Software stocks have undergone a sharp valuation reset as fears that generative AI could disrupt the Software-as-a-Service (SaaS) business model drove heavy multiple compression across the sector.

According to Bank of America, the narrative that “GenAI will kill Software” has taken hold over the past six months, triggering around a 30% EV/EBITDA derating across global software names.

“The space is now trading at 13.1x EV/EBITDA vs 5y average of 21x. U.S. software compressed 35% in the past 6 months from 32.3x to 21x,” BofA analysts led by Frederic Boulan highlighted.

The scale of the rerating reflects a full repricing of long-term growth expectations, with expected top-line growth to 2027 broadly in line with the last five-year average of roughly 11%, the analysts noted.

But while the analysts acknowledge that “some segments of the tech ecosystem are bound to be profoundly impacted by Gen AI,” they said current valuation levels are becoming attractive for high-quality names with strong competitive positions and AI upside, pointing in particular to European tech giant SAP (ETR:SAPG).

BofA highlighted SAP as a clear example of how much downside is already reflected in valuations, with the stock now trading at about 20.7x 2027 earnings, down from 34x a year ago.

The bank ran a reverse discounted cash flow model to assess what the current share price implies. Keeping its 2026–2030 forecasts unchanged, analysts estimated the valuation effectively assumes “-3% revenue CAGR post 2030,” alongside a roughly 14% revenue reduction by 2035 and a 20% decline in EBIT.

“This would require both a pick up in churn from existing customers (which we view as unlikely) and a stop to the on-premise to cloud migration, which remains less than half way completed,” the analysts said.

The recent software sell-off has been driven by concerns that new AI tools will replace traditional software, intensify competition by lowering barriers to entry, and pressure seat-based pricing models as productivity gains reduce user counts.

However, BofA argued that software companies are not equally exposed to these risks. It said deep domain expertise and tight business integration make complex, mission-critical platforms like SAP less vulnerable, particularly in regulated and low-churn industries such as ERP, banking, construction and manufacturing.

“Highly regulated, complex, and low-churn industries (banking, construction, manufacturing, ERP) remain difficult to disrupt,” the analysts said.

They added that innovative software incumbents are “best positioned to build high-value AI agents” by leveraging proprietary datasets that general large language models cannot access.

As SaaS providers pivot toward AI-first offerings, the analysts see growing upside from monetization through new products and services, noting that SAP has embedded Business AI at the core of its strategy, with more than 50% of cloud bookings already consuming AI.