and 92% report shorter product development cycles, but only 20% offer fully autonomous agents. Workforce impact is limited so far, with 65% reporting no AI-related headcount changes in 2025, though this is expected to drop to 34% in the next 12–24 months, especially in R&D (45%) and customer service (37%).

Analysis

The announcement is a benchmarking survey release, not a company-specific financial or operational update. The tone is factual and data-driven, with realised 2025 metrics for ARR growth, EBITDA margin, and productivity, as well as some forward-looking projections for 2026-2027. The majority of claims are supported by disclosed numerical data, and forward-looking statements are clearly identified as projections, not presented as accomplished facts. There is no promotional or exaggerated language; the report notes both positive trends (e.g., AI-driven ARR growth) and challenges (e.g., AI spend overruns, modest EBITDA margins). No large capital outlay or immediate earnings impact is claimed for KeyCorp itself, and the capital-raising figures are historical, not aspirational. The gap between narrative and evidence is minimal, as the release is positioned as an industry survey rather than a promotional or guidance-heavy announcement.

Risk flags

• ●Profitability risk is evident, as AI-native product companies report strong growth but a median EBITDA margin of (12%), suggesting that scaling AI revenue does not yet translate to sustainable profits.
• ●AI-related spending is running ahead of budget for 44% of respondents, with 24% exceeding budgets by more than 20%, driven by higher-than-expected token usage, which could pressure margins and cash flow if not controlled.
• ●Gross margins are lower for companies spending more than 5% of revenue on AI (66%) compared to those spending less than 2% (78%), indicating that heavy AI investment may dilute profitability unless monetization improves.
• ●The projected acceleration in AI-driven ARR and sector-wide ARR growth (to 128% and 40% respectively) is not guaranteed, as these are based on participant plans rather than realised outcomes, and depend on successful execution and market adoption.
• ●Workforce impacts from AI adoption are expected to increase, with only 34% of companies anticipating no headcount changes in the next 12–24 months, raising potential operational and cultural risks.

Bottom line

KeyBanc Capital Markets' benchmark shows that AI is driving rapid revenue growth for software firms, but profitability and productivity gains are concentrated among those embedding AI into existing products, not those selling AI as a standalone offering. AI spend is frequently overrunning budgets, and higher investment does not yet yield higher margins. While AI-driven ARR is set to grow sharply, it will remain a small share of total revenue in the near term. The next year is critical for proving that AI investments can deliver sustainable financial returns. Investors should focus on companies that combine AI-driven growth with disciplined cost management and clear monetization strategies. The most actionable takeaway is that embedded AI models currently offer a better balance of growth and economics than pure-play AI product strategies.

Announcement summary

(NYSE:KEY) KeyBanc Capital Markets Inc., the corporate and investment banking unit of KeyCorp, released the results of its 17th annual AI x Software Benchmark, formerly known as the SaaS Survey. The 2026 benchmark expands its focus to examine how artificial intelligence (AI) is impacting product strategy, monetization, unit economics, and operating models in the private software industry. Companies selling AI as their primary product reported median ARR growth of 34% in 2025, compared to 22% for companies embedding AI in broader products and 9% for companies still developing customer-facing AI. Core AI product companies had a median EBITDA margin of (12%) in 2025, while embedded AI companies reported (1%). Embedded AI companies led on productivity, with ARR per FTE at $201K versus $117K for core AI product companies. Companies charging separately for AI products saw 27% median ARR growth in 2025, compared to 17% for those that do not. AI-driven ARR is projected to grow 128% in 2026, up from 74% in 2025, but will still only represent 12% of total ARR. Overall median ARR growth was 24% in 2025 and is projected at 23% in 2026, with a planned acceleration to 40% in 2027. The overall median EBITDA margin is expected to improve from (3%) in 2025 to 1% in 2026. 44% of respondents reported AI spend over budget year to date, with 24% over by more than 20%, mainly due to higher-than-expected token usage. Companies spending more than 5% of revenue on AI reported a median gross margin of 66% in 2025, compared to 78% for those spending less than 2%. 92% of respondents said AI is shortening product development cycles, and 91% deploy AI internally in engineering. 65% reported no AI-related headcount reduction or reallocation in 2025, but this is expected to fall to 34% over the next 12 to 24 months, with R&D (45%) and customer service (37%) most likely to be affected. 57% of respondents said their customers are building alternative products with AI coding tools, while only 20% offer fully autonomous agents to customers. KeyBanc Capital Markets has raised more than $125 billion of capital over the last twelve months for its clients. KeyCorp reported assets of approximately $193 billion at September 30, 2026. KeyBank National Association operates approximately 950 branches and approximately 1,100 ATMs in 15 states throughout the United States.

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