Market Performance

August marked a modest rebound for B2B software stocks. Our index of ~250+ public companies gained just under 2%, trailing the broader indices:

• B2B Software Index: +~2%
• S&P 500: +6%
• Nasdaq: +8%

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Year-to-date, B2B software is up around 4%, lagging behind wider benchmarks. Performance remains highly polarized:

• Mega-caps (Oracle, Meta) have delivered >20% YTD gains.
• Industrial software continues to show resilience.
• Supply chain and procurement software remain under pressure due to tariffs and trade uncertainty.
• Workflow & productivity software is being challenged by GenAI disruption.

Macro drivers: Inflation edged higher to 2.7% in July (vs. 2.3% in April). Both the Fed and ECB kept rates stable over summer, but the Fed signaled a dovish turn. Tariffs have normalized at 10% baseline globally (and 30% vs. China).

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Market Valuations

Valuations corrected slightly after July’s peak:

• EV/Sales: 6.0x (vs. 10y avg ~6.4x; peaked at 6.5x in July)
• EV/EBITDA: ~23x (vs. 10y avg ~27x)
• High-growth (>20% rev growth): 11.0x EV/Sales
• Rule of 40 companies: 10.6x EV/Sales
• NA vs EU premium: ~76% (6.7x vs. 3.8x)

The widening transatlantic gap reflects divergent growth expectations: North American software is expected to grow 11% NTM, vs. just 3% for European peers.

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Deal Flow

Transaction activity revived in Q3, led by mega-deals:

Notable transactions included:

• Palo Alto’s $25B acquisition of CyberArk at 17x EV/Sales, positioning itself as a full-stack cybersecurity platform.
• Thoma Bravo’s $10B+ acquisition of Dayforce (ex-Ceridian) at 6x EV/Sales, a landmark HCM deal emphasizing AI-driven capabilities.
• Acumatica acquired for ~$2B, expanding ERP mid-market coverage.
• Cinven’s acquisition of Smart Communications, and active dealmaking from Carlyle, BainCap, and KKR in vertical software and healthcare IT.
• Venture funding: AI mega-raises (OpenAI, xAI) continued to dwarf European activity; growth funding is accelerating while early-stage remains muted.

Key trend: Strategic buyers are platformizing, consolidating verticals, and pursuing AI-native plays.

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What to Watch

IPO momentum and public market sentiment

• Figma IPO (July): surged +250% on debut before partial pullback; trading at premium multiples.
• NielsenIQ IPO: more moderate profile in data & analytics, with steadier valuations.

IPO windows remain selective, growth efficiency and AI integration are key differentiators.

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Macro stability, valuation gaps persist

• Inflation creeping higher (2.7%).
• Fed signaled a dovish shift in August, potentially supporting investor sentiment.
• Persistent valuation gaps: U.S. high-growth SaaS names command heavy premiums vs. European peers.

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Segment trends and earnings insights

Strong Q2 earnings season: 52/53 companies grew revenues, 45 beat consensus. Yet market reactions diverged:

Winners:

• ServiceNow (+AI-driven deal wins, 18/20 top deals used Now Assist)
• MongoDB (+5k new customers YTD)
• Palantir ($1B quarterly revenue, +92% U.S. commercial growth YoY)
• Snowflake (AI fueling 50% of new logos)
• Palo Alto & CrowdStrike (cybersecurity momentum)

Laggards:

• SAP (cloud backlog growth slowdown, 21% vs. 30% expected)
• Workday (growth deceleration to 13%)
• Fortinet (firewall refresh cycle timing)
• Monday.com & Atlassian (weak guidance, slowing customer adds)

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Investment watchlist

Top names this month:

• ServiceNow: Upsell momentum in AI modules, attractive risk/reward.
• Datadog: Expanding AI customer base, resilient 25%+ growth profile.
• Snowflake: Accelerating adoption, turning sentiment, despite high multiples.
• HubSpot: AI seen as an opportunity; recent derating offers entry point.
• Veeva: Steady performer with continued upside.

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