Bank of America believes a buying opportunity is emerging in European software stocks. Concerns over how generative AI will impact the Software-as-a-Service (SaaS) business model have led to a sharp valuation reset, with the sector trading at 13.1x EV/EBITDA, significantly below its 5-year average of 21x. This correction reflects a repricing of long-term growth expectations.

BofA analysts, led by Frederic Boulan, point to SAP as a prime example, where the stock trades at 20.7x 2027 earnings, down from 34x a year ago. They argue current valuations don't reflect the resilience of established players. The bank's analysis suggests the market is overly pessimistic about future revenue growth, projecting a decline post-2030.

While acknowledging potential disruption, BofA believes that some software companies are less exposed to the risks. Complex platforms with deep domain expertise, particularly in regulated industries like ERP and banking, are well-positioned. These incumbents can leverage proprietary data to build high-value AI agents.

As SaaS providers integrate AI, BofA sees upside potential through new services. SAP, for example, has embedded Business AI into its core strategy. Investors should watch how these companies monetize the AI trend. The market is currently undervaluing many of these firms, creating a potential opening for savvy investors.