The private credit market is facing a significant selloff as investor fears grow that rapid advancements in artificial intelligence (AI) could disrupt traditional software companies, leading to increased loan defaults. Major asset managers like Ares Management, Blue Owl Capital, KKR, TPG, Apollo Global, and BlackRock saw their shares fall sharply last week, with declines ranging from 1% to over 12%, while broader indices like the S&P 500 remained relatively stable.
The selloff was triggered by concerns that new AI tools, such as those released by Anthropic, could directly compete with the core revenue models of software firms. This threatens the "per-seat" pricing that underpins companies like Salesforce and Bloomberg. "The selling pressure reflects a deepening structural debate," said Jonathan McMullan from Schroders. "The speed of AI advancement makes long-term valuations harder to defend, particularly as AI tools allow businesses to do more with fewer staff."
Data underscores the exposure: software represents 17% of business development company investments and 22% of debt exposure across 2,400 middle-market borrowers, amounting to roughly $224 billion. Credit default swaps for tech companies have surged 90% since early September, with Oracle's CDS costs reaching levels last seen during the 2009 financial crisis. Analysts warn that if AI adoption outpaces borrower adaptation, U.S. private credit defaults could hit 13% in a stress scenario, compared to 8% for leveraged loans.
Amid this sector-wide anxiety, Apollo Global Management is proceeding with a major AI-focused financing deal. The firm is nearing finalization of a $3.4 billion loan to an investment vehicle that will purchase Nvidia AI chips and lease them to xAI, Elon Musk's artificial intelligence company. This follows a similar $3.5 billion loan provided in November 2025 as part of a larger $5.4 billion data center compute transaction. The hardware will be leased under a triple-net structure, with xAI responsible for upkeep. Nvidia itself is acting as an anchor investor in the financing vehicle.
Apollo's Q4 2025 earnings, released concurrently, showed record capital inflows of nearly $30 billion, boosting assets under management to a new high of $938 billion. Fee-related earnings rose 25% year-over-year to $690 million. However, net income fell 55% to $660 million. Despite the mixed results, Apollo's board approved a $4 billion share buyback.
Economists like Mark Zandi of Moody Analytics warn of systemic risks, citing the combination of fast-growing AI-related borrowing, increased leverage, and low transparency in the private credit sector as significant "yellow flags." He cautioned that while the industry may currently absorb losses, "this may not be the case a year from now if the current credit growth continues."
