Claire Smith
Investors shouldn’t overlook fundamentals as increased volatility and recent sell offs across the SaaS sector leads to broader questions of whether it is facing a sentiment-driven correction tied to AI headlines, Claire Smith, head of investment directors, public and private markets at Schroders Australia says.
She says that while AI is impacting some companies, it is not happening across the board and it requires a more considered approach from investors.
“AI is changing the rules and businesses will come under pressure, but others will strengthen their position by embedding AI into their products,” Smith says.
“Treating the entire sector as one ignores the reality that outcomes will be very different from company to company.”
Agentic AI and the rapid democratisation of software creation are expected to challenge parts of the SaaS model, particularly businesses reliant on per-seat pricing or those without strong proprietary data or deep integration into customer systems. However, the key issue is whether AI’s software disruption will play out across different companies.
Michael McLean, head of private equity technology investments at Schroders says a blanket sell-off across the SaaS sector is not justified.
“While agentic AI technologies will potentially reduce the number of seats for certain specific SaaS applications, a blanket sell off across the industry as a whole isn’t really warranted. It’s company specific.”
Schroders says assessing AI risk requires a clearer framework, distinguishing between the potential for AI to reduce user numbers and the risk that it replaces core product features. It also highlighted that private markets may be better placed to respond to these shifts.
McLean says a clear focus is on how quickly companies can adapt, whether through product changes, pricing adjustments or strengthening their competitive position.
“AI is changing so quickly, and we’re able to have almost a real time pulse on how it’s impacting the portfolio and strategy,” McLean says.
“There’s a clear benefit of early visibility into emerging technologies. Our long-standing involvement in venture investing provides insight into how quickly AI innovations are moving from development to real-world adoption, helping inform investment decisions.”
Schroders says while technology represents a portion of the portfolio, software doesn’t dominate its private equity exposure. A smaller share is in software and SaaS businesses, which helps reduce exposure to volatility in that segment and reinforces the need for active management.
McLean says the broader message for investors is that AI is not a simple negative for software, but a force that is altering the sector in more complex ways.
“Investors shouldn’t be writing off software altogether. But it is important to better understand where the risks sit, where the opportunities are, and taking a more selective approach in a rapidly changing environment.”