Jefferies has reduced price targets across a swath of European software stocks, pointing to a combination of fading AI-fueled optimism and increasing geopolitical and macro uncertainty that it says is pressuring demand and valuations.
Analyst Charles Brennan said the sector is struggling for positive catalysts at present, noting that earlier concerns about artificial intelligence have been overtaken by broader economic and geopolitical risks. Shares in the companies Jefferies follows have already fallen substantially, with the group down about 19% on average year-to-date amid AI-related angst.
While AI-related disruption remains a factor for sentiment, Brennan told investors there is "no evidence today that it is meaningfully influencing short-term trading," adding that short-term risks are shifting more toward macro developments and geopolitical tensions.
In particular, Jefferies flagged the escalation of tensions in the Middle East as a key headwind. The brokerage suggested that customers are likely prioritizing energy and supply chain resilience rather than committing to strategic software contracts, which could create downside risk to expectations - especially heading into the first-quarter reporting season.
Reflecting both softer share prices and pressure on valuation frameworks that rely on free cash flow yields, Brennan cut price targets by roughly 10% on average. He also highlighted a persistent regional valuation discrepancy, observing a "limited premium for growth in Europe" that contrasts with U.S. markets. "This is an inconsistency that we think investors should exploit, and our preferences across the sector skew to the fastest-growing companies," he added.
At the company level, Jefferies continues to favour faster-growing names within its coverage. The broker described Sage as "one of the better-placed names" for the first quarter, citing its ability to monetize AI and its limited exposure to extended sales cycles. SAP is viewed as comparatively resilient because of its embedded systems, though Jefferies warned that near-term order intake could be delayed by macro uncertainty.
Other stocks are expected to face specific, near-term pressures. Amadeus is anticipated to be disrupted in the short term by reduced airline activity tied to geopolitical tensions. Temenos faces heightened uncertainty because of its exposure to the Middle East and Africa region. Conversely, Dassault Systèmes was criticised for combining low growth with what Jefferies called an expensive valuation, a mix the analyst described as among the weakest in the sector.
Jefferies detailed several individual price target changes. Amadeus had its target lowered to c60 from c65. Dassault Syst e8mes was cut to c15 from c16. SAP saw one of the largest downward revisions: its euro-denominated target was trimmed to c230 from c290, while its U.S.-listed shares were reduced to $270 from $340. Temenos b9s target was slightly adjusted to CHF 83 from CHF 85. Sage's price target was reduced to 1,100p from 1,350p.
Overall, the broker's actions reflect a shift in the near-term risk profile for European software stocks from AI-driven narratives to macro and geopolitical developments that could affect customer procurement priorities and valuation norms. Jefferies said it prefers companies with higher growth profiles amid this backdrop.
What this means
- Jefferies has enacted roughly 10% average cuts to price targets across its European software coverage.
- Short-term trading appears more influenced by macro and geopolitical uncertainty than by AI catalysts, according to the analyst.
- Specific companies will face differentiated impacts based on exposure to travel, regional markets, and sales-cycle sensitivity.