Global Software: Gen AI Will Kill SaaS Narrative — Growth Shock Priced In
Summaries are public. PDF access requires an active membership; all members have the same access. Sign in
Bank of America argues that the prevailing market narrative—generative AI will disrupt traditional SaaS—has severely compressed global software valuations, but the growth shock is now fully priced in. Over the past six months, the global software EV/EBITDA multiple has plummeted from roughly 21x to 13.1x, sitting well below the five-year average and near historical lows. Forward P/E ratios for EMEA software coverage have compressed 30% to 19x, while US peers dropped 35% to 21x.
Despite projected revenue growth of 11% through 2027, aligning with historical averages, this 35% multiple compression entirely reflects downgraded long-term growth expectations. BofA utilizes a reverse DCF model on SAP, revealing the current share price implies a pessimistic scenario of -3% revenue CAGR post-2030. This suggests the market anticipates severe declines.
While bearish arguments cite risks from new AI coding tools, heightened competition, and seat-based pricing vulnerabilities, BofA emphasizes that complex, mission-critical platforms like SAP and Dassault Systemes possess deep domain expertise and proprietary data moats. These entrenched systems are difficult to disrupt and stand to benefit from AI integration. High-regulation industries such as banking and manufacturing offer further resilience. Consequently, current valuations present attractive entry points for fundamentally strong software franchises with robust AI upside potential.