Meritech · 2025-11-21 · 195d

Software Market Analysis: Share Performance, Valuation Multiples, and Growth-Profitability Dynamics

Meritech's Software Pulse report analyzes software sector performance as of November 21, 2025, showing that AI-tailwind companies significantly outperformed peers, with median valuation multiples stabilizing post-ZIRP. The analysis reveals companies prioritize growth over profitability, and composition of Rule of 40 meaningfully impacts valuations, with fast-growing companies trading at premiums despite similar Rule of 40 scores.

12 metrics· Cited 0× in the knowledge base ·Open source ↗

Metrics in this report

All Software - Median Growth-Adjusted Revenue Multiple

0.30x

median

Matches pre-ZIRP median; down 69% from 2021 high of 0.98x

Meritech Software Index - 12 Month

4%

annual change

All software companies

Meritech Software Index - Last 3 Months

-2%

3-month change

All software companies

Meritech Software Index - Last Month

-10%

monthly change

All software companies

Meritech Software Index - Last Week

-6%

weekly change

All software companies

NASDAQ - YTD

16%

year-to-date change

Technology-focused benchmark

Rule of 40 - High Growth/Some FCF Premium

10.3x

median multiple

20-30% growth, 10-20% FCF margin

Rule of 40 - Low Growth/High FCF Discount

3.9x

median multiple

<10% growth, 20-30% FCF margin

S&P 500 - YTD

13%

year-to-date change

Broader market benchmark

Top 10 - Growth-Adjusted Revenue Multiple

0.70x

median

20% above pre-ZIRP median

Top 10 Companies - Median Implied ARR Multiple

16.6x

median

Same level as pre-ZIRP median of 8.7x; all software median 4.9x

Top 10 Companies - Median NTM Revenue Multiple

14.7x

median

Current vs 11.5x pre-ZIRP median; down 79% from 2021 high of 69.0x