Concerns are rising in the U.S. and European markets that software companies may collapse due to AI threats, leading to fears of 'bad debt transfer' within private credit funds associated with these businesses.
As fears grow that AI products could undermine existing software and data IT firms, the implications have reached private credit funds that have lent significantly to these software companies. The New York Stock Exchange saw drops in the stocks of major private equity firms like KKR and Blackstone, highlighting the panic surrounding potential defaults. The rapid decline of these investment firms points to a broader financial risk as traditional finance faces shocks from the advancing AI sector.
Particularly, recent innovations such as Anthropic's Claude Cowork are seen as game-changing products that could replace longstanding programming languages utilized by major companies like IBM. As a result, IBM and other software firms are experiencing steep declines, raising concerns among the private equity firms that have extended credit to them. For instance, IBM's stock plummeted 13%, reflecting anxiety over the potential obsolescence of its technologies in the face of competing AI solutions.
Additionally, previous events have triggered market instability, such as the recent announcement by the private equity firm Blue Owl Capital to permanently halt redemptions in some of its funds. This has caused widespread unease, prompting sales of $1.4 billion in assets across three funds to manage liquidity. Consequently, the fears of a cash crunch in the private credit market have intensified as concerns over the viability of software companies amid AI advancements grow.
