Median ARR multiple: By the end of January 2025, our HCA SaaS Index ended at a median multiple of 3.4x (3.6x by the end of December 2024), while The SaaS Capital Index covering the US/global SaaS market ended January 2025 with a median ARR multiple of 7.3x (from 7.0x by the end of December 2024). The increase in the US multiple could be explained by investors acting on the DeepSeek news flow.

Cloud giants’ growth plateauing: Compared to the growth rates in Q3 2024, both Google Cloud and Azure (Microsoft) did see declining growth momentum in Q4 2024, while AWS (Amazon) was flat. Furthermore, they all gave pretty muted next quarter guidance for their cloud divisions. This normally does not bode well for the coming SaaS reporting season. However, it seems that some of the weaker growth and disappointing outlooks are due to capacity constraints, implying that the read-over to the SaaS sector maybe is a less strong signal.

DeepSeek drives momentum in the software sector: While we still must confirm the real truth behind the data on DeepSeek, it seems already to have altered with investors’ mindset. The sharp fall in AI costs indicated by DeepSeek, was also confirmed by one of the world’s largest SaaS companies, ServiceNow. ServiceNow indicated a 16x lower cost in just a few months. Lower costs that support the application part of the AI technology shift and thereby the SaaS companies. The investors' reaction to this may best be seen in the WisdomTree Cloud Computing ETF beating the return on the WisdomTree AI ETF year-to-date.

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Disclaimer: HC Andersen Capital receives payment from some of the mentioned SaaS companies in the newsletter (Agillic, Impero, MapsPeople, OrderYOYO, and Penneo) for a Digital IR/Corporate Visibility subscription agreement. /Michael Friis 15:05, 25-02-2025.