Software and Private Equity Shares Extend Selloff as AI Hype Meets Valuation Reality

A fresh wave of selling hit US software and private capital stocks this week, extending a broader retreat from technology and alternative investment sectors that had surged through much of 2025 on artificial intelligence optimism.

The selloff comes as finance chiefs at enterprise software companies face mounting pressure to justify premium valuations amid questions about AI's near-term revenue impact. For CFOs overseeing private equity portfolios, the decline adds urgency to an already challenging exit environment, with firms sitting on a record backlog of unsold assets.

The timing is particularly awkward. Just as software companies spent the past year promising that AI features would drive pricing power and margin expansion, investors are now demanding proof. The problem—as any CFO running a SaaS P&L knows—is that "AI-enhanced" often means "we added a chatbot," not "we fundamentally repriced our contracts."

Franklin Templeton's CEO recently warned that AI threatens traditional enterprise software companies, a sentiment that's starting to show up in trading patterns. The concern isn't that AI will replace software—it's that AI might compress the margins that made software such an attractive business in the first place. When your product's main feature can be replicated by a large language model, your pricing power gets interesting fast.

For private equity, the selloff compounds an already uncomfortable situation. Private equity firms are struggling to exit investments, creating what sources describe as a record logjam of unsold assets. That's a polite way of saying: the stuff they bought at 2021 prices doesn't look so attractive at 2026 valuations, and the IPO market isn't exactly throwing open its doors.

Here's the thing CFOs need to understand: this isn't just a tech stock correction. It's a repricing of the "AI premium" that got baked into anything with a machine learning model and a SaaS revenue stream. Software multiples expanded on the promise that AI would make these businesses more valuable. Now the market is asking the uncomfortable question: what if AI makes software less scarce, not more?

The private capital angle is messier. These firms have been telling their LPs that exits are just around the corner, that the IPO window will reopen, that strategic buyers are circling. But when your portfolio companies are software businesses getting hit by the same valuation reset, and your own shares are selling off, the math gets harder to explain in quarterly letters.

What makes this particularly relevant for finance leaders is the timing. We're heading into Q1 earnings season, which means CFOs at software companies will need to address this directly. Investors will want to know: Is your AI revenue real? Are customers actually paying more for AI features? Or did you just rebrand your existing product and hope nobody noticed?

The broader pattern here is worth watching. Software and private equity were two of the big beneficiaries of the "everything bubble" that followed the pandemic. Both sectors convinced investors they had special insight into the AI revolution. Now that thesis is being tested, and the market is finding it wanting—or at least, not worth the premium it was paying six months ago.

For CFOs, the question isn't whether to panic. It's whether your company's AI story can survive contact with actual revenue numbers. Because the market just decided it's done taking that on faith.