Apollo has taken a bearish stance on enterprise software developers. What threatens them?

Apollo Global has reduced its presence in the enterprise software vendor sector, which has been the largest area for private equity over the past decade. One of the world's most influential investment firms believes that artificial intelligence is becoming a threat to many B2B software developers.

If at the beginning of 2025 on the shares of software developers in the portfolios of many private credit funds Apollo accounted for about 20%, by now this share has almost halved, reported the Financial Times, citing a source. According to the FT, in the middle of last week the head and co-founder of Apollo Global Management Mark Rowan told investors at a private meeting that he intends to bring this figure to below 10% of net assets in the near future. The billionaire investor announced his plans after Apollo assessed the potential risks to software makers from neural network technology.

In addition, Apollo opened short positions on loans issued by its competitors to three IT companies: Internet Brands, the owner of online platforms, SonicWall, a provider of network security solutions, and Perforce, a manufacturer of products for managing the development of complex IT projects. The investment giant expected the value of their debt to fall and planned to capitalize on the decline. According to the source, the strategy of betting against the software vendor sector was implemented for a significant part of 2025, but Apollo has now closed these positions.

Apollo sees the development of artificial intelligence as a fundamental risk for enterprise software developers, the article says. The threat lies in AI's ability to automate tasks that previously required special programs - code writing, customer support or routine financial operations.

Investor concerns about AI risks for software companies are exacerbated by the significant exposure of private equity to the sector. Software developers now account for a quarter to a third of assets in the portfolios of many of the largest private credit funds. A flurry of leveraged buyout deals for software makers in 2020-2021 has led to valuations that many market participants now consider inflated, the FT notes.

Jonathan Gray, president of US investment giant Blackstone, also sees AI as a threat to the business models of many software developers. According to him, investors underestimate the potential for disruptive impact of the new technology. In October, at a conference in London, Gray said he had made it mandatory for dealmakers to put AI risk assessments on the front page of investment memoranda.

The U.S. S&P 500 Software Industry Index, which tracks stocks of software companies included in the S&P 500, has added 11% since the start of 2025. The S&P 500 has risen 16% over the same period.

Another sector index, the Dow Jones U.S. Software, has gained 10% since January, also losing ground to the underlying benchmark Dow Jones Industrial Average (+14%).

This article was AI-translated and verified by a human editor