Outpacing Change

Dear Clients,

Peng often reminds me that an organization’s internal rate of change must exceed the external rate of change – or it risks falling behind. Today, AI is accelerating the pace of change across every sector of the economy.

Equity markets are adjusting in real time, repricing businesses as investors weigh both opportunity and disruption. The average SaaS stock has declined 38% over the past 12 months, even as annual recurring revenue has grown approximately 16% over the same period. Markets are working to reconcile sustained growth with rapidly shifting competitive dynamics.

When I wrote about AI in September, I cautioned against unfocused adoption and the risk of generating “work slop” – output that appears productive but delivers little real value. That concern remains. A meaningful gap persists between an impressive demonstration and a production deployment that delivers measurable, repeatable results. Leadership teams must remain disciplined and clear-eyed about that distinction.

At the same time, progress since September has been substantial. Advancements in models and tooling are compounding quickly. Claude’s performance improvements, for example, reflect not only stronger underlying models but also better integration of tools, memory, and workflow design. These systems are demonstrating gains in sustained reasoning, multi-step execution, and domain-specific knowledge application. Similarly, the release of Gemini 3.0 and related tools have driven measurable improvements across knowledge-intensive workflows.

AI is also expanding into increasingly specialized domains, including legal workflows and financial analysis – areas that require precision, contextual awareness, and professional judgment. Innovation cycles in software engineering are accelerating, and productivity gains are likely to place meaningful pressure on incumbent software and services providers. Many believe we are approaching a turning point: a shift from AI as novelty to AI as broadly adopted infrastructure with tangible, real-world impact.

Integration and value capture, however, will take time. Organizations must be deliberate in determining where these tools are reliable and how best to deploy them. Hallucinations remain a real challenge. Yet recent developments have materially shifted expectations about what is achievable in the near term.

Our skills and experience position us well to support you in this rapidly evolving environment. We will continue to share our observations and lessons as we further integrate AI into our capabilities, always with the goal of delivering differentiated value to you. We appreciate the consistent encouragement you provide us to innovate and improve – strong partnerships are built between firms that challenge each other to create meaningful value.

Our vision remains clear: to build a fully integrated ecosystem that delivers advanced content and pre-trade analytics, seamlessly extending through end-to-end execution. We are leveraging our technology to place new applications directly into clients’ hands – combining flow data with interactive experiences and designing mobile-native tools that reduce complexity, enhance decision-making, and integrate naturally into the way you operate.

As always, we look forward to continuing the conversation.

Jim Esposito, President
Citadel Securities

From the Library

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