Private equity investors are becoming more selective about software investments in the wake of the shift to artificial intelligence (AI), according to panellists at the AVCJ Private Equity Forum Australia & New Zealand 2026.

As AI increasingly replaces software, investors need to be a lot more discerning and selective on what software businesses they invest in, said Vincent Wong, partner and co-head of healthcare, TPG Asia.

Investors should focus on vertical rather than horizontal software “for now”, said Wong, pointing to software formed on one sector, specialised, niche and very embedded software with proprietary datasets, and cybersecurity software.

Potentia Capital founder and managing director Andrew Gray echoed that horizontal software players will really be challenged, as seen in the recent “SaaS apocalypse”, adding that future competition is going to be very different. In contrast, there are a bunch of characteristics and “very deep, deep vertical slices of the industry where you can actually have a moat around and the ability to compete now”, he said, pointing to data, marketplaces and workflows as great places to start with.

“If you have a rich data set, both of information on your customers and potentially across customers…that’s an important aspect to have,” he elaborated. Marketplaces are also really valuable with the ability to add significant value with AI, and so is the idea of “deep understandings of workflows”. Potentia is now looking at taking that intellectual knowledge and transitioning from the previously “seat-based pricing” to “outcomes-based pricing”, he added.

The future of software is an important question for PE capital allocators too and one that Aware Super has been asking since ChatGPT became a real threat and paradigm shift, said Jenny Newmarch, head of private markets, Aware Super. Software has accounted for some 30% of PE deal flow for a long time, and “that’s a big chunk of most asset owners’ portfolios,” she noted.

With hold periods getting longer for existing software portfolio companies, investors will have to be very mindful when choosing their next software investments, Newmarch added. Investors will have less appetite for new investments and there is likely to be less investment in software than has been the case in the past five years, she said.

With software today essentially equalling AI, being aware of exposure to software across different asset classes is a key consideration in building portfolio resilience, according to Newmarch. AI is everywhere in software so one can end up with a portfolio that is not resilient when AI stumbles, she said.

Fears that AI will disrupt traditional software business models has seen publicly listed software company valuations drop 25%-28% this year, resulting in a market cap wipeout for the sector of some USD 830bn to USD 1.6tn since late January, according to media reports.

A lot has happened in just the past two months, noted Wong. For the first time ever, Microsoft and ExxonMobil are trading at similar PE multiples, of around 20x, as Microsoft’s goes down and Exxon’s goes up. The “real rotation out of technology and software”, particularly into old economies – like industrials, consumer staples, and materials – is having profound implications on how investors think about value creation, he said.

There is so much focus away from tech to old economy so for PE investors with old economy businesses such as consumer or healthcare, there will be a no better exit window than in the next six to 12 months, he said.