European software stocks have plummeted 40% since their July peak as investors reassess valuations amid growing AI-related concerns. According to UBS analysts, the 'extreme downward move in share prices seen in recent weeks' has left investors focused on what is now priced in as fears weigh on the sector.

Valuations have fallen sharply from those highs. Across the UBS coverage universe, the group is now trading at an average 12-month forward adjusted price-to-earnings (P/E) of 18x, compared with a ten-year average of 32x. The analysts note, however, that there is less emphasis on historical averages given 'the seismic shifts in the marketplace AI may bring.'

Investor feedback suggests a longer-term lens is increasingly important. UBS said looking out three years or more, and considering both IFRS and non-IFRS earnings, helps provide a fuller view, including factors such as stock-based compensation. On that basis, Dassault is trading on 11x CY28E non-IFRS earnings, while Sage is on 13x. Both are at 14x on an IFRS basis.