The software sector has suffered a broad sell-off in recent months as artificial intelligence threat narratives grip the market. The prevailing fear is that as AI agents grow more capable, enterprises will no longer need expensive software licenses—AI could replace certain software functions, lower the barriers for users to switch vendors, or even supplant the work of software users entirely.
Nvidia CEO Jensen Huang begs to differ. In his view, the market has it exactly backwards. And beneath this contrarian call lies a compelling investment case for PTC (NASDAQ: PTC), an industrial software company whose deep integration of AI with its proprietary “digital thread” has created what appears to be a classic mispricing opportunity.
Huang’s core argument is straightforward: AI will not replace software tools; it will make them more productive. By accelerating and deepening the actionable insights that software generates, AI can add incremental value to existing solutions. This dynamic is particularly evident in industrial software—the companies whose products serve as the “operating systems” for physical assets stand to become direct beneficiaries of AI enablement. PTC exemplifies this trend.
PTC is a market leader in product lifecycle management (PLM) and computer-aided design (CAD). Its core value proposition lies in helping customers build a “digital thread” for their products—digitizing the entire journey from design and manufacturing through maintenance and eventual disposal. This process generates vast amounts of digital data originating from the physical world, precisely the kind of data upon which AI models thrive.
“We are embedding AI into our solutions, applying it to this contextual data to make even more substantial transformations possible for our customers,” PTC CEO Neil Barua said on the company’s recent earnings call. In other words, PTC isn’t passively defending against AI disruption; it’s actively integrating AI into its systems of record, enabling customers to access AI capabilities directly within the enterprise workflows they already trust. Barua emphasized that “customers don’t want AI as another stand-alone system or workflow. They want AI embedded directly into the systems of record they already trust for their enterprise workflow. That’s exactly where PTC is focused.”
Despite this positioning, PTC shares have underperformed the broader market over the past year—for precisely the reasons outlined above. Financial data shows the company’s annual recurring revenue (ARR) growth appears to be moderating: management guided for organic constant-currency ARR growth of 7.5% to 9.5% in fiscal 2026, a step down from the mid-teens growth previously anticipated. This deceleration has amplified investor concerns about the AI threat.
PTC’s management, however, views this slowdown as temporary. Barua disclosed that ARR is expected to inflect sharply upward starting in the fourth quarter of fiscal 2026, driven by large deals not yet reflected in current ARR figures. Deferred ARR—contracts committed to but not yet commenced—stood at roughly triple the level entering the prior year’s fourth quarter. This momentum stems from a go-to-market strategy overhaul implemented in late 2024, which deployed more specialized sales teams to focus on enterprise-level deals within key vertical industries.
On valuation, PTC has reached levels rarely seen in recent years. Management projects the company will generate $1 billion in free cash flow (FCF) in 2026. Based on its current market capitalization of approximately $18.7 billion, that implies a forward price-to-free-cash-flow multiple of just 18.7x—well below historical norms. For an industrial software leader still growing and now adding an AI narrative to its story, that multiple looks increasingly attractive.
As Jensen Huang suggests, AI is not the “terminator” of software stocks—it is a value amplifier. For companies like PTC, which possess both core data assets and deep industry know-how, AI integration is likely to widen their moats rather than narrow it. While the market fixates on near-term growth deceleration, long-term investors see the potential for a triple tailwind: AI enablement, a cyclical recovery in industrial end markets, and valuation multiple expansion.
Whether PTC’s ARR growth indeed inflects in 2026 remains to be seen. But for now, the market’s misreading of the AI threat may have created a rare entry point.
