Some software names hit by AI deserve a valuation cut

Thoma Bravo co-founder Orlando Bravo on Tuesday said that artificial intelligence will disrupt software companies faster, and some of the hits to valuation are “very warranted.”

“There are many, many software companies in the public markets that will be disrupted from AI,” he told CNBC’s Leslie Picker at Thoma Bravo’s investor meeting in Miami. “Those companies were going to be disrupted anyway.”

Bravo did not name the companies he felt deserved lower valuations or those that were in danger of disruption.

Thoma Bravo is a software-focused investment firm founded in 2008. As of December, the firm had over $183 billion in assets under management in 77 companies.

Software stocks have been hit hard as AI model companies have released tools that threaten to replace those services at a much lower cost. The iShares Expanded Tech-Software Sector ETF (IGV), which tracks the industry, is down roughly 28% from its all-time high in September.

Bravo said that some software names, however, took “unjustified” hits from the sell-off and are “phenomenal businesses that are actually going to be big winners in the agentic era.”

“Those companies have been severely punished when they shouldn’t have been,” he added.

Bravo did not name those companies.

Apollo Global Management President John Zito recently criticized “arrogance” in software valuations by private equity firms, the Wall Street Journal reported Sunday.

Zito specifically highlighted Bravo’s $6.4 billion acquisition of software firm Medallia in 2021.

Bravo told CNBC that his firm overestimated Medallia’s growth rates in its acquisition.

“We made a mistake, and that caused us to pay too much,” Bravo said.