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Orlando Bravo, co-founder of Thoma Bravo, highlighted on Tuesday that artificial intelligence is reshaping the software industry, and certain public software companies are seeing valuations fall for reasons that are “very warranted.”

Speaking at Thoma Bravo’s investor meeting in Miami, Bravo emphasized that the AI-driven disruption is accelerating challenges that many software companies were already set to face. “There are many, many software companies in the public markets that will be disrupted from AI,” he said. “Those companies were going to be disrupted anyway.”

Software Sector Faces Mixed Impacts

Software stocks have endured significant volatility as AI tools emerge that could replace traditional services at lower cost. The iShares Expanded Tech-Software Sector ETF (IGV), which tracks publicly traded software firms, is down roughly 28% from its all-time high in September. Bravo noted that while some companies are experiencing justified downward adjustments, others have been unfairly punished despite being well-positioned to benefit from AI advancements.

“Those companies have been severely punished when they shouldn’t have been,” he said, highlighting that certain businesses remain “phenomenal” and could emerge as major winners in what he called the “agentic era” of AI. Bravo did not specify which firms fall into either category.

Lessons From Past Investments

Bravo also reflected on past acquisition decisions. He acknowledged that Thoma Bravo overpaid for Medallia in its 2021 $6.4 billion purchase, citing overestimated growth projections. “We made a mistake, and that caused us to pay too much,” he admitted, demonstrating a rare moment of public self-critique from one of the software industry’s leading private equity investors.

The remarks come amid broader scrutiny of software valuations in private equity. Apollo Global Management President John Zito recently criticized what he described as “arrogance” in tech valuations, specifically referencing high-profile acquisitions like Medallia.

Thoma Bravo’s Position

Founded in 2008, Thoma Bravo manages over $183 billion in assets across 77 portfolio companies as of December. Bravo’s comments reflect the firm’s active monitoring of AI’s impact on its portfolio, as well as the broader software sector.

The message for investors is clear: AI will accelerate both opportunity and disruption. Some companies are rightly seeing their valuations recalibrated, while others that remain fundamentally strong may represent overlooked opportunities for long-term growth in a rapidly evolving market.

Bravo’s insights underscore a growing divide in the software industry, where adaptation to AI technologies could separate winners from those struggling to justify their market valuations.