Are We at Peak Software?

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The software industry is experiencing a period of profound change, marked by shifting valuations, evolving growth dynamics, and the disruptive influence of artificial intelligence (AI). Recent market data and industry analysis suggest we may be approaching a pivotal moment—one that challenges long-held assumptions about how software is built, sold, and valued.

Software valuations are in the penalty box

According to Jamin Ball’s latest analysis, public software companies are currently trading at a significant discount compared to their pre-COVID long-term averages. Specifically, enterprise value to next twelve months (EV/NTM) revenue multiples have dropped to 5.3x today, down from 7.8x before COVID-19—a 32% decline. 

Growth is the new gold

In an environment where growth is increasingly scarce, the market is attaching a hefty premium to it. The ratio of EV/NTM Revenue to NTM Growth multiples now stands at 0.5x, a 67% increase over the historical long-term average of 0.3x, underscoring just how much investors are willing to pay for any whiff of growth. 

Amongst other things, the market may also be wrestling with the specter of AI-driven disruption. 

AI is eroding moats and disrupting the traditional SaaS GTM playbook

  • The cost of building software is collapsing, thanks to tools like Cursor, Lovable, and bolt.new, which democratize code generation. What once required armies of engineers and substantial venture capital can now be accomplished by a small team with the right prompts. As a result, the technical moats that once protected incumbent players are eroding.
  • The Go-to-Market (GTM) playbook of building great content, getting discovered via search, and converting visitors into customers has been upended. Not only has AI commoditized the creation of content, it has also led to massive declines in visitors being sent to webpages for conversion.

At the Bernard L. Schwartz Annual Lecture, Matthew Prince, Cloudflare’s CEO, mentioned that the ratio of content scraped to visitors sent has deteriorated dramatically. Six months ago, websites received one visitor for every six pages Google scraped. Today, that ratio has worsened to 15–18 pages scraped per visitor. 

For AI-driven searches, the numbers are even more striking, with OpenAI reportedly scraping nearly 1,500 pages for every visitor sent, and Anthropic’s ratio reaching as high as 6,000 to 1.

How will this impact distribution?

According to Jamin Ball, GTM costs are accelerating with median customer acquisition cost (CAC) paybacks for public SaaS companies now close to 5 years as at Q1 2025. Expect this to get worst for those who fail to adapt to these new market dynamics. The GTM playbook that once powered efficient growth is sputtering in the face of AI-driven disruption.

Growth as the litmus test

As the landscape continues to evolve, growth remains the ultimate litmus test for success in the age of AI-driven disruption. We’re entering an era where software will be cheaper to build but harder to sell. Valuations might be reflecting this new reality. However, if a company can maintain strong CAC paybacks and growth momentum even as AI disrupts creation and distribution, then the market might see AI as a tailwind rather than a headwind. These companies are being rewarded with premium valuations (i.e. Palantir Technologies, CrowdStrike, Rubrik, Snowflake, ServiceNow, etc). For everyone else, skepticism prevails.

Market statistics from Altimeter referenced in the article: https://cloudedjudgement.substack.com/p/clouded-judgement-71125-market-musings

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