Enterprise software

How do enterprise software companies make money?

Most enterprise software companies make money through subscriptions rather than one-time license sales. A large enterprise pays a recurring fee, usually annual or multi-year, for each user, each workload, or each unit of consumption. This is the SaaS model: predictable recurring revenue that renews as long as the software stays embedded in how the customer operates.

The number that defines the enterprise software business is net revenue retention. Well-run platforms keep 110% to 130% of last year's revenue from existing customers, because those customers add seats, adopt more modules, and consume more compute over time. ServiceNow (NOW) runs net retention around 120% on its workflow platform, and consumption-based franchises like Microsoft's (MSFT) Azure expand as enterprise data and AI workloads grow. Recurring revenue plus expansion is the compounding engine behind the entire enterprise software theme.

Why are enterprise software margins so high?

Enterprise software margins are high because the cost of serving one more customer is small once the software is built. The platform is written once and sold many times, so gross margins on mature subscription products often sit at 70% or higher. The heavy costs are research, sales, and support, not manufacturing or distribution.

Switching costs reinforce the economics. Once an enterprise runs its finance, HR, or operations on a platform like Oracle (ORCL) for ERP and database, or ServiceNow (NOW) for workflows, ripping it out is expensive and risky. That stickiness lets enterprise software companies hold pricing, renew at scale, and reinvest in new products without losing the installed base. The combination of low marginal cost and durable switching costs is why enterprise software has been one of the most profitable categories in the market.

How is AI changing enterprise software?

AI is changing enterprise software by adding a new layer of paid features on top of existing subscriptions. Microsoft (MSFT) sells Copilot across Microsoft 365, GitHub, and Dynamics; ServiceNow (NOW) sells Now Assist agents inside its workflow platform; Google (GOOGL) layers Gemini into Workspace and Google Cloud. These AI features command premium pricing, which lifts revenue per customer without requiring the company to win a new logo.

The other shift is platform value. Palantir (PLTR) built the Artificial Intelligence Platform (AIP) to run generative AI workflows on a customer's own proprietary data, and its commercial revenue has grown quickly on that product. Across the enterprise software theme, the companies that own the data and the workflow are best positioned to monetize AI, because the model alone is a commodity while the proprietary data and the system of record are not.

What gets a stock into the Enterprise software theme?

Subscription or platform revenue from enterprise customers; recurring revenue model with multi-year customer expansion dynamics.

Enterprise software stocks

Every public name that fits the Enterprise software thesis, with the rationale for inclusion. Click any ticker for the full stock guide. The basket above starts equal-weighted; you set your own target weights inside Walnut.

How to invest in Enterprise software

There are a few ways to get exposure to enterprise software. The first is buying individual stocks, and within enterprise software it helps to separate the platform giants from the faster-growing specialists. Microsoft (MSFT), Google (GOOGL), and Oracle (ORCL) are the broad platforms: large, diversified, and tied to cloud, productivity, and AI all at once. ServiceNow (NOW) and Palantir (PLTR) are higher-growth platforms with tighter focus on workflow automation and AI-on-enterprise-data respectively. A platform-weighted approach leans on MSFT and GOOGL for scale; a growth-weighted approach leans on NOW and PLTR for AI-driven expansion. The second way is an ETF proxy. There is no pure enterprise software ETF, so investors use broad tech vehicles like VGT (Vanguard Information Technology) or XLK (Technology Select Sector SPDR), both at low expense ratios, or a more software-tilted fund such as IGV. The tradeoff is dilution: these ETFs hold hardware, semiconductors, and consumer software alongside enterprise software, so you get diversification but not a clean expression of the enterprise software theme, and you cannot control which names or weights you hold.

The third way is building an enterprise software basket in Walnut. You describe what you want, for example "enterprise AI software platforms," and Walnut's AI assistant proposes a set of constituents and suggested weights drawn from names like MSFT, GOOGL, ORCL, NOW, and PLTR. You adjust the weights to match your own conviction across the enterprise software theme, then fund the basket through your own connected brokerage. Walnut never trades for you: it computes the orders that would bring the basket to your target weights, and you review and approve every order before it is placed at your broker. That gives you a concentrated, transparent enterprise software basket that you control directly, rather than the blended exposure of a broad tech ETF or the single-name risk of one enterprise software stock.

ETFs used as passive proxies for Enterprise software

If you want the theme as a single ticker rather than as a basket, these are the ETFs people most commonly use. Each has trade-offs (concentration, expense ratio, sector overlap) covered in the individual ETF guides.

FAQ