The stock market has swiftly penalized software companies and other industries perceived as losers in the recent artificial intelligence surge. However, according to UBS analyst Matthew Mish, credit markets are set to experience disruption risk next.
Mish forecasts that tens of billions of dollars in corporate loans may default within the next year. This is particularly true for software and data services firms owned by private equity, which are under pressure due to the AI threat, as noted in a recent research report.
Mish, who heads credit strategy at UBS, explained in a CNBC interview, "We're pricing in part of what we call a rapid, aggressive disruption scenario." He highlighted that UBS analysts have hurried to revise their forecasts because models from Anthropic and OpenAI have expedited AI disruption expectations.
"The market has been slow to react because they didn't really think it was going to happen this fast," Mish said. "People are having to recalibrate the whole way that they look at evaluating credit for this disruption risk, because it's not a '27 or '28 issue."
Investor concerns over AI surged this month as the market's perspective shifted. Initially, AI was seen as a beneficial advance for technology companies. Now, it appears more as a winner-take-all situation involving firms like Anthropic and OpenAI threatening existing players. Software companies were the first to be impacted, but a series of sell-offs also affected sectors such as finance, real estate, and trucking.
In his analysis, Mish, along with other UBS analysts, suggests a baseline scenario where borrowers of leveraged loans and private credit could face $75 billion to $120 billion in new defaults by year-end. CNBC derived these figures from Mish's expected increases of up to 2.5% and up to 4% in defaults for leveraged loans and private credit, respectively, by late 2026. These markets are estimated to be valued at $1.5 trillion and $2 trillion.