Tech investor Orlando Bravo says most software companies don't have enough profit

Orlando Bravo, co-founder of the investment firm Thoma Bravo, expressed concerns about the profitability of software companies during an interview on CNBC’s "Money Movers". He noted that many of the 300 publicly traded software firms are suffering due to insufficient profits, labeling the current market conditions as 'oversold'. "These companies are predominantly valued based on their revenue rather than actual profits, which poses significant risks," Bravo stated. Thoma Bravo, established in 2008 and managing assets exceeding $181 billion as of September, focuses heavily on software investments. In his remarks, Bravo highlighted the growing threat posed by artificial intelligence to traditional software companies, emphasizing the increasing importance of domain expertise. "There are valuable companies in the public market today that possess decades of specialized knowledge integrated into their products, and they are currently undervalued," he remarked. While Bravo refrained from naming specific companies, he indicated that those in Thoma Bravo’s portfolio that leverage domain expertise are reaping substantial benefits from AI advancements. Recent high-profile acquisitions by Thoma Bravo include the talent platform Dayforce for $12.3 billion and aviation software Jeppesen ForeFlight for $10.55 billion. Bravo also commented on the rapid innovation spurred by AI, noting that while AI can enhance certain processes, it cannot entirely replace the intricate functions performed by research and development teams. "Approximately 80% of their roles extend beyond mere coding," he explained. "Our goal is to reduce that 15% of R&D spending to just 2%, but the reality is that many essential elements are necessary for delivering robust solutions to enterprises."