A private equity exec says the market is looking at software wrong, and it's creating a big buying opportunity

• Software stocks have been under intense pressure this year amid AI disruption fears.
• But private equity giant Thoma Bravo thinks markets have it wrong.
• An exec at the firm says misunderstandings are creating a buying opportunity.

Wall Street has been nervously watching the software industry for weeks. After startup Anthropic sent software stocks into a tailspin in February, investors have wondered if the direction of the tech sector is shifting away from pure-play software makers.

One private equity leader doesn't think so. Thoma Bravo, the world's largest software-focused private equity firm, recently released the slides from its latest limited partner meeting. Holden Spaht, one of the company's managing partners, provided context in a LinkedIn post.

Spaht noted that, despite the popular narrative, software's volatility may have less to do with AI and a lot more to do with broader macroeconomic forces such as interest rate hikes and companies buying more seats for SaaS products than they ultimately needed.

"The market was complacent about these factors until it wasn't, and now we believe it's overcorrecting, re-pricing on AI disruption fears that aren't fully visible in actual software business performance," he stated.

"The moment creates a major buying opportunity for those disciplined enough to act on it."

While Spaht didn't downplay the wide-ranging disruptive impact of AI on software, he also highlighted that in the firm's view, not all software stocks are equally at risk.

He sees the most at-risk companies as those that produce generic products, operate with simple workflows, and minimal oversight from regulators. Those are the types of software stocks that don't match the firm's investment thesis, he said.

"We look to buy businesses built around deep domain expertise, zero-tolerance-for-error workflows and embedded cross-system integration," Spaht said. "That's a fundamentally different software value proposition, because these firms are positioned to grow through the incorporation of AI tools into their integrated systems."

The core difference between the software winners and losers that Spaht sees comes down to one thing: the companies in that space that will benefit are those whose value to enterprise customers is made stronger by AI.

It augments their product, making it a tailwind rather than a threat. Failing to realize this is a key mistake that he sees investors making right now as they attempt to navigate the fast-moving tech trade.

"We don't believe the public markets make this distinction clearly," he sad. "And the business performance data signals that the characteristics we look for in software businesses are recognized and rewarded by many customers, who understand the value these systems provide."