SaaS AI Bear Case Overblown, Barclays Recommends Buying These Two Industrial Software Stocks

Investing.com – Industrial software valuations have fallen back to levels seen during the COVID-19 pandemic, based on enterprise value-to-sales ratios, which are at their lowest in history compared to the S&P 500.

Barclays analysts believe that the threat of artificial intelligence to SaaS companies has been misunderstood and exaggerated.

The company believes AI is an incremental opportunity rather than a threat for industrial software companies because enterprise clients buy services and domain expertise, not just code. The current free cash flow yield for industrial software at 5% is better than the 3.5% for industrial technology hardware companies.

Manhattan Associates

Manhattan Associates argues that the idea of the “death of SaaS” is incorrect, based on a false assumption that the value of enterprise software is solely in coding.

While AI can generate code at near-zero cost, software solutions still require architects who understand blueprints, customer support during server outages, responsibility for data breaches, and comprehension of regulatory changes.

Barclays notes that actual coding accounts for only a small portion of SaaS companies’ total expenses, and AI’s direct impact on the income statement, based on median assumptions, is only about 6% of revenue.

Despite limited risks, Manhattan Associates’ stock has fallen more than 40% from its peak in 2025. Based on enterprise value-to-sales ratios, its valuation multiple has dropped to the lowest level since 2023, and the company is currently below one standard deviation in enterprise value-to-EBITDA and free cash flow yield.

Manhattan Associates reported Q4 2025 results that exceeded analyst expectations for earnings per share and revenue. The company also announced an increase in share repurchase authorization to $500 million. William Blair reaffirmed its outperform rating on the stock.

Trimble

Barclays believes investors have not fully recognized Trimble’s investment value, as the company continues its transition from a hardware-centric positioning technology firm to a software solutions provider.

The bank considers Trimble one of the most capable industrial software companies leveraging AI. Compared to its construction information modeling peers, Trimble trades at about a 30% discount, and Barclays expects this discount to narrow as Trimble continues to meet or exceed financial targets.

Similar to Manhattan Associates, Trimble’s valuation multiples have declined sharply, with enterprise value-to-sales approaching 4.5 times the 10-year average, and enterprise value-to-EBITDA and free cash flow yields at or below one standard deviation below the lower limit.

Trimble announced Q4 2025 earnings and revenue that exceeded analyst expectations. After the earnings release, Bernstein reaffirmed its outperform rating, while Oppenheimer lowered its target price but maintained its outperform rating on the stock.

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