Orlando Bravo says some software names hit by AI deserve a valuation cut

Orlando Bravo, co-founder of Thoma Bravo, recently discussed the transformative impact of artificial intelligence on the software industry during an investor meeting in Miami. He asserted that the rapid advancements in AI will lead to significant disruptions for many software companies, and he believes that the resulting declines in valuations are often justified. In his conversation with CNBC's Leslie Picker, Bravo stated, "There are many, many software companies in the public markets that will be disrupted from AI. Those companies were going to be disrupted anyway." While he refrained from naming specific companies facing potential threats, his remarks underscore the shifting landscape of the tech sector. Thoma Bravo, which focuses on software investments and boasts over $183 billion in assets under management across 77 companies as of December, has seen the software market take a hit. The iShares Expanded Tech-Software Sector ETF (IGV) has dropped nearly 28% from its peak in September, as AI tools emerge, promising to deliver services at reduced costs. However, Bravo emphasized that some software firms have experienced what he termed "unjustified" declines in their valuations. He believes these businesses are poised for success in this new era of AI-driven technology. "Those companies have been severely punished when they shouldn't have been," he remarked, highlighting the potential for growth among resilient software players. Adding to the discussion, John Zito, President of Apollo Global Management, criticized the inflated valuations in the software sector, particularly referencing Bravo's controversial $6.4 billion acquisition of Medallia in 2021. Acknowledging a miscalculation in growth rates, Bravo admitted, "We made a mistake, and that caused us to pay too much." This candid reflection illustrates the complexities and challenges private equity firms face in the rapidly evolving tech landscape.