The Other Leverage in Software & AI | Tomasz Tunguz
The Other Leverage in Software & AI
February 4, 2026
finance private credit credit risk
Leveraged software companies running on leveraged infrastructure. When AI compresses software revenue, the stress doesn’t stop at equity. It cascades into debt.
BDC assets hit $475 billion in Q1 2025.1 Software comprises 23% of Ares Capital, the largest BDC.2
Shares of Blue Owl, Ares, & KKR dropped 9%+ on Tuesday. UBS estimates 35% of BDC portfolios face AI disruption.3
BDCs (Business Development Companies) are publicly traded private credit funds. They became the primary lenders to software over the last decade as private equity sponsors bought software companies with debt. The sponsors’ thesis was simple. Software revenue is durable, so lenders will accept 4-6x EBITDA leverage.4
AI is already writing code, conducting legal research, & managing workflows cheaper than legacy SaaS. The recurring revenue backing those loans is the target. Anthropic’s autonomous legal agents announcement sent LegalZoom & Thomson Reuters down 12%, echoing ChatGPT’s impact on Chegg & Stack Overflow. AI can vaporize software revenue.
The leverage extends beyond software into infrastructure. Oracle plans to raise $50b this year for cloud buildout, roughly half in debt.5 CoreWeave financed 87% of a $7.5b expansion with debt.6 Meta’s Hyperion data center in Louisiana is higher still, at 91.5% debt ($27b debt, $2.5b equity). Blue Owl Capital led the equity, with PIMCO anchoring the debt.7
Blackstone’s credit platform (BCORE) has recently funded Aligned Data Centers with over $1 billion in senior secured debt and Colovore with $925 million. Oracle is reportedly negotiating a $14 billion debt package for a Michigan project. BDC assets allocated to data center infrastructure grew 33% year-over-year in Q2 2025.
Private credit is expected to pour $750b into AI infrastructure through 2030.8 That capital faces several pressures.
Hyperscalers have extended GPU useful life to 6 years, but datacenter GPUs last 1-3 years in practice. A Google architect noted that thermal & electrical stress at 60-70% utilization limits physical lifespan.9
Oracle’s credit-default swaps have tripled since September, even as the company generates $15b in annual operating cash flow.10
AMD guided Q1 revenue to $9.8b. Despite 32% year-over-year growth, the stock dropped 9% as the guide missed analyst expectations by $300m.11 Small deviations from peak expectations trigger outsized repricing.
One fund is showing distress. BlackRock TCP Capital Corp. announced a 19% writedown in its private debt fund last month.12 The $1.7 billion fund invests in middle-market companies across software, healthcare, & manufacturing. Six investments dropped an average of 81% in fair value.
As the new phenomenon of debt in software & AI grows, any wobble in expectations will be amplified by borrowing. 1. BDC AUM Q1 2025 - LSTA ↩︎