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The pressure on software stocks is far from over, according to David Sambur, who believes the sector is still in the early stages of a major transformation driven by artificial intelligence. Speaking amid a fragile market recovery, Sambur cautioned that investors may be underestimating the scale and speed of disruption reshaping the software industry.

Sambur, co-head of private equity at Apollo Global Management, pointed out that while software stocks have shown signs of stabilization in recent weeks, the underlying concerns have not been resolved. The iShares Expanded Tech-Software Sector ETF, a key benchmark for software companies, has rebounded roughly 3% in March after a difficult start to the year. However, it remains down around 20% year-to-date, highlighting the depth of investor concerns.

At the core of the issue is a growing reassessment of how software companies generate revenue and sustain profitability in an AI-driven landscape. Sambur emphasized that investors are increasingly questioning traditional business models, particularly around recurring revenue, pricing power, and gross margins. As artificial intelligence lowers barriers to entry, competition is intensifying at a pace rarely seen before.

The rise of advanced AI platforms from companies like OpenAI and Anthropic is accelerating this shift. These technologies are enabling new entrants to build competitive products faster and at lower cost, challenging established players across multiple software categories. According to Sambur, this dynamic is fundamentally changing the economics of the industry.

He described the current wave of disruption as unprecedented in his career, noting that the speed at which AI is reshaping the competitive landscape is unlike anything seen before. This rapid evolution is also making it difficult for companies and investors to forecast the future. With the technology advancing continuously, even short-term projections over the next one to five years are becoming increasingly uncertain.

This uncertainty is now being reflected in market valuations. Investors are recalibrating expectations and applying greater discounts to software stocks to account for what Sambur described as “very large unknowns.” As a result, even companies with strong fundamentals are facing pressure as the market builds in a wider margin of safety.

The cautious sentiment is also evident in corporate guidance. Many software firms have adopted conservative outlooks for the year, avoiding aggressive forecasts as they navigate an unpredictable environment. This shift in tone signals that executives themselves are still grappling with how AI will impact their long-term growth trajectories.

At the same time, companies are exploring capital allocation strategies to support their stock prices. A growing number of firms, including Intuit, HubSpot, and Salesforce, have announced share buyback programs in recent months. These moves are typically seen as a sign of confidence, indicating that management believes their stock is undervalued.

However, the effectiveness of buybacks in the current environment is being debated. Analysts argue that repurchase programs are being overshadowed by broader concerns about AI disruption. Some investors view buybacks as a defensive measure rather than a growth signal, especially if companies are prioritizing returning capital to shareholders over investing in innovation.

This debate has sparked broader questions across Wall Street. Are buybacks a strategic use of excess cash, or do they reflect a lack of compelling growth opportunities? There is also concern that large repurchase programs could limit future mergers and acquisitions, reducing the industry’s ability to innovate through consolidation.

Ultimately, the software sector is entering a period of recalibration. While AI presents enormous long-term opportunities, it is simultaneously disrupting existing business models and forcing companies to rethink their strategies. For investors, the challenge lies in navigating this transition while managing risk in a market defined by rapid change and limited visibility.

Sambur’s outlook underscores a key reality: the impact of artificial intelligence on software is not a short-term trend, but a structural shift. Until there is greater clarity on how the industry will evolve, volatility is likely to remain a defining feature of software stocks.