The Pulse

KeyBanc finds faster growth but weaker margins at AI-first firms

Software companies selling AI as their primary product reported faster revenue growth than peers embedding it in broader products, according to KeyBanc's annual benchmark. They also reported lower margins and revenue per employee.

AI.info Team · · fact-checked · against 2 sources ↓ · Published 13 Nov 2026

Software companies selling AI as their primary product reported median annual recurring revenue growth of 34% in 2025, compared with 22% for those embedding AI in broader products, according to KeyBanc Capital Markets' annual benchmark. Those AI-first businesses also reported a median EBITDA margin of negative 12%, against negative 1% for the embedded-AI group.

The 17th annual AI x Software Benchmark, released on Nov. 13, was formerly known as the SaaS Survey and has been expanded to examine AI's effect on private software companies. SaaSletter reported that the benchmark's sample included 81 companies and that the number was often lower for individual questions or topics.

Growth and profitability diverge

Companies still developing customer-facing AI reported median annual recurring revenue (ARR) growth of 9% in 2025. The benchmark also found that embedded-AI companies reported $201,000 in ARR per full-time equivalent employee, compared with $117,000 at companies whose core product was AI.

Companies charging separately for AI products reported median ARR growth of 27% in 2025, versus 17% for companies that did not charge separately, according to KeyBanc. The benchmark found that the growth advantage had not translated into higher net retention.

Revenue forecasts and AI spending

Benchmark participants projected AI-driven ARR growth of 128% in 2026, up from 74% in 2025, while expecting it to represent 12% of total ARR. Overall median ARR growth was 24% in 2025 and was projected at 23% in 2026; participants planned for 40% growth in 2027.

The benchmark put the expected overall median EBITDA margin at 1% in 2026, an improvement from negative 3% in 2025. The figures for 2026 and 2027 are projections or plans, rather than reported results.

The survey also found that 44% of respondents were over their AI budgets for the year to date, including 24% who were over by more than 20%. Higher-than-expected token usage was the most frequently cited reason for the variance.

Companies spending more than 5% of revenue on AI reported a median gross margin of 66% in 2025, compared with 78% for those spending less than 2%, KeyBanc said.

Development and staffing

Scott Peterson, managing director of software investment banking at KeyBanc Capital Markets, said AI coding tools were improving developer productivity, but companies were reinvesting the gains to deliver products faster. The survey found that 92% of respondents reported shorter product development cycles because of AI, while 91% used AI internally in engineering.

Meanwhile, 65% of participants reported no AI-related headcount reduction or reallocation in 2025. Over the following 12 to 24 months, that share was expected to fall to 34%, with research and development, at 45%, and customer service, at 37%, the functions most likely to be affected.

KeyBanc also found that 57% of respondents said their customers were building alternative products with AI coding tools. Among the surveyed companies, 20% offered fully autonomous agents to customers.