In the accelerating world of artificial intelligence, not all software companies are built to last. Orlando Bravo, co-founder of the investment giant Thoma Bravo, stated this week that AI is set to upend the sector more rapidly than many anticipate, and for some firms, a sharp drop in valuation is perfectly justified.

Speaking at his firm's investor meeting in Miami, Bravo told CNBC that a significant number of public software companies face imminent disruption from AI. "Those companies were going to be disrupted anyway," he noted, suggesting the technology is merely speeding up an inevitable process. He declined to specify which businesses he believes deserve a lower market price.

The pressure is already visible. The iShares Expanded Tech-Software Sector ETF has fallen about 28% from its peak last September, as AI tools promise similar services for a fraction of the cost.

Yet Bravo drew a clear distinction. He argued the market sell-off has been indiscriminate, unfairly punishing what he calls "phenomenal businesses" positioned to thrive in what he terms the "agentic era." These companies, he said, have been "severely punished when they shouldn't have been."

The comments arrive amid broader scrutiny of software valuations. Apollo Global Management's John Zito recently pointed to "arrogance" in private equity software deals, specifically citing Thoma Bravo's 2021 purchase of Medallia for $6.4 billion. Bravo acknowledged the critique, stating plainly that his firm overestimated Medallia's growth. "We made a mistake, and that caused us to pay too much," he said.

The message from Miami is one of a sector in transition, where AI separates legacy services from future platforms, and investors are still learning to tell the difference.

Source: CNBC