With artificial intelligence continuing to unsettle software valuations, investors are reassessing how much risk they are willing to take on new technology listings and pressing IPO candidates on the durability of their moats.

Roughly half of this year’s IPOs are trading below issue price, and renewed concerns over how AI may disrupt traditional software workflows have triggered sharp declines across software, payments, and logistics stocks in recent weeks.

That backdrop is shaping how investors approach new listings, particularly in SaaS.

“It’s been an interesting year so far,” one portfolio manager said. “Eyeballing it, a considerable part of IPOs so far this year are underwater. And there’s not a tremendous amount of rhyme or reason.”

IPOs are rarely treated as essential positions in volatile markets, the portfolio manager said.

“Certainly in times of volatility, it’s kind of last in, first out,” the portfolio manager said. “Those funds that are maybe a quarter pregnant in some of these IPOs, they get thrown over the edge of the boat. It’s like, you know what? Let’s just get our VAR (Value-at-Risk) down. Let’s get back to our core positions.”

Market speed has amplified this reaction, as price moves that once unfolded over weeks now play out in days.

“Everything just happens faster,” the portfolio manager said. “There’s much more velocity to move, both to the upside and the downside.”

For software issuers on the road, disrupted roadshows and sudden postponements have become realistic scenarios. When comparable stocks fall sharply mid-marketing, portfolio managers must decide whether to cut exposure elsewhere to fund an IPO or step back entirely.

Another portfolio manager described “a massive AI overhang” across software and argued that recent rebounds do not resolve the medium-term risk.

“A lot of these companies are not listing anytime soon,” the investor said, referring to the SaaS-oriented pipeline.

The central issue is whether software companies can maintain pricing power. “If you don’t fit neatly into the AI debate, no one has time for you,” Robert Natzler, investment manager on the private companies team at Baillie Gifford, said. “AI winners get ridiculous multiples, while AI losers get hammered. Companies not seen as AI-relevant just aren’t getting research bandwidth.”

He argued that the market is questioning whether software companies can continue monetizing user-interface layers at premium multiples. “There’s a real fear in the market that big software companies might survive but will go from being companies that monetize UI layers to purely being databases,” he said.

Advances in AI coding are reducing the time competitors need to replicate features and lowering switching costs. Competitive advantage periods are getting shorter. Going back to pre-mainstream AI, software companies historically took 12 to 36 months to build and launch a product. “That time and capital investment created a moat. Now that moat has diminished,” a third investor said.

Companies can scale revenue quickly, this investor said, but revenue growth alone no longer signals defensibility.

“We’re moving from a world where the technology itself was the moat to a world where the customer relationship and platform are the moat,” said this investor, who backs a number of software or software adjacent companies eyeing the public markets. “Trust becomes the durable advantage.”

These debates are already weighing on live transactions. Blackstone-backed Liftoff postponed its IPO after comparable software stocks fell sharply during marketing. Clear Street withdrew its filing amid similar volatility.

Founder and CEO of IPOX Josef Schuster said the recent pullbacks reflect how exposed software is to the current AI debate.

“Deals are getting pulled because of the AI fear,” Schuster said. “The window isn’t closing, but it’ll be more selective.”

He expects issuance to continue this year, though technology and crypto-related offerings may struggle more than consumer, healthcare, or industrial names.

Companies are said to have gone back to the drawing board in many cases, reinforcing any AI element that strengthens their equity story and identifying vulnerabilities. In some cases, they are also reassessing whether an IPO remains the best path forward.

“There are a lot of software companies that have been in the pipeline for the last couple of years,” the first portfolio manager said. “I think you could probably break it out. A third will probably come to market; a third will consider M&A. And a third will probably go away for a while.”

Natalie Hwang, founder of Apeira Capital, described the IPO window as “increasingly bifurcated.” The defensibility question is pushing capital toward ‘hard’ tech. In areas tied directly to AI infrastructure or other clear growth themes, investors may underwrite long-duration positioning ahead of full margin normalization, she said. Outside those areas, companies must demonstrate sustained revenue growth, improving margins, and a clearly defensible moat.

In this sense, hard tech has become attractive again due to reshoring and infrastructure buildout, one of the late-stage investors said.

Capital intensity becomes the moat, he added, with the ability to raise and deploy large amounts of capital creating durability.

“We have massive shortages in compute power and electrification. Solving those problems requires hundreds of billions in equity and debt capital,” this investor said, pointing to semiconductors, data centers, and electrification infrastructure.

For the time being, commitments are delayed until software stocks stabilize. “Until there’s a leveling off on the selling, it’s going to be a while before people are ready to start buying, much less buying IPOs in software,” a senior equity capital markets executive said.

Companies earlier in the preparation process are continuing to file and respond to regulatory comments, the executive added. Those ready to launch are pausing to reassess timing.

As for the next few months, the pipeline is not empty. Cerebras Systems is preparing to refile its S-1 in 2Q26, with a potential IPO launch as soon as April.

Strava, a San Francisco-based fitness technology company, has selected Nasdaq for its upcoming IPO and is also targeting a launch around April.

Market participants are evaluating conditions almost day by day. They maintain that this period represents heightened discernment during a technological transition, but not as far as to imply a structural rejection of software as a category.

“This is like another industrial revolution,” the first portfolio manager said. “To think that it’s going to happen without any sort of volatility and disruption is a bit myopic.”

In the long run, short-term price action offers limited insight into eventual outcomes.

“The most important thing in an IPO is keeping employees focused, reiterating the story to customers and suppliers, and bringing high-quality long-term shareholders onto the cap table,” Baillie Gifford’s Natzler said. “There’s no correlation between first 12-month trading and five-year performance.”