A recent analysis from S&P Global Market Intelligence reports that private equity (PE) activity in the software sector has slowed noticeably, as investors reassess risks tied to artificial intelligence disruption. After years of strong dealmaking in enterprise software, firms are becoming more cautious about valuations, competitive threats, and the durability of traditional SaaS business models in an AI-accelerated market environment.
One major concern is that generative AI is reshaping the economics of software. AI tools can replicate or automate features that previously justified premium SaaS pricing, potentially compressing margins and weakening defensible moats. Private equity buyers, who typically rely on predictable recurring revenue and stable growth trajectories, now face greater uncertainty about whether portfolio companies’ offerings will remain competitive as AI capabilities rapidly evolve.
Dealmakers are also grappling with valuation mismatches. Sellers often still price companies based on pre-AI growth assumptions, while buyers increasingly discount for technological obsolescence risk. This gap has contributed to lower transaction volumes and more selective investment strategies, with firms prioritizing companies that have either embedded AI effectively or operate in niches less vulnerable to disruption.
At the same time, PE firms are not retreating from the sector entirely. Instead, they are recalibrating — focusing on software businesses that can leverage AI for efficiency gains, product differentiation, or new revenue streams. The slowdown reflects not a collapse in confidence, but a period of strategic caution as investors try to determine which software models will thrive — and which may struggle — in the next phase of AI-driven transformation.
