AI Disruption Looms Over Software Industry Loans
Morgan Stanley warns that the rise of artificial intelligence could disrupt the software industry, impacting the credit markets. With software constituting 16% of the U.S. loan market, concerns over AI advancements have triggered a slump in global software stocks. Risks are higher in loans rated 'B-' or lower.
Morgan Stanley has warned that the potential disruption caused by artificial intelligence in the software industry is starting to affect credit markets. This is significant as software constitutes roughly 16%, or $235 billion, of the $1.5 trillion U.S. loan market.
Investor enthusiasm for AI has buoyed financial markets in recent months but was shaken last week with a decline in global software stocks, amid fears that rapidly advancing AI tools could disrupt the industry. Approximately 50% of software sector loans hold lower credit ratings, adding to the risk.
The brokerage highlighted that 20% of software loans are 'B' rated, 26% 'CCC' rated, and only 7% hold a higher 'BB' rating. Many of these loans are issued by private companies, thereby limiting the financial information available. Despite potential refinancing challenges, a near-term spike in defaults is unlikely according to Morgan Stanley.
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