Industrial software valuations have retracted meaningfully, with enterprise value-to-sales metrics now at levels last seen during the COVID-19 period and relative valuations versus the S&P 500 at historical lows. Barclays analysts argue this backdrop creates opportunity rather than signaling permanent impairment from artificial intelligence.
At the center of Barclays' view is a reframing of the AI debate: instead of treating AI as a disruptor that destroys the economics of SaaS, the bank describes AI as an incremental tool that augments software offerings. Their reasoning emphasizes that corporate buyers pay for a bundle that includes service, domain-specific expertise and accountability - elements that are not replaced simply by code generated by AI.
Barclays highlights a couple of data points to frame the magnitude of potential disruption. First, industrial software free cash flow yields sit near 5%, which the bank contrasts favorably with a roughly 3.5% free cash flow yield for industrial technology hardware companies. Second, Barclays estimates that the direct profit-and-loss impact of AI-driven code generation is limited; under the bank's midpoint assumptions, AI's direct effect on revenues is roughly 6%.
Manhattan Associates is singled out as an example of where the market may be overreacting. Barclays and the company itself reject the notion of a "Death of SaaS" predicated on the idea that enterprise value is merely coding. While AI can produce code at low marginal cost, Manhattan Associates and Barclays point to the continuing need for architects who translate solutions into customer-specific blueprints, teams that support operations during outages, firms that assume liability for data incidents, and personnel who track and respond to regulatory shifts.
Despite those structural roles, Manhattan Associates' share price has fallen more than 40% from its 2025 peak. Valuation multiples have compressed to the lowest enterprise value-to-sales levels since 2023, and the stock is trading below the negative one standard deviation bound for both enterprise value-to-EBITDA and free cash flow yield.
Fundamentals, however, have held up: Manhattan Associates reported fourth-quarter 2025 revenue and earnings per share that exceeded analyst estimates. The company also increased its share repurchase authorization to $500 million. William Blair has maintained an Outperform rating on the stock following these developments.
Trimble is the other industrial software name Barclays highlights. The bank views Trimble as a company in active transition - moving from a historically hardware-centric positioning technology company toward a software solutions provider. Barclays considers Trimble well positioned to take advantage of agentic AI capabilities within industrial workflows.
On valuation, Barclays notes Trimble trades at approximately a 30% discount to peers in the building information modeling space, a gap the bank expects to narrow as Trimble continues to meet or exceed its financial targets. Like Manhattan Associates, Trimble has seen significant multiple contraction: enterprise value-to-sales has fallen toward the company's 10-year average of about 4.5 times, and both enterprise value-to-EBITDA and free cash flow yield sit at or below the negative one standard deviation bound.
Trimble also reported fourth-quarter 2025 results with earnings and revenue above analyst expectations. Following those results, Bernstein reiterated an Outperform rating on the shares. Oppenheimer left its Outperform rating in place but lowered its price target.
Implications for investors and markets
Barclays' analysis suggests that current valuation dislocations may present selective buying opportunities in industrial software, particularly where companies retain domain expertise, services capability and execution. For investors focused on pricing power, input-cost pass-through and distribution strength, the bank's view prioritizes businesses that can monetize AI as an enhancer of service and expertise rather than a cost-only disruptor.
Limitations of the analysis
Barclays' conclusions rest on assumptions about the limited direct P&L impact of AI and the continued value of human-led services and accountability. If those assumptions prove incorrect, the outlook for SaaS economics could change.