Construction Activity Resilient, AI Applications Still in Early Stage

Overview

This UBS report is based on interviews with 6 customers prior to Q1 earnings releases for Procore (PCOR) and Bentley Systems (BSY), analyzing the demand environment and AI application status of the US construction software industry. The overall conclusion is: despite macro pressures, construction activity and demand remain resilient; AI applications are still in early stages, providing greater near-term incremental impact to BSY than PCOR. The report maintains a Buy rating on PCOR with a $74 target price, while lowering BSY target price to $40 and maintaining a Neutral rating.

Core views

Demand Side: Most customers expect construction volume in 2026 to be roughly flat or grow 5-10% compared to 2025. Growth is driven mainly by residential/infrastructure (favorable for BSY), data centers, industrial, and healthcare sectors, while housing and commercial retail remain relatively weak. UBS construction team forecasts non-residential construction expenditure in FY26 to grow 3.8% YoY (flat in H1, ~7% growth in H2). Rising oil prices have increased material and transportation costs such as asphalt, but since PCOR uses ACV pricing, rising material costs may instead become a tailwind for its revenue. AI Application Side: Most customers are still in the early stage of adopting generative AI/agent solutions, mainly limited to basic search and retrieval functions like Copilot or ChatGPT Enterprise. Advanced users are starting to apply AI in design workflows or digital twins, which is where BSY benefits and leads PCOR in monetization. However, PCOR's ACV pricing model may protect it from disruption by third-party AI agents, whereas BSY's seat-based pricing model is more exposed. Customers are actively testing PCOR Assist, with feedback indicating potential in automating RFI creation, budget management, etc.; BSY's iTwin and Asset Analytics demonstrate practical value in building digital twins and predictive asset management. Competitive Landscape: PCOR competes fiercely with Autodesk, though the platform has relatively high stickiness. PCOR is generally considered superior in functionality, while Autodesk holds advantages in pricing and tight integration with design. BSY continues to dominate the civil/infrastructure sector; although Autodesk has increased focus in this area, no significant share transfer has occurred. Financial Outlook: For PCOR, UBS expects it to achieve approximately 3 percentage points of revenue beat in Q1 (implying 16-17% YoY growth), and Street expected cRPO growth of about 20% YoY should be achievable. However, due to the new CFO, PCOR may choose to maintain rather than raise FY26 guidance. For BSY, Q1 ARR growth of 11.5% is expected, maintaining FY26 guidance. Valuation Level: UBS maintains a Buy rating on PCOR with a $74 target price, based on 6x CY27E EV/Sales. For BSY, maintains Neutral rating, lowers target price from $43 to $40, based on 19x CY27E EV/FCF (previously 21x), believing risk-reward ratio is more balanced at current valuation levels.

Analysis framework

UBS adopts an industry chain research-driven method. The core logic line is "Downstream Demand Health -> Software Spending Willingness -> Competitive Landscape and AI Monetization Capability". Specifically, the report gathered first-hand expectations for 2026 construction volume, software spending plans, AI adoption progress, and real evaluations of Procore and Bentley products by visiting 6 customers from different construction sectors. When deriving conclusions, the report cross-validates customer feedback with UBS construction team's macro forecasts (e.g., non-residential construction expenditure forecast) to confirm demand resilience. Simultaneously, the report deeply analyzes the differential impact of different software pricing mechanisms (PCOR's ACV model vs BSY's seat model) on revenue stability and resistance to AI disruption. Finally, mapping incremental information from customer feedback (e.g., BSY Plus SKU brings 7-8% spend increase, Asset Analytics brings 15% increase) into the financial model derives forward-looking performance expectations and valuation judgments.

Methodology notes

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Transmission of downstream demand health to software spending

  The report analyzes downstream construction industry activity volumes (such as civilian infrastructure, data center demand growth) to derive the revenue growth basis for upstream construction software companies. That is, the higher the downstream start-ups, the stronger the demand for project management software, thereby supporting software company revenue expectations.

• Company Fundamentals and Financial Framework

  ACV (Annual Contract Value) Pricing vs Seat Pricing Model

  PCOR adopts a pricing model based on customer annual construction output value, while BSY adopts a model based on user seats. The report points out that when rising material costs lead to higher project total prices, the ACV model allows PCOR to naturally obtain revenue increments and resist replacement by third-party AI agents (because it does not charge per head); while seat-based models are more susceptible to reduced labor needs via AI automation.

• Valuation methodsFCFF/FCFE Free Cash Flow

  EV/FCF (Enterprise Value / Free Cash Flow) Valuation

  The report values BSY using a CY27E (2027 Calendar Year Expected) EV/FCF multiple and sets it slightly below the peer mean by 1 multiple to reflect risk. This is a common valuation method for mature SaaS companies, reflecting the market's pricing of the company's future free cash flow generation capability.

• Valuation methodsPS valuation

  EV/Sales (Enterprise Value / Sales) Valuation

  The report values PCOR using a CY27E EV/Sales multiple, taking the industry mean and adjusting according to PCOR's higher revenue growth expectations. High-growth SaaS companies often use PS valuation before profitability to measure market value per dollar of revenue.

• Event Gambling and Behavioral FinanceExpectation Gap / Expectation Management

  Customer Survey Captures Expectation Gaps

  The report conducts customer surveys before the earnings report to obtain demand signals more authentic than market consensus expectations, thereby judging the possibility of company performance beating or missing expectations, as well as changes in management attitude on guidance (e.g., PCOR's new CFO may be more cautious).

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Procore Technologies (PCOR)

  Benefit from construction activity resilience and ACV pricing model

  Strengths

  Functions considered superior to Autodesk by customers, ACV pricing model can naturally increase revenue when material costs rise, and can resist disruption by third-party AI agents

  Weaknesses

  AI implementation progress lags behind BSY, some customers consider pricing too high

  Comparison

  Superior to Autodesk ACC in project management functions, but inferior to Autodesk in design end; AI monetization ability currently lags behind BSY

  Risks

  Macro downturn leading to reduction in construction projects affecting transaction volume; intensified competition with Autodesk; uncertainty in guidance brought by new CFO

• Bentley Systems (BSY)

  Benefit from infrastructure investment and AI monetization leadership

  Strengths

  Dominant position in civil/infrastructure sector, AI monetization (such as Asset Analytics, Plus SKU) leads, bringing tangible spend increases

  Weaknesses

  Seat-based pricing model faces risk from AI reducing labor demand; feedback on some AI features (like SYNCHRO) is average

  Comparison

  Market share solid in infrastructure sector, difficult for Autodesk to shake; AI application depth and breadth lead ahead of PCOR

  Risks

  Impact of macro policy on infrastructure spending; maturity of design market slows down beyond expectations; intensified competition

Key data

• FY26 Non-Residential Construction Spending Forecast+3.8% Y/YAdjusted slightly from previous +4% forecast, flat in H1, ~7% growth in H2
• PCOR Q1 Revenue Beat Magnitude~3 percentage pointsImplies 16-17% YoY growth
• PCOR Q1 Street Expected cRPO Growth~20% Y/YUBS believes this expectation is achievable
• BSY Q1 Expected C/C ARR Growth11.5%Consistent with Street expectations
• BSY FY26 C/C ARR Guidance10.5-12.5%Expected to maintain this guidance
• BSY Target Price$40Lowered from $43, based on 19x CY27E EV/FCF (previously 21x)
• PCOR Target Price$74Maintained, based on 6x CY27E EV/S
• BSY Plus SKU Spend Increase7-8%Customer feedback on spend increase driven by Plus SKU
• BSY Asset Analytics Spend Increase15%Customer feedback on annual spend increase driven by using Asset Analytics

Impact & implications

The report considers that the fundamental demand base of the construction software market remains solid, especially continuous investment in data centers and infrastructure sectors provides bottom support for software spending. The implementation of AI in the construction industry is a gradual process, and the risk of core software vendors being disrupted is low in the short term. For PCOR, its ACV pricing model has natural pricing power in an inflationary environment, and platform functions are recognized by customers, but attention needs to be paid to the impact of macro slowdown on its project volume. For BSY, its moat in civil/infrastructure fields is solid, Asset Analytics and Plus SKU are future growth catalysts, but upside space is relatively limited at current valuation levels. The new CFO may make PCOR more conservative in guidance, but fundamentals remain healthy.

Risks

• Macro downturn leading to slowdown in construction activity, affecting software spending
• AI technology development fails to meet expectations or implementation受阻
• Intensified competition caused by Autodesk increasing investment in infrastructure sector
• PCOR new sales model promotion fails to meet expectations
• Slowing pace of construction modernization

What to watch

• 1QF26 Earnings and FY26 Guidance for PCOR and BSY (especially PCOR new CFO's attitude)
• Cross-selling progress of BSY Asset Analytics and Plus SKU
• Customer feedback after PCOR AI Agent moves from beta to formal version
• Actual impact of oil price rise on construction material costs and construction volume