Software Following PayPal's Footsteps

The market is not pricing this as a one-quarter miss; it is repricing the entire enterprise software AI premium. When a category leader with durable recurring revenue gets sold this hard despite decent operating performance, the message to the group is that investors no longer want to pay up for “AI optionality” without visible monetization, and that multiple compression can continue across adjacent software names for several weeks. That creates a negative feedback loop: lower valuations tighten hiring and M&A currency, which in turn slows consolidation and keeps go-to-market costs elevated.

The bigger second-order effect is on the AI infrastructure stack. If software applications cannot yet show a clear monetization bridge, enterprise buyers may extend proof-of-concept cycles, which pressures vendors selling AI workflow, observability, and automation layers. Near term, that is more damaging to richly valued compounders than to legacy software with depressed expectations; the first group can see 15-25% drawdowns on guidance disappointment, while the latter may actually outperform on relative basis as money rotates to “show-me” names.

On the other side, this looks like a sentiment overreaction only if management can prove that integration noise is temporary and backlog conversion reaccelerates by the next two quarters. The stock can stabilize quickly if there is a credible reset in gross margin assumptions or a better explanation for the regional softness, but absent that, the burden of proof shifts to the company for the next 1-2 reporting cycles. The contrarian point: this may be less about fundamental deterioration and more about the market finally refusing to underwrite long-duration software at premium multiples without near-term AI contribution, which means the pain could spread before it ends.