The overall software sector rebounded in July and the vertical software valuation premium over horizontal software narrowed to +30% on EV/Revenue (median LTM) and +57% on EV/EBITDA down 25 and 9 percentage points versus June. On a forward (NTM) basis the revenue premium widened to +58% for Q2'26, up from +44% in Q1'26.
The software market benefited from a rotation out of high-flying AI chip stocks into beaten-down software names, strong earnings and upbeat cloud/AI forecasts from mega-caps like Microsoft, and aggressive cost reduction and layoff announcements by AI-challenged horizontal software company, project management vendor Monday.com
What moved
- Vertical software's EV/Revenue premium compressed to +30% (LTM, median), down 25 points month-over-month and off the +86% April peak.
- The EV/EBITDA premium eased to +57% (down 9 points) and remains above the revenue premium.
- Horizontal software stocks moved faster than vertical stocks: Horizontal SaaS median EV/Revenue rose from 3.05x to 3.90x while Vertical SaaS rose from 4.72x to 5.05x.
What it means
- The narrower premium was driven by a faster move in the basket of horizontal software stocks rather than a a decline in vertical software stocks. Both baskets moved upwards upward in absolute terms in July. The volatility of horizontal software stocks is likely to remain higher than vertical software stocks.
- Trailing and forward multiples diverged: the LTM premium stands at +30% while the Q2'26 forward premium stands at +58%, the two bases are pointing in opposite directions.
- Vertical's margin premium (+57%) sits well above its revenue premium (+30%), the widest gap between the two since October 2025.
The Vertical Premium Monitor — July 2026. Source: S&P Capital IQ; as of July 31, 2026.
