- Software is down 24% YTD (vs. S&P 500: -7.5%) and 34% below its mid-September 2025 peak, driven by AI disruption concerns and slowing revenue growth. The current fall is the fourth-largest yet, behind the Dot-com bubble (-63%), the Global Financial Crisis (-50%), and the post-COVID tech selloff (-46%).
- Software growth has reaccelerated since mid-2023, with LTM total revenue up 15% YoY in 4Q25, the highest since early 2023 and 4ppt above 11% a year ago (excluding cloud providers). Large-cap SaaS companies are outperforming smaller-cap peers (7ppt higher) amid AI disruption, with revenue up 17% YoY in 4Q25 (vs. 12% in 4Q24) and expected to remain at 17% YoY in 1Q26e.
- We are OVERWEIGHT on the software sector. Software large-cap companies are prioritising AI usage growth over aggressively upselling premium packages. There are clear AI monetisation routes i.e. premium SKUs and generative credit consumption usage-based pricing. This shift from seat-based subscriptions protects revenue from industry layoffs. The EV/Sales ratio for large-cap SaaS is currently trading below the -1 STD level of 9.4, despite rising software revenue and net income.
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