Concerns over the impact of artificial intelligence on the software sector could hit the $1.5tn US loan market, according to a report by Reuters citing Morgan Stanley. The bank said software represents around 16% of the US loan market, equivalent to roughly $235bn.
Recent volatility in global software equities, driven by fears that rapid advances in AI tools could disrupt established business models, has raised questions about potential knock-on effects in credit.
Morgan Stanley noted that a significant portion of software sector loans carry lower credit ratings. Around 50% are rated B- or lower, typically signalling higher default risk. Only 7% hold a BB rating, while 20% are rated B and 26% are rated CCC.
The bank also highlighted limited transparency in the market. More than 80% of software loans are issued by private companies and approximately 78% are sponsor-backed. Software borrowers also face a more front-loaded maturity profile than the broader market, with roughly 30% of outstanding loans due by 2028, compared with 22% for the overall market.
Despite these risks, Morgan Stanley said the likelihood of near-term systemic disruption remains limited. The bank expects continued price volatility in loans but does not anticipate a sharp increase in defaults in the immediate term.
