Constellation Software founder and president Mark Leonard cautioned against trying to predict the future of artificial intelligence.Ryan Remiorz/The Canadian Press
Constellation Software Inc. CSU-T held a rare conference call on Monday to assuage investor worries about the impact of artificial intelligence on its business. Judging from the market reaction, the company has more work to do.
Founder and president Mark Leonard set up the call after one of Constellation’s largest shareholders requested a question-and-answer session about AI. A serial acquirer of software companies targeting niche sectors, the Toronto-based Constellation has a stellar track record but concerns about the impact of AI have recently dogged its share price, sending it down more than 18 per cent from a high in May.
Constellation’s stock price ended the day down 4.9 per cent.
On a call with investors and analysts that stretched more than an hour and a half, Mr. Leonard cautioned against trying to predict the future of AI. Even Geoffrey Hinton, who has played a pivotal role in the development of the technology, hasn’t been able to do so. “You and I will never know a tiny fraction about AI” compared with Dr. Hinton, he said.
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While Mr. Leonard avoided predictions, he emphasized the company is closely monitoring developments and integrating AI. He was joined by four Constellation AI experts that he identified only by first names to prevent them from getting “overwhelmed by outreach from my shareholders and competitors.” (Mr. Leonard himself has a reputation for avoiding media attention.)
Generative AI tools have become much more adept at writing and testing software code, and can even create functioning prototypes. That represents a potentially huge opportunity for Constellation, allowing it to develop software faster and at a lower cost. But it also means rivals can do the same. Constellation’s own customers could use these tools to develop software, too.
“AI makes it potentially way more exciting for us to provide customization, but it also makes it much more likely that the client will do it themselves,” Mr. Leonard said.
Other executives on the call played down that possibility, emphasizing that Constellation has a close relationship with its customers and that AI is prompting them to work even more closely. One said that developing software requires a high degree of skill even with AI, and that Constellation is well-placed to do so.
While AI coding tools today are helpful, they also have limitations, especially when working with the kinds of software developed by Constellation’s business units. These programs can span tens of millions of lines of code, one executive said.
When it comes to the future of software development, Mr. Leonard made no predictions there either. “It’s difficult to say whether programming is facing a renaissance or a recession,” he said. A massive improvement in efficiency could lead to more demand for programmers, he said, or an oversupply of talent.
“If the 10X efficiency doesn’t happen, if it’s a 10-per-cent efficiency gain, you can imagine that there would be very modest changes to the current status quo,” he said.
While the market might not appreciate such uncertainty, some analysts were not too worried. “The company is taking a pragmatic approach to AI, much like they’ve done with everything else that’s made them successful,” said Richard Tse, a technology analyst at National Bank Capital Markets. “That means there’s nothing conclusive to say on the topic of AI at this point for them, which is being interpreted by the market as neutral to negative.”
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BMO Capital Markets analyst Thanos Moschopoulos wrote in a note after the call that Constellation is poised to benefit from AI. The company’s expertise means it can identify areas that can be automated, “which should ultimately make its software more useful to clients and mitigate the risk that they leave,” he wrote.
Mr. Leonard advised those on the call to think critically about claims related to the efficiency gains of generative AI. “It’s really important to dig in and try and understand, to be an anthropologist, to observe and test the claims you hear,” he said.
Constellation also highlighted a few examples of internal use cases across its portfolio, including three separate initiatives using AI to analyze contracts of businesses it is looking to acquire. “All of them have been relatively modest efforts, and quite successful,” he said. The company has also deployed AI for coding, sales and marketing, and customer service.
About 3 per cent of the business units at Constellation reported having replaced employees with AI tools, “which is lower than I thought, and I think is probably a good thing,” Mr. Leonard said.