Alternatives

The Software Slump

Michelle Handy

Senior Managing Director and Chief Investment Officer of Direct Lending, Napier Park Global Capital

Next-generation artificial intelligence (AI) tools from the likes of OpenAI and Anthropic have sounded alarms about potential disruption to the tech landscape and weighed heavily on stocks in the enterprise software space. The S&P Software & Services Select Industry Index, for example, is down more than 23% from its September 2025 peak.1

More recently, AI concerns have spread to the credit market. Broadly syndicated loan prices declined $0.90 in January, driven by a $3.60 fall in software, which at 16% is the largest component of the market.2 While private credit lacks a secondary market to capture short-term changes in sentiment, the sharp declines in the share prices of publicly traded private credit vehicles suggest the strain is also being felt in middle market direct lending; a number of high-profile business development companies and listed alternative credit managers are trading 25% or more off recent peaks.3

While the advancement of AI tools is likely to have an impact across software—and many other sectors—we believe there is more nuance to the AI story than the headlines would suggest. The degree of dislocation will likely vary among borrowers. In our view, enterprise software platforms with differentiated offerings, large installed bases and deep integration in customer ecosystems are likely to be most resilient in the face of AI—or potentially even add value to their client relationships by leveraging emerging functionality. In the meantime, credit quality statistics for the industry overall remain strong, and long-term contractual obligations may blunt immediate margin pressure.4

We’ve written previously about the importance of prudence in today’s market environment of tight spreads, all-in yield compression and heightened idiosyncratic risk, and we believe the swift repricing of software credits year to date underscores our view that caution is the new conviction.

1Source: S&P Global; data as of February 9, 2026.
2Source: BofA Securities; data as of February 4, 2026.
3Source: Bloomberg; data as of February 9, 2026.
4Source: KBRA Research; data as of February 5, 2026.

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Broadly-syndicated loans (BSLs) typically refer to floating-rate commercial loans provided by a group of lenders—the syndicate—to a noninvestment grade borrower.

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S&P Software & Services Select Industry Index (Gross/Total) measures the performance of stocks in the S&P Total Market Index that are classified in the application software, interactive home entertainment, information technology consulting and other services, and systems software sub-industries. A total-return index tracks price changes and reinvestment of distribution income.

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