A sharp correction in global software stocks may turn into a growth opportunity for Indian IT services companies, according to Zoho founder Sridhar Vembu. Sharing his views on social media platform X, Vembu questioned the high valuations and pricing models of large enterprise software companies, saying the current market shift could work in favour of cost-efficient IT service providers from India.
His comments came after a recent market downturn in which a major global tech company reportedly lost nearly $400 billion in market value within hours. Vembu said many software firms were “massively over-valued” and are now facing steep corrections as investors reassess their fundamentals.
He noted that several mature software companies were trading at price-to-earnings ratios of 30 to 40, which he believes are not sustainable. In his view, more realistic valuations would fall in the range of 10 to 15. He also warned that earnings at large enterprise software firms could decline, putting further pressure on their stock prices.
Referring to companies such as Salesforce and ServiceNow, Vembu said their ability to charge high prices may not last. If both valuations and earnings drop together, he said, it could come as a severe shock to investors.
While some analysts argue that artificial intelligence could disrupt or even “destroy” the software industry, Vembu disagreed with that assessment. He described the current shift as a result of stronger competition, with AI acting as an accelerator rather than the sole cause.
According to him, AI could significantly lower the cost of enterprise software, even if it does not fully replace large platforms. This could open doors for Indian IT services firms to build applications in-house for clients or migrate them away from expensive software products. He said such firms could help customers save between 60% and 80%, calling it a “huge opportunity” for Indian IT companies.
Vembu’s full post read:
“Software stocks are coming down hard. I see it as massively over-valued companies coming down. But the quoted post argues “AI based code will destroy the software industry”. First, I don’t see why any mature software company should trade at 30-40 PE. I think 10 or 15 is where they will go. I also think the E will drop – Salesforce or Service Now have gotten away with exorbitant prices so far and they won’t be able to. When they lose their high PE and their E also drops, it would feel like death – given that companies like Salesforce are merely “use high flying stock to acquire start-ups and then use high pressure sales teams to upsell” they won’t be able to get away with that model very long. That is the functional equivalent of death. But is that due to AI? I like to think it is good old-fashioned competition. AI will accelerate the competition. But will AI mean all enterprise apps will be done by in-house IT or IT services firms at very low cost? Possible but my bet is “far lower cost of enterprise software”. In any case, Indian IT services firms can prosper at the expense of Salesforce etc by offering to replace Salesforce and migrate the customer and save them 60-80%. That is a huge opportunity for IT services firms.”
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