SaaS trading in 2026: a market split in two

2026 has been the most unusual year for SaaS valuations since the 2022 correction. In public markets, software was re-rated sharply as investors started to price in the risk that AI will replace parts of the work software is sold to support. In private markets, buyers kept buying. For founders, the gap between the two is the most important thing to understand about this year.

The public sell-off

The software index (IGV) peaked in late September 2025 and had already fallen roughly 30% by early 2026. On 4 February 2026, an AI product launch triggered a one-day sell-off that erased around $300 billion of market value across software and data companies; Salesforce, ServiceNow, Adobe and Workday each fell about 7%, Intuit about 11% (Forbes).

By March, software was trading at a forward P/E of 22.7x, below the S&P 500 for the first time in the modern era (SaaStr). The median EV/revenue multiple of the SEG SaaS Index fell to 3.2x in Q2 2026, from 5.7x a year earlier (Software Equity Group). Since then multiples have partly recovered: Aventis Advisors puts the public SaaS median at 4.6x revenue at the end of August 2026, against a 2025 peak of 7.7x.

Why it happened

• Seat compression: if AI agents do work that used to need several users, customers buy fewer seats, and seat-based pricing stops growing with the customer.
• Budget diversion: incremental IT budgets are flowing to AI platforms rather than to traditional productivity software.
• A shift in what “sticky” means: recurring revenue is only as durable as the workflow behind it, and investors now test that rather than assume it.

The market is not treating all software the same. It is separating software that becomes infrastructure for AI, or owns data and workflows AI depends on, from software that AI can compete with directly.

Private markets kept buying

Software Equity Group recorded 698 SaaS M&A transactions in Q2 2026, up 9.6% on Q2 2025, and 2,784 over the trailing twelve months, the most active period it has tracked. The median EV/TTM revenue multiple in those deals eased only slightly, from 4.2x to 4.0x. Private valuations had already reset in 2023–2024, so they had much less to give back than public ones.

Across software more broadly, Silverpeak’s H1 2026 report shows private equity and PE-backed buyers behind about 59% of deals by count, while strategic buyers took 11 of the 13 deals above $1 billion in Q2. Deal value is concentrated in a handful of AI-driven mega-deals; the mid-market is where most transactions, and most founders, actually are.

What buyers are paying for

• Durable growth, with retention that holds up cohort by cohort.
• Proprietary data, embedded workflows and integrations into systems of record, things an AI-built copy cannot easily replicate.
• A credible AI strategy: AI that strengthens the product, with documented model dependencies and costs.
• Profitability next to growth. Buyers now reward the Rule of 40 rather than growth at any cost.

In SEG’s words, scarce assets with differentiated data, security, AI capabilities or mission-critical workflows “continue to command premium valuations.” The dispersion between the best and the average asset has widened.

What it means for founders

• Your price will be set by private comparables and strategic fit, not by the public screen. A weak public index is not, on its own, a reason to wait.
• Prepare the AI question before a buyer asks it: why your product gets stronger with AI, not weaker.
• With wider dispersion, process matters more. Competitive tension between strategic and financial buyers is what moves a company to the top of its range.
• Clean metrics are now a valuation lever, not a formality. ARR, cohorts and margins have to reconcile to the books.