The AI Pause: How Private Equity Secondaries Are Rethinking Software

A palpable shift is underway in the private equity secondary market. According to a recent market survey by Lazard, investors who trade stakes in private equity funds are markedly cooling on the software sector. The driving force behind this recalibration is the profound uncertainty introduced by generative artificial intelligence.

From Conviction to Caution

The survey data paints a clear picture of this transition. As of June this year, a staggering 96% of respondent investors acknowledged that their approach to evaluating and investing in software companies has changed. Contrasting with the fervent enthusiasm for Software-as-a-Service (SaaS) models in recent years, many are now adopting a wait-and-see stance.

“Many investors are waiting for greater clarity on AI’s impact on business models and valuations,” the report notes. “In the interim, they are pivoting capital toward other opportunities perceived to have higher certainty.” This widespread caution is introducing new challenges for the liquidity of software assets on the secondary market.

The New Moats: Data and Networks in the AI Era

In the face of potential AI-driven industry disruption, investors are redefining what makes a software company valuable. The survey revealed a strong consensus among 91% of respondents on the primary defense against obsolescence. It’s not just cutting-edge technology or a large user base.

They identified two critical, AI-resistant moats:

  • Proprietary Data Advantage: Does the company possess unique, high-quality, and scalable datasets that can continuously train and refine AI models, creating a gap competitors cannot quickly bridge?
  • Durable Network Effects: Does the product or platform become more valuable as more users join, creating a sticky ecosystem? This structural advantage is inherently difficult for AI technology alone to dismantle.

Investors are now scrutinizing software businesses with a sharper lens, prioritizing those whose models are built on these foundational assets. Companies lacking such “hard” advantages are facing serious questions about their long-term viability.

The Ripple Effects of a Market Pivot

The private equity secondary market often acts as a bellwether for sophisticated investor sentiment. This current strategic pullback from software could signal broader capital reallocation.

Capital may increasingly flow toward AI infrastructure, semiconductors, or established software firms that can demonstrably leverage AI to strengthen their moats. Concurrently, it pressures software founders and executives to refine their strategic narratives—moving beyond touting AI features to clearly articulating how they will build sustainable competitive advantages in the new era.

The AI-driven reassessment of valuation frameworks is in its early stages. The cautious stance of secondary market investors serves as a stark warning for the broader technology investment landscape.