Orlando Bravo, co-founder of Thoma Bravo, said Wednesday that software stocks are “oversold” and the sector is depressed by a lack of profits.
“Most of the 300 publicly traded software companies aren’t making enough money,” he told CNBC’s “Money Movers.” “They’re trading as a multiple of earnings, and that’s very risky.”
Thoma Bravo is a software-focused investment firm founded in 2008 with more than $181 billion in assets under management as of September.
Bravo said the value of domain experience is increasing as artificial intelligence poses a technology-based threat to software companies.
“There are some very valuable gems on the public market right now that have 30 years of expertise built into their products,” Bravo said. “And those companies are really, really cheap right now. We’re actively looking at a number of companies.”
Bravo declined to name specific companies, but said the subject matter experts in Thoma Bravo’s portfolio are reaping the greatest benefits from AI and achieving the greatest return on investment.
The company’s recent acquisitions include talent platform Dayforce for $12.3 billion and aviation software Jeppesen ForeFlight for $10.55 billion.
Bravo said that while code written by AI is innovating faster than some expected, it cannot completely replace the capabilities of research and development teams.
“About 80 percent of what these people do has nothing to do with writing code,” Bravo said.
“We’d like to go from 15% to 2% on R&D, but that’s not happening because it takes a lot more to deliver these solutions to enterprises,” he added.
