Software Company Bonds Drop As Investors' AI Worries Mount (bloomberg.com) 18
An anonymous reader quotes a report from Bloomberg: Investors are souring on the bonds of software companies that service industries ranging from automotive to finance as fast-paced artificial intelligence innovations threaten to upend their business models. [...] Bond prices tumbled as advances in artificial intelligence rack up. Google announced plans to launch an AI assistant to browse for internet surfers Wednesday while a customer support startup, Decagon AI Inc., raised a new round of funding. Such developments are further stoking the angst about AI displacing enterprise software companies, driving a selloff in the sector's stocks and bonds across the globe.
[...] Some say the AI fears weighing on software companies are overdone. "While point-solution software faces disruption risk, large company platforms with complex workflows and proprietary data are better positioned to benefit from AI-driven automation," wrote Union Bancaire Prive in its investment outlook for 2026 released this week. But a recent report by EY-Parthenon flagged that in the UK last year, software and computer services firms issued the highest number of warnings on earnings among listed firms. "Software multiples have compressed amid uncertainty around whether incumbents can defend pricing power and sustain growth in an AI-first work-flow environment," wrote Bruce Richards, chief executive officer and chairman of Marathon Asset Management, in a LinkedIn post last week.
[...] Some say the AI fears weighing on software companies are overdone. "While point-solution software faces disruption risk, large company platforms with complex workflows and proprietary data are better positioned to benefit from AI-driven automation," wrote Union Bancaire Prive in its investment outlook for 2026 released this week. But a recent report by EY-Parthenon flagged that in the UK last year, software and computer services firms issued the highest number of warnings on earnings among listed firms. "Software multiples have compressed amid uncertainty around whether incumbents can defend pricing power and sustain growth in an AI-first work-flow environment," wrote Bruce Richards, chief executive officer and chairman of Marathon Asset Management, in a LinkedIn post last week.
Stupid. (Score:2)
"Software multiples have compressed amid uncertainty around whether incumbents can defend pricing power and sustain growth in an AI-first work-flow environment," wrote Bruce Richards
"AI-first" isn't even viable as Majority of CEOs Report Zero Payoff From AI Splurge [slashdot.org] and while some CEOs Say AI is Making Work More Efficient. Employees Tell a Different Story. [slashdot.org]
I think they investments are being moved over to AI because they are running out of funds to prop it up in hopes that it will be successful.
Re: (Score:2)
I think AI is being used as a fig leaf to cover a crumbling economy.
It is both an excuse "We laid off a bunch of people, but AI is doing their work now -everything is going great!" and something to chase for future returns (like a carrot on a string always just out of reach..) "The next version will do that! Keep investing... please? "
AI is cool. We can do things that were science-fiction back in the day. Just don't buy the marketing hype. What it is and what they are selling are worlds apart.
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Well, maybe. May depend on the reasoning. It may just be "software companies are going to force AI use and their products will turn to crap". And that would be entirely sensible. No idea how realistic this is though. But sacking people and not hiring junior people will definitely cause huge problems for software makers.
The "AI will make software makers obsolete" narrative is obvious nonsense, I fully agree.
Agree and one more viewpoint (Score:2)
Agree with the comments. AI spend and contention for IT budget dollars is a way to cut and decommission legacy thorn in the side SaaS and ERP systems.
Shifting even 5% of a large company's IT budget from projects X,Y and Z to AI will force a detailed look per line item at each and every IT project's budget and value to the company.
https://www.cio.com/article/38... [cio.com]
How Birmingham’s $48M Oracle ERP project turned into an epic failure
Feb 21, 20256 mins
A Grant Thornton
Interlocking credit dominos (Score:4, Informative)
There have been billions of bonds issued in the last 3 years for AI companies, data centers, and other industries tied to AI.
The usual international banks, hedge funds, private equity, etc. have bought, loaned, leveraged, yen carry trade, and got credit default swaps on that AI related debt.
In this chain of lender/borrower/insurer, there are many companies who have hedged bets on the debt and if any of them of medium or large size goes insolvent, it will cause a 2008 style race to the exit selling pressure for this debt. Net, net one or more of those hedge funds, banks, private equity, etc. will go insolvent and fail; causing a domino effect on the others.
In 2008, all but the US treasury and other central bank debt wend down in value, meaning that companies could not borrow money, people could not refinance homes, buy cars, etc.
Without this lending and ability to borrow, insurance companies quit writing policies or cancelled insurance coverage for commercial buildings, causing the mortgage lenders for those buildings to demand the mortgage to be paid in full.
This means that hundreds of thousands of small to large sized employees will not be able to borrow short term funds to pay paychecks resulting in massive job losses. 2008 was close to a great depression level event with only the government coming in as a buyer / guaranteer of last resort to stabilize the economy (the lender of last resort). It essentially says that the government will print money to buy any debt, even near worthless debt, to prevent a cascading series of failures of companies and banks.
This is not entirely new, it happened in the UK in 1866 as told in the 1873 book Lombard Steet https://en.wikipedia.org/wiki/... [wikipedia.org]. The US federal reserve has done just that in 2008.
My finance people have different AI concerns (Score:3)
Mainly that it's *not* living up to the hype and that way too much money is being spent on it.
I don't understand this downturn (Score:4, Interesting)
Re: (Score:2)
Indeed. And AI-creted code has severe problems regarding security and maintainability. If those claimed productivity increases were real, we would see strong effects by now. The only effects I see so far is some software crashing more often. But that may have other reasons.
Re:I don't understand this downturn (Score:4, Funny)
Re: (Score:2)
Re: I don't understand this downturn (Score:2)
The crash is going to be ugly (Score:2)
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Consider that US GDP growth today is almost entirely the result of datacenter builds, and that Nvidia is lending those companies money to buy their chips. We've become economically reliant on building something that isn't providing a whole lot of utility. If AI burst last year, we might have been okay. This year, not so much.
It's OK. We'll use AI to hallucinate an economy for us.
Still? (Score:2)
Are they still harping on about this? It's been a week already: https://tech.slashdot.org/stor... [slashdot.org]
Here's what I said last time around: https://slashdot.org/comments.... [slashdot.org]
Lots of smoke and mirrors (Score:2)
I use AI every day. But there's a lot of absolute crap out there being sold as AI. Investors tend to be distracted by shiny objects. It's unfortunate for now, for the companies doing real work, but when the bubble bursts, the tide will come back in.