In a wide-ranging interview during Microsoft Build, Satya Nadella made one thing abundantly clear: the traditional application layer is collapsing into agents. These AI-powered intermediaries are no longer peripheral assistants—they’re becoming the primary interface for users and businesses alike. Nadella’s assertion that “every layer of the tech stack has to be reimagined” underscores a paradigm shift: instead of navigating discrete software applications, users will increasingly interact with intelligent agents capable of orchestrating tasks across systems.

This change isn’t theoretical—it’s already happening. Microsoft 365, for instance, is being rebuilt with chat interfaces and embedded copilots that turn each app into an integrated development environment (IDE) for knowledge work. From solitary productivity tasks to collaborative projects in Teams, agents are becoming central actors in the work experience. “Teams becomes the scaffolding in which all of the AI now is working with me in multiplayer mode,” Nadella said.

What It Means for SaaS and Enterprise Software

If applications become abstractions and agents become the interface, what happens to the business models that built the modern SaaS economy?

Nadella suggests SaaS companies must prepare for radical reinvention. Instead of being standalone systems of record or engagement, vertical software platforms will need to plug into an orchestration layer—where agents call on multiple systems in real time to fulfill complex workflows. Microsoft's Copilot Studio already demonstrates this, enabling agents that span CRM and other backends to complete end-to-end business processes.

SaaS providers will likely need to shift from owning the entire stack to becoming reliable, accessible sources of domain-specific ground-truth data. Their value may lie less in their UI or UX and more in the richness and accuracy of the structured information they provide to agents. Companies that don’t adapt may find themselves reduced to interchangeable databases in a much larger AI operating environment.

Rethinking the Tech Stack from First Principles

Nadella repeatedly emphasizes the need to “go back to first principles” across the infrastructure, data, and security layers of computing. For instance, Microsoft's global Azure footprint now has to function as a network of AI factories—providing not just GPUs but massive storage and traditional compute to support intelligent agents in both training and inference.

On the data front, Nadella envisions a world where reasoning engines are built directly into databases. A new kind of query, one that blends SQL with large language models, becomes possible. This blurs the boundary between application logic and data access—further flattening the tech stack.

Security, identity, and compliance must also evolve. Agents, like employees, will need managed identities, endpoint protection, access controls, and audit trails. In Nadella’s words, “we're going to manage the agent environment like an endpoint.”

The Operating System Is Changing Too

One of the most forward-looking sections of the conversation was Nadella’s reflection on the future of operating systems. He suggests that the traditional, deterministic OS could be replaced—or at least complemented—by environments built around agents and probabilistic computation. These hybrid systems will blend imperative code with AI-generated behavior, wrapped in strong boundaries and observability layers.

In essence, the OS of the future might look more like a sandboxed environment for agent orchestration than a hierarchy of files and processes. Agents could become the default way of interacting with hardware, software, and data. “The coding agent has an environment… you’re really putting a virtual machine, and then you’re really setting the boundaries of that virtual machine,” Nadella explained.

Conclusion: The Water Is Flowing

Nadella closed with a metaphor that cuts to the heart of his message: “the value will anyway get created somewhere else… the question is how do you flow with it versus thinking that somehow I have this moat and I’m going to hold on to it.” In other words, the future isn’t about preserving existing layers of the stack—it’s about rethinking where value is created and how users engage with software in an agentic world.

For developers, enterprises, and SaaS founders alike, this shift requires a fundamental reorientation. The app is no longer the product. The agent is.