Software barometer
While most sectors have been negatively impacted by the escalating trade war, the reaction to software stocks provides an interesting barometer of investor sentiment given the sector is generally not subject to tariffs. Despite continued annual growth rates in the high teens, valuation multiples in the software segment have been challenged by rising yields over the last four years. Heading into the end of 2024, spurred by enthusiasm for AI, the enterprise value to sales valuation ratio of the Bessemer Emerging Cloud Software Index rose from 4.8 times in January 2024 to 6.3 times in December. Since then, driven by economic uncertainty and government budget cuts, valuations for the sector have retreated to 4.2 times.
Source: Bloomberg, April 2025