Conflicting views emerge in the software industry regarding the impact of artificial intelligence (AI) on established business models. Some investors believe that innovations from AI laboratories will render costly software subscriptions, commonly utilized by departments such as HR, marketing, and accounting, obsolete. Conversely, billionaire tech investor Orlando Bravo argues that the concerns around AI are overstated. His private equity firm, Thoma Bravo, has raised $24 billion to invest in software companies, asserting that they have been unfairly devalued amid AI-related fears.
As of early 2026, the S&P North American Technology Sector index, which encompasses major software firms like Salesforce, Adobe, and Intuit, has declined nearly 10%. This decline indicates the difficulties faced by various companies in attracting buyers. Bravo notes that prospective buyers must account for both the public shares of a company and the stock options granted to employees, which can inflate the effective purchase price significantly. For example, Snowflake’s share price has halved since its peak in 2021, leading to complications in evaluating its true market capitalization when including unexercised stock options.
The discrepancy in valuation approaches becomes evident; while public investors might not fully consider the implications of stock-based compensation, private equity buyers have stringent requirements for returns on investment. This has resulted in adjustments to profit figures that often exclude stock-based compensation, which can misrepresent a company’s financial health.
Overall, the rift between stock investors and private equity professionals highlights a complex landscape in the software industry, influenced by both AI advancements and fundamental valuation challenges.
– Why this story matters: The dynamic between AI innovation and traditional software valuation is reshaping investment strategies in the tech sector.
– Key takeaway: The valuation of software companies is increasingly complicated by stock-based compensation and evolving market perceptions.
– Opposing viewpoint: Some investors believe that fears surrounding AI are overblown and that software companies still hold significant value.
