Apollo backs AI to disrupt the software making sector

Apollo Global Management, one of the world’s largest alternative asset managers, has made strategic bets against the debt of several enterprise software companies, citing growing concerns about how artificial intelligence could weaken parts of the tech sector.Apollo took short positions on loans from software providers, including Internet Brands, SonicWall, and Perforce, because it feared that those institutions’ traditional business models might face earnings pressures as AI platforms automate functions once sold as high-marginsoftware services.However, the bets, which represented a fraction of its $700 billion credit portfolio and were maintained for much of the year, have now been closed.Apollo warns that AI could harm the enterprise software industryApollo claims that AI poses risks to enterprise software, the largest target for private capital over the past decade. Other private lenders have also argued similarly, stating that software stands out as one of the most exposed sectors to AI, as the technology can automate many functions currently handled by coding tools, customer support software, and routine financial systems.Nonetheless, Apollo’s short bets were just a small slice of its $700 billion credit book—less than 1%—according to a person familiar with the matter, with some of the funds used as hedges. However, the software loans that Apollo bet against fell in value at times this year, but they’re all now trading above 80 cents on the dollar, halting concerns about near-term trouble. Though since the early 2010s, buyout specialists have borrowed hundreds of billions to acquire software firms, as lenders increasingly value recurring revenue and strong margins.Apollo still recognises that AI could benefit software companies, but its top executives have decided to cut exposure, preferring not to take directional industry positions. Marc Rowan, at a recent conference, even commented, “I don’t know whether that’s going to be enterprise software, which could […] benefit or be destroyed by this. As a lender, I’m not sure I want to be there to find out.”Apollo is working to push software exposure across its credit portfolios below 10%.Apollo has steadily reduced its exposure by lending to the sector throughout the year. At the start of 2025, roughly a fifth of Apollo’s private credit funds were tied to software groups, but that exposure has now been almost halved, Rowan said in closed-door investor meetings at a Goldman Sachs conference on Wednesday, a source in attendance said.According to Rowan, the firm aims for software exposure across its credit funds to fall below 10% of net assets. It has been internally assessing which companies may be most vulnerable to AI disruption, and many other investors share similar concerns.At an FT conference in October, Blackstone’s president, Jonathan Gray, warned that investors were underestimating the potential for disruption from technology, stating that he has challenged dealmakers to prominently quantify AI risks in their investment memos and identify specific companies as particularly vulnerable.Gray commented, “We’ve told our credit and equity teams: address AI on the first pages of your investment memos. If you think about rules-based businesses — legal, accounting, transaction and claims processing — this is going to be profound.” Sharpen your strategy with mentorship + daily ideas - 30 days free access to our trading program