💻 Tech’s Sudden Freeze: Software Selloff Derails IPO Dreams and Billion-Dollar Deals

The once-unstoppable software industry—long the crown jewel of global dealmaking—is hitting an unexpected wall.

A sharp and sustained selloff in software stocks is now rippling far beyond trading floors, stalling mergers, acquisitions, and high-profile IPO plans as investors struggle to answer a deceptively simple question: What are these companies actually worth right now?

After years of sky-high valuations and relentless deal activity, volatility has made pricing so uncertain that buyers are backing away and sellers are refusing to budge, according to more than a dozen financial advisers and dealmakers.

The downturn intensified last week, when the S&P 500 software and services index recorded its worst three-month performance since May 2002, according to Evercore ISI strategists.

Even after a modest rebound, the sector remains about 25% below its late-October peak, dramatically underperforming a broader S&P 500 that has managed to inch 1% higher over the same period.

That divergence has rattled confidence in a sector that had previously defined the market’s growth story.

Investment bankers say the sudden repricing has paralyzed negotiations.

With share prices swinging sharply, traditional valuation benchmarks—like revenue multiples—are moving too fast to anchor deals. Buyers fear paying yesterday’s premium for assets that may be cheaper tomorrow, while sellers balk at locking in what they see as bottom-of-the-cycle prices.

“Some people can’t afford to sell on the way down,” said Vincenzo La Ruffa, managing partner at Aquiline Capital Partners.

The result is a widening standoff that is already reshaping transactions across the industry.

The impact of the market reset is becoming visible in headline-grabbing deals:

Mike Boyd, global head of M&A at CIBC, said volatile markets make agreeing on price dramatically harder, stretching negotiations and increasing the risk that transactions collapse.

Aquiline’s La Ruffa predicts a wave of aborted deals ahead: “We will see more assets not trade than reprice.”

Beneath the market turbulence lies a deeper concern: the rise of artificial intelligence and its potential to rewrite software business models.

Investors, unsure which companies will thrive and which may be disrupted, have responded by selling broadly rather than differentiating among firms.

“Everything’s down and there really hasn't been a very thoughtful, detail-oriented approach to sorting through who winners and losers are,” said Wally Cheng, Morgan Stanley’s head of global technology M&A.

This fear-driven trading has created a mismatch between company fundamentals and what buyers are willing to pay.

Some publicly traded software companies are now valued at roughly one times forward revenue or less, far below the sector’s traditional multiples of several times revenue.

“This is not sustainable,” said Ron Eliasek, chairman of global TMT investment banking at Jefferies. “We will either see more take-privates or an improvement in these companies’ valuations over time.”

The slump has spread globally, dragging down shares of European players like RELX and Wolters Kluwer by around 20%.

The volatility is proving especially toxic for companies planning to go public.

Morgan Stanley has also warned that stress in software valuations could spill into private credit markets, where software firms represent about 16% of the $1.5 trillion U.S. loan market.

Not everyone believes the selloff reflects deteriorating fundamentals.

Blackstone President Jon Gray said the firm has conducted internal reviews to gauge where AI could create risk, signaling caution but not retreat. Vista Equity Partners founder Robert Smith argued that AI will “enhance software, not replace it,” attributing market swings largely to sentiment rather than performance.

Goldman Sachs CEO David Solomon echoed that view, warning investors may be overreacting. “There will be winners and losers, and plenty of companies that will deal with it just fine,” he said.

Ironically, the very uncertainty freezing public markets may be attracting private capital.

Jefferies’ Eliasek said private-equity firms have been calling with a clear message: they are hunting for bargains.

“Bring us your best ideas,” he said.

For more than a decade, software powered one of the most reliable engines of global dealmaking. Now that engine is sputtering, caught between technological disruption fears and a brutal market repricing.

Whether the current freeze proves to be a short-lived correction—or the start of a deeper structural shift—will depend on one factor investors are still struggling to assess:

Is AI about to supercharge the software industry… or fundamentally change it?