Deutsche Bank warns on software, technology sectors

The Deutsche Bank analysts said that total is a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase, according to the report

A downturn in the software and technology sectors could have an impact that rivals that of the energy sector’s issues in 2016, Bloomberg reported Monday, citing Deutsche Bank analysts.

The analysts highlighted concentration risks to the speculative-grade credit market, saying that the software and tech sectors account for 14% and 16%, respectively, of that credit universe, according to the report. Those percentages amount to $597 billion and $681 billion, respectively, per the report.

The Deutsche Bank analysts said that total is a meaningful chunk of debt outstanding that risks souring broader sentiment, if software defaults increase, according to the report.

There is also a threat of software-as-a-service firms’ multiples and revenues being weighed down by the adoption of artificial intelligence tools, the report said.

The reality today has now changed from when many of these firms were initially financed, the Deutsche Bank analysts said, per the report. The SaaS value creation model is not yet mature enough to withstand a rapid rollout of AI tools.

It was reported Jan. 31 that software companies are seeing their loan prices fall amid investors’ concerns that AI advances, such as the coding capabilities of Anthropic’s Claude model, will make many software offerings redundant.

A storm has hit the loan market, Scott Macklin, head of U.S. leveraged finance at asset manager Obra Capital, told Bloomberg at the time. The heaviest calendar in months, largely repricing-driven but still overwhelming, has collided with mounting existential questions around software business models as AI reshapes the sector, which is the single largest in loans.