Software has entered its slump- face higher interests than their AI counterparts. Is this a greater shift or just a temporary downwind?
Reuters reports that “Software companies are delaying debt deals as higher borrowing costs and tougher scrutiny from lenders weigh on the sector, at a time when mounting pressure from artificial intelligence threatens their business models, industry sources said.”
Essentially, the fundraising rounds that software companies expect for their next cash flow have stalled due to higher interest rates and scrutiny amid concerns that AI might turn the industry upside down.
There isn’t an easy way to put it, software has become a risky business as the amount of defaults increases.
As the report puts it: “We expect AI disruption risk to be increasingly reflected over 2026 to early 2027, particularly for lower‑quality credit sectors with elevated refinancing needs — and more so in the U.S. than in Europe,” said Matthew Mish, UBS’s head of credit strategy.
The expected rise in defaults is supposed to be around 5-6%, a huge increase from the 1-2% that is common to the industry.
The report says that the disruption will take place over a two-year period: 2026-27. This disruption is also having a bigger impact on leveraged loan deals than high-yield bond deals. And the market is aiming to move to protect investors, a move that will see stringent policies around investing and returning the investment.
Major loan providers might be getting to pull out of tech financing as the events mature.
Software and the future
Software is in a tough spot. Dubbed the SaaSpocalypse, will AI herald the end for the SaaS model as we know it? A multidisciplinary tool that can do everything is terrifying for companies that have hedged their bets on SaaS.
But there is a glimmer of hope. Software must evolve. Not as an intelligence, though. Rather, a way to make changes to the physical world. It’s the limitations of tech that have only made software, well, limited to the confines of a hyperscaler.
Maybe it is time that changes.
