Apollo’s David Sambur warns software’s AI troubles will persist amid ‘large unknowns’

Apollo Global Management's David Sambur mentioned to CNBC on Thursday that the downturn in software stocks due to concerns over artificial intelligence disruption is far from being resolved.

"Regrettably, I believe it's still very early," Sambur, the co-head of private equity, shared on CNBC's "Money Movers."

A few Wall Street experts have been reassured by the recent recovery in the IGV Software ETF, which saw a rise of approximately 3% in March after a challenging beginning of the year. The ETF remains down by 20% for this year.

Sambur highlighted that software firms are being scrutinised and are facing major questions regarding their revenue model, the profile of their gross margins, competition with Anthropic and OpenAI, and their valuation assessments.

"I understand that markets are on the rise and have recovered slightly, but I don't foresee any of these four matters changing due to the significant uncertainty about how AI's potential to lower competition costs might ramp up the competitive atmosphere," he stated.

Sambur, who became part of Apollo in 2004, remarked that the shift brought on by AI will be unprecedented and "is proceeding more quickly than I've ever observed before in my career."

Sambur emphasised that the challenge lies in the industry's struggle to predict how the software landscape will develop over the next one to five years due to the ever-evolving nature of the technology.

"Nobody knows for sure," he commented.

"Investors are now adjusting valuations and incorporating greater margins of safety in light of large uncertainties," he added.

Sambur also highlighted investment possibilities in deals or stock repurchases as a number of software companies, including Intuit, Hubspot, and Salesforce, have declared share buybacks.

However, according to RBC Capital's Rishi Jaluria, who wrote a note to clients on Thursday, AI concerns are largely overshadowing buyback announcements.

Jaluria noted that the current debate on Wall Street is about whether stock repurchases signal optimism or if companies are "surrendering." He added that buybacks reduce the chance for mergers and acquisitions, potentially dampening innovation.

"If businesses are funding buybacks using available cash reserves, that's one scenario, but large-scale buybacks mean less capital for future mergers and acquisitions, particularly if financed with debt," Jaluria wrote.