Bloomberg TV today spoke with Paula Seligson about software stocks and a recent report on how much risk there is in the sector. The “SaaSpocalypse” was a theme early in the year and some of those companies have had great bounces from the bottom but the problem isn’t going away.
The kill app for AI is programming and the people who know how to use Codex and Claude Code at the moment are taking straight aim at software from every angle. Either they will succeed and disrupt the high-margin software industry or … there isn’t really an application for AI. There is no future where both sides win.
What’s up for debate is what losing looks like and this data is concerning. It shows just how large a portion of private equity deals were in software for the past decade.
There is some kicking the can down the road at the moment because the debt isn’t yet due but it’s coming. The Wile E Coyote moment comes when software companies need to
refinance the debt that was used to finance their buyouts.
Then, the question will be where the losses are hiding. It’s opaque because so much of it is in the private market. But rememeber, these are leveraged deals that relied heavily on borrowing and it’s not clear who was lending.
Lee Robinson, one hedge fund manager famous for spotting risks during the 2008 financial crisis, is betting against insurers for this very reason.
When you zoom out, I just don’t see how everyone comes out a winner here. The killer app of AI is coding and if you can code things that disrupt software that people are paying for, then what good is AI? It’s two bubbles colliding.
Even if it’s only a timing mismatch there are problems. In 2026, software revenues are going to be fine but by 2029, AI investments need to be paying off hugely. Is that enough time for software companies to delever? And who is going to lend to an industry that could get rug-pulled at any moment?
Seligson argues that high leverage was placed on software companies with the assumption (and necessity) that revenues grow. So even keeping revenues flat, they’re at risk. She highlights that $150 billion debt is coming due between now and 2029 and that it will all be a test case. The pain doesn’t really start until 2028 so we won’t get answers until then.
This article was written by Adam Button at investinglive.com.