The Growth at Any Cost Era Ends
The software dream is dying. At least the expensive version of it is. Goldman Sachs Asset Management is now picking through the wreckage of a sector that once seemed invincible. Brook Dane, co-head of public tech investing, suggests the current selloff is creating opportunities for those who can separate signal from noise. This is not a simple market correction. It is a fundamental re-pricing of risk in an era where capital is no longer free.
For the past forty-eight hours, the Nasdaq has been under intense pressure. Software-as-a-Service (SaaS) companies have borne the brunt of the selling. Per recent data from Bloomberg, the median enterprise software multiple has compressed significantly since the start of the year. Investors are fleeing companies that lack clear paths to GAAP profitability. The market is demanding cash flow today, not promises of scale tomorrow.
The Signal and the Noise
Brook Dane’s perspective centers on the divergence between business fundamentals and stock prices. Many software firms are still growing at 20 percent or more. Their stock prices, however, are behaving as if the businesses are in terminal decline. This disconnect is what Goldman Sachs identifies as the opportunity. But the noise is deafening. High interest rates have structurally altered the Discounted Cash Flow (DCF) models that once justified 20x revenue multiples. When the risk-free rate sits near 5 percent, a company growing at 15 percent with no earnings is a liability, not an asset.
The technical mechanism driving this selloff is the collapse of the Rule of 40. Traditionally, a healthy software company’s growth rate plus its profit margin should exceed 40 percent. In the current environment, the market has shifted the weighting. Growth is being discounted while margins are being scrutinized. Companies that achieved the Rule of 40 through aggressive sales spending are seeing their customer acquisition costs (CAC) skyrocket. As enterprise budgets tighten, the lifetime value (LTV) of a customer is falling. This destroys the unit economics that the venture capital and public markets relied upon for a decade.
Visualizing the Valuation Collapse
The following chart illustrates the dramatic compression in median forward revenue multiples for the software sector over the last twelve months. The data reflects the reality that Brook Dane and the team at Goldman Sachs are navigating.
Median SaaS Forward Revenue Multiples (Feb 2025 to Feb 2026)
The data in the table below further breaks down the sector performance metrics as of February 26.
| Metric | February 2025 | February 2026 | Percentage Change |
|---|---|---|---|
| Median EV/Revenue | 11.2x | 6.4x | -42.8% |
| Average Net Retention Rate | 115% | 104% | -9.5% |
| S&P 500 Software Index | 4,120 | 3,250 | -21.1% |
| 10-Year Treasury Yield | 3.8% | 4.7% | +23.6% |
The Technical Breakdown of Enterprise Spend
Enterprise software is no longer a discretionary expense, but it is being optimized. Chief Information Officers (CIOs) are consolidating vendors. The era of ‘best-of-breed’ sprawl is being replaced by platform consolidation. This favors incumbents like Microsoft and Oracle while punishing mid-cap specialized players. According to filings available on SEC EDGAR, several high-profile software firms have reported a significant lengthening of sales cycles. Deals that used to close in ninety days are now taking six months. Every purchase requires CFO approval. This friction is the ‘noise’ that Goldman Sachs mentions.
Separating the signal requires looking at Net Retention Rates (NRR). A high NRR indicates that customers are not only staying but spending more. However, the industry average has slipped from 115 percent to near 104 percent. This suggests that ‘seat expansion’ is stalling. Companies are laying off workers, which means fewer software licenses are needed. The signal for an investor like Brook Dane is finding the few companies that can maintain a high NRR despite a shrinking workforce at their client companies. These are the mission-critical applications that provide genuine ROI rather than just convenience.
Market sentiment remains fragile. Per Reuters, institutional outflows from tech-heavy ETFs reached a six-month high this week. The rotation into value and defensive sectors is accelerating. Software is being treated like a cyclical industry rather than a secular growth engine. This shift in perception is perhaps the most dangerous development for the sector. If software is cyclical, it cannot command the premium multiples of the past.
The next critical data point arrives on March 12. The release of the February Consumer Price Index (CPI) will determine if the Federal Reserve has room to pause or if further rate hikes will continue to crush tech valuations. If the 10-year Treasury yield pushes past 4.8 percent, the current ‘opportunity’ Brook Dane sees may become a deeper value trap. Watch the yield curve closely. It remains the ultimate arbiter of software’s fate in 2026.
