Over the past week, I wrote two short pieces on my Substack about events that, on the surface, appear unrelated.

One examined the sharp fall in SaaS valuation multiples.

The other examined geopolitical escalation in the Gulf and its implications for capital markets.

But viewed together, they highlight something broader.

Capital is being repriced.

Periods like this often feel disconnected when viewed through headlines. Technology narratives move in one direction. Geopolitics in another. Domestic economic policy in yet another.

In reality, the system is far more interconnected.

The Quiet Reset in SaaS

One dataset I have tracked for several years is the SaaS Capital Index, produced by SaaS Capital.

I like it for a simple reason.

It offers long-term consistency.

In an industry where narratives change weekly, the index quietly tracks valuation multiples and operating metrics across public B2B SaaS companies going back to 2008.

The latest update through February 2026 shows something striking.

The median run-rate ARR multiple has fallen to 3.66x.

Just two months ago, it was 5.58x.

That represents a 34% compression in valuation multiples in roughly sixty days.

For context, this brings SaaS valuations back to levels last seen around 2011.

For a sector that spent much of the past decade trading at premium valuations, that is a meaningful reset.

But the important question is not whether multiples are down.

It is why.

AI Did Not Start the Reset

One obvious catalyst is the rapid emergence of the “AI replaces software” narrative.

Markets tend to react quickly to existential stories.

And the reaction in SaaS equities recently has had the familiar feel of:

Sell first, ask questions later.

But technological transitions rarely eliminate entire software categories overnight.

They usually reshuffle the competitive advantage.

Some companies will integrate AI deeply into their products, making them more valuable.

Others will discover that what appeared to be a moat was actually just a feature awaiting reconstruction.

That is not extinction.

It is a selection.

The Structural Reset Was Already Underway

The repricing likely started earlier.

Two structural forces have been building for several years.

Growth is slowing

During the SaaS expansion of the late 2010s, many companies grew revenue by 30% or more annually.

Today, the median is closer to the low teens.

Revenue multiples compress naturally when growth slows.

Interest rates are structurally higher

The SaaS boom coincided with a decade of near-zero interest rates.

When discount rates rise, long-duration growth assets reprice.

That dynamic applies across technology — not just SaaS.

Then Oil Moved

Over the last week, geopolitical tensions in the Gulf escalated sharply.

Markets reacted immediately.

Oil rose. Shipping risk premiums widened. Energy markets tightened.

But the important point is not the headline.

It is the second-order effects.

Roughly one-fifth of global oil flows through the Strait of Hormuz. When that chokepoint is threatened, energy markets do not wait.

They reprice.

And energy is not simply a sector story.

It is an input into almost every margin model in the global economy.

The UK Adds Another Layer

This also matters for the UK economy.

The government delivered its Spring Statement with the intention of projecting stability.

But within days, the macro backdrop had already shifted.

Surging oil and gas prices have materially altered the inflation outlook, reducing the likelihood of near-term interest-rate cuts and potentially pushing inflation higher again later this year. 

In other words, the forecasts underpinning the statement may already be out of date.

That does not mean the fiscal direction is necessarily wrong.

But it does highlight how fragile macro assumptions can be when energy markets move quickly.

The UK remains particularly sensitive to gas price movements because utility costs feed directly into inflation expectations.

Which means geopolitical risk is no longer just a foreign policy issue.

It becomes a monetary policy variable.

Liquidity Becomes Strategic Again

One phrase tends to resurface in such environments.

Liquidity gives you optionality.

When volatility rises, patient, unlevered capital becomes powerful.

History shows geopolitical shocks often create:

• delayed dealmaking
• forced sellers
• repriced growth assets

For investors willing to do the work, those environments can be more interesting than the 10x ARR era that preceded them.

The Bigger Question

SaaS is not disappearing.

But it is evolving.

Artificial intelligence will reshape product architecture, pricing models and cost structures.

Growth may be slower.

Profitability will matter more.

And valuation multiples may settle closer to long-term norms.

Which raises the real question for operators and investors:

Is the market overreacting to AI risk — or are we only at the beginning of a deeper SaaS reset?

If you enjoy thinking about capital allocation, technology shifts and market cycles, I write regularly on my Substack.

Mike Allen — Substack @mikeallen462220

Have a great week!