The Saa S Rout of 2026 Is Even Worse Than You Think. For the First Time Ever, Software Now Trades at a Discount to the S&P 500. | Saa Str

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The Saa S Rout of 2026 Is Even Worse Than You Think. For the First Time Ever, Software Now Trades at a Discount to the S&P 500.

Most of us have been doing this long enough to remember when software stocks trading at 40x forward earnings felt cheap.

Software forward P/E multiples have now fallen below the overall S&P 500. Not at parity. Below.

Not in 2022 when rates spiked. Not in 2008. Not even in the dot-com crash, which was a speculative bubble unwinding — not a structural attack on the business model itself.

Here’s how the multiple has collapsed since the peak:

May 2020 – May 2022: 84.1x forward P/E. Zero interest rates, COVID digital acceleration, SMB going online overnight. Software was trading at nearly 4x the S&P 500.

June 2022 – June 2024: 43.2x. The rate hike correction hit hard. But software still commanded roughly 2x the market multiple. The premium held.

July 2024 – June 2025: 33.6x. Seat-based headwinds as enterprise hiring froze. Still a premium, just a smaller one.

July 2025 – December 2025: 31.2x. AI starts changing the top of the funnel for application software. Investors start getting nervous about LLM providers eating into the stack.

January 2026 – March 2026: 22.7x. App software disruption by AI becomes the main narrative. Software is now at or below market.

IGV, the i Shares software ETF, is down over 21% year-to-date. Since its September 2025 peak, it has fallen roughly 30%. That is $2 trillion in market cap gone.

For two decades, software companies deserved to trade at a premium to the market. The logic was straightforward:

70-80%+ gross margins vs. the S&P 500 blended average of ~45%

Recurring revenue with predictable, contractual cash flows.  Annuities, in many ways.

Growth rates that made the index look like a utility stock

You pay more for better economics. That is not a complicated investment thesis.

The premium also reflected the scalability of the model. A dollar of new software revenue costs almost nothing to deliver. That is simply not true for most businesses in the S&P 500.

Two things per Bloomberg: “app software disruption by AI” and “private credit concerns for software.”

Both matter. But the AI disruption thesis is driving the larger repricing.

The core fear is seat compression. If a single AI agent can do the work of multiple human employees, enterprises stop buying 500 seats and start buying 100. Or 50. Or renegotiate entirely.

Orlando Bravo, who has spent 20+ years buying and building software businesses at Thoma Bravo, said publicly this month that some of the software companies being disrupted by AI are facing “very warranted” decreases in their valuations. That is a significant thing for him to say out loud.

The seat-based model built the traditional B2B industry. Salesforce, Workday, Atlassian, Monday.com — all of them grew by selling per-seat licenses to expanding workforces. When headcount grows, revenue grows. Automatic. Durable. Predictable.

AI itself is breaking that link.  As is incremental budget all going to AI.

If agents replace seats rather than complement them, the revenue model doesn’t just slow down — it reverses. That is not a cyclical problem. That is a structural one.  And if all incremental budget is going to Anthropic and AI Agents, that leaves very little left for traditional productivity software.

How Much of the Software Slowdown Is Just Budgets Flowing to Anthropic and Open AI? Maybe As Much As 70%

How Much of the Software Slowdown Is Just Budgets Flowing to Anthropic and Open AI? Maybe As Much As 70%

Not like this. The 2000-2002 crash saw tech multiples collapse, but that was speculation unwinding, not business model disruption. The 2008-2009 financial crisis hit everything, but software recovered fast because the underlying economics were still intact.

This time, the market is not saying “software is temporarily overvalued.” It is saying “we’re not sure the earnings growth assumptions embedded in even 22x are correct.”

That is a fundamentally different kind of repricing.

The bull case: Software companies still have the data, the enterprise relationships, the integrations, and the distribution. They have 10-20 years of customer lock-in baked into workflows. AI doesn’t erase that overnight. At 22x forward earnings — now below the market — you are not paying for a growth premium anymore. If these businesses stabilize and grow at even moderate rates, the stocks are cheap.

The bear case: If you strip out seat expansion as the growth engine, and pricing power gets squeezed as buyers renegotiate, the earnings trajectory for many companies looks genuinely uncertain. A “fair” multiple on decelerating or declining earnings is not 22x.

The businesses winning right now are the ones that have become infrastructure for AI, not those competing with it. The ones losing are trying to reframe the same product as “AI-powered” without fundamentally rethinking how value is delivered.

That gap is going to widen over the next 18 months.

Software Has Never Been on Sale Like This Before.  Ever.

Software has never traded at a discount to the S&P 500 in the modern era. That is either a historic buying opportunity or a sign that the market has correctly identified a structural break in the model.

Either way, it will resolve one direction or the other — and probably not slowly.

For founders: your next fundraise will be priced off public comps. If you are growing fast and capital-efficiently, you are fine. If you are counting on Saa S multiples recovering because they always have before, that assumption now requires more scrutiny than it used to.

The model was intact the last time they came back. That is the question worth asking today.

Saa S Capital: Across 1,500 Saa S Startups, Yearly Contracts Don't Actually Increase NRR

Saa S Capital Survey of 1,500 Saa S Companies: High NRR Startups Grow Twice as Fast

Vendr: The Average Saa S Discount is About 10%, And Trending Down

Saa S Capital: Across 1,500 Saa S Startups, Yearly Contracts Don't Actually Increase NRR

Saa S Capital Survey of 1,500 Saa S Companies: High NRR Startups Grow Twice as Fast

Vendr: The Average Saa S Discount is About 10%, And Trending Down

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• Free e Books

    e Book: Hiring a Great VP of Sales
    e Book: Raising Capital
    e Book:  The First $1m ARR
  

• University All Posts University Podcasts The Top CROs VC Fundraising Top Videos Q&A Best of Saa Str #1 Bestselling Book Search Everything Join the Community

• Free e Books

    e Book: Hiring a Great VP of Sales
    e Book: Raising Capital
    e Book:  The First $1m ARR
  

• London 2025 Annual 2026 Events Overview Sponsors

    Event Sponsorship
    Media Sponsorship
  

• Digital AI Day 2025 (Free) Speaker Submissions Speaker Requirements Overview