Private equity investment in software companies has significantly declined in 2026, reaching its lowest point since the COVID-19 pandemic. This slump is primarily driven by concerns about AI reshaping long-term earnings and business models within the software sector. The value of software-focused buyouts hit approximately $50 billion in the first five months of 2026, a substantial drop from around $88 billion during the same period in 2025.
The rapid emergence of advanced generative AI platforms and "agentic" tools has raised questions about future demand, pricing power, and user-based licensing structures for traditional enterprise software. This uncertainty regarding post-AI valuations has made it difficult for investors to secure internal approval for new transactions, with deal teams struggling to underwrite the durability of earnings in affected companies. Advisers report continued caution among private equity sponsors and lenders, despite some stabilization in public software markets.
Private equity firms are now being forced to rethink their due diligence and value-creation playbooks. Revenue growth in software, which once ran at approximately 20% annually, has now halved, and net revenue retention has dropped by about 8 points since 2021. The disruption caused by AI is moving faster than previous technological shifts like the dot-com bubble or cloud adoption. Firms like Bain Capital are adapting by reorienting due diligence to better assess AI risks and opportunities, refocusing value creation strategies on integrating AI into offerings, and establishing metrics to demonstrate progress for future owners.
