Thoma Bravo’s Orlando Bravo Weighs In on AI’s Impact on Software Valuations
Orlando Bravo, co-founder of Thoma Bravo, a prominent private equity firm specializing in software investments, believes that artificial intelligence is poised to fundamentally reshape the software industry, leading to significant disruptions for many publicly traded companies. In a recent interview, Bravo asserted that some of the recent downturns in software valuations are “very warranted” as the market grapples with the transformative power of AI.
“There are numerous software companies in the public markets that will be disrupted by AI,” Bravo stated at Thoma Bravo’s investor meeting in Miami. “These companies were on a trajectory to face disruption regardless, and AI is simply accelerating that reality.” He declined to identify specific companies he believes are at risk or those whose valuations have been unduly punished.
Thoma Bravo, established in 2008, has built a formidable reputation by focusing exclusively on software. As of December, the firm managed over $183 billion in assets across a portfolio of 77 companies. This deep expertise in the sector positions Bravo’s insights as particularly valuable in understanding the current market dynamics.
The software sector has experienced considerable volatility as AI model developers release increasingly sophisticated tools capable of performing tasks previously handled by specialized software, often at a fraction of the cost. This has put pressure on the stock prices of established software providers. The iShares Expanded Tech-Software Sector ETF (IGV), a bellwether for the industry, has seen a decline of approximately 28% from its peak in September.
However, Bravo also highlighted that some software companies have been unfairly impacted by the broad market sell-off. He characterized these businesses as “phenomenal” and believes they are well-positioned to emerge as significant beneficiaries in the emerging “agentic era,” where AI agents will play a more prominent role in automating tasks and decision-making. “These companies have been severely punished when they shouldn’t have been,” he remarked.
Bravo’s comments come amid a broader debate about software valuations in the private markets. Recently, John Zito, President of Apollo Global Management, voiced concerns about what he described as “arrogance” in software valuations by private equity firms. The Wall Street Journal reported on Zito’s critique, which specifically referenced Thoma Bravo’s $6.4 billion acquisition of software firm Medallia in 2021.
Acknowledging this point, Bravo admitted that Thoma Bravo may have overestimated Medallia’s growth projections during the acquisition. “We made a mistake, and that caused us to pay too much,” Bravo conceded. This candid admission underscores the inherent risks and complexities of private equity investing, particularly in rapidly evolving technological landscapes.
The advent of generative AI and its integration into business operations presents a dual-edged sword for the software industry. While it poses a threat to incumbents whose core offerings might be commoditized or rendered obsolete, it also unlocks new avenues for innovation and efficiency. Companies that can successfully leverage AI to enhance their existing products, develop novel solutions, or improve their operational agility are likely to thrive. Conversely, those slow to adapt or reliant on legacy technologies face an increasingly challenging future. Thoma Bravo’s strategic focus on software and its willingness to acknowledge both missteps and opportunities position it as a key player to watch as the industry navigates this transformative period.
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