European-listed software companies have suffered a substantial re-rating since last summer, with share prices down by more than 40% from their July highs as market participants weigh potential risks and opportunities tied to artificial intelligence.
UBS analysts led by Michael Briest described an "extreme downward move in share prices seen in recent weeks," noting that the pullback has concentrated investor attention on what assumptions about AI are already priced into stock quotes.
Valuation reset across the coverage universe
According to the UBS team, valuation multiples have contracted sharply. Across the firms they cover, the average 12-month forward adjusted price-to-earnings (P/E) multiple now stands at 18x, versus a ten-year average of 32x. The analysts caution, however, that historical averages may have reduced relevance given "the seismic shifts in the marketplace AI may bring."
UBS advises looking beyond the next 12 months. Investor feedback cited by the bank suggests a multi-year horizon - three years or more - and parallel consideration of IFRS and non-IFRS earnings offers a fuller picture of prospective returns, particularly after accounting for items such as stock-based compensation.
On that longer-term basis, UBS reports Dassault trading at 11x on calendar-year 2028 estimated non-IFRS earnings, while Sage is on 13x. Both companies are at 14x on an IFRS basis. Nemetschek, meanwhile, carries the highest adjusted and IFRS multiples in the UBS group for calendar-year 2026 estimates but registers the lowest PEG ratio in coverage at 1.15x. It is also the only company in the UBS universe with a projected 2026 free cash flow yield below 5%, at 4.6%.
Recurring revenue metrics remain a focus
UBS highlights recurring revenue multiples as another key valuation gauge. The analysts point out that during the financial crisis a 5x recurring-sales multiple was often treated as a potential "distressed" threshold, and they say investors still pay attention when companies cross that level. They add that "back then, maintenance rather than SaaS made up all or most of that revenue. Maintenance typically has higher gross renewal rates and gross margins but we still think investors are interested when companies cross this marker."
Within UBS coverage, Dassault is trading at 4.6x trailing twelve-month recurring sales and Sage at 3.3x on the same measure.
AI-driven idea generation and stock selection
The article also references an AI-driven stock idea tool, ProPicks AI, which evaluates companies including Sage (ticker SGE) across more than 100 financial metrics. The promotional material notes that the AI identifies opportunities by assessing fundamentals, momentum and valuation without bias, and cites past winners including Super Micro Computer (+185%) and AppLovin (+157%) as examples of notable performance highlighted by the system.