Key Takeaways
- • BlackRock argues AI's credit impact must be assessed bottom-up through company fundamentals, management insight and industry expertise rather than broad thematic assumptions.
- • Software is not a single credit exposure: BlackRock says recent volatility reflects both AI uncertainty and pre-existing weaknesses in businesses financed at elevated valuations and excessive leverage, and expects both winners and losers.
- • Lenders are shifting toward near- and medium-term cash-flow visibility, which BlackRock expects to produce bifurcated financing terms with tighter structures and higher borrowing costs for AI-exposed borrowers.
- • BlackRock flags legal services, business process outsourcing and B2B service providers as sectors where AI could significantly disrupt repeatable-task business models.
- • For AI infrastructure financing, BlackRock says counterparty strength, notably large hyperscalers and investment-grade borrowers, matters more than predicting technology outcomes, and that today's buildout differs from the 1990s telecom bubble because much capacity has committed users before completion.
Summary
BlackRock's private credit commentary, titled "AI and Private Credit: Risks and Opportunities," contends that artificial intelligence is reshaping corporate spending and competition, and that its financial effects are only beginning to emerge. For credit investors, the firm argues, the central task is assessing how AI's impact varies across industries, companies and business models, which calls for a bottom-up approach grounded in company fundamentals, management insight and industry expertise.
On software, BlackRock states the sector should not be viewed through a single lens. The firm says recent volatility reflects both uncertainty around AI and pre-existing weaknesses in businesses financed during a period of elevated valuations, abundant capital and excessive leverage. In many cases, it argues, underperformance stems as much from execution problems, competitive pressure or unrealistic growth assumptions as from generative AI. Lenders are now focusing on whether companies can generate enough cash to repay debt, prioritizing near- and medium-term earnings visibility over long-range assumptions. BlackRock expects this to produce more conservative structures, including lower leverage, stronger documentation and greater downside protection, and a market that becomes increasingly bifurcated: low-disruption-risk businesses may keep attractive terms, while others face tighter structures and higher borrowing costs. The article also points to scale as a differentiator, noting that larger firms may be better positioned to fund AI development and adapt to customer demands.
Beyond software, BlackRock highlights legal services, business process outsourcing and B2B service providers as sectors where automation could have significant implications. The common risk, the firm says, is reliance on repeatable tasks. It adds that such businesses do not necessarily disappear, and that the conversation is shifting toward using productivity gains to improve profitability and adapt pricing models.
On AI infrastructure, BlackRock acknowledges comparisons with the late-1990s telecom buildout but argues the current environment differs: unlike unused fiber left after the telecom bubble burst, much AI infrastructure already has committed users before construction is complete. For credit investors, the firm says financing depends less on predicting technology outcomes and more on counterparty strength, with many transactions supported by large hyperscalers and investment-grade corporate borrowers. The article also notes private credit opportunities are expanding beyond sponsor-backed leveraged buyouts to large corporate and investment-grade borrowers seeking flexible financing for AI-related capital investment.
BlackRock concludes that uncertainty itself creates opportunity, that diversification across investments and sectors remains essential, and that private credit managers best placed to succeed will focus on cash-flow generation and resist simplistic narratives.
On software, BlackRock states the sector should not be viewed through a single lens. The firm says recent volatility reflects both uncertainty around AI and pre-existing weaknesses in businesses financed during a period of elevated valuations, abundant capital and excessive leverage. In many cases, it argues, underperformance stems as much from execution problems, competitive pressure or unrealistic growth assumptions as from generative AI. Lenders are now focusing on whether companies can generate enough cash to repay debt, prioritizing near- and medium-term earnings visibility over long-range assumptions. BlackRock expects this to produce more conservative structures, including lower leverage, stronger documentation and greater downside protection, and a market that becomes increasingly bifurcated: low-disruption-risk businesses may keep attractive terms, while others face tighter structures and higher borrowing costs. The article also points to scale as a differentiator, noting that larger firms may be better positioned to fund AI development and adapt to customer demands.
Beyond software, BlackRock highlights legal services, business process outsourcing and B2B service providers as sectors where automation could have significant implications. The common risk, the firm says, is reliance on repeatable tasks. It adds that such businesses do not necessarily disappear, and that the conversation is shifting toward using productivity gains to improve profitability and adapt pricing models.
On AI infrastructure, BlackRock acknowledges comparisons with the late-1990s telecom buildout but argues the current environment differs: unlike unused fiber left after the telecom bubble burst, much AI infrastructure already has committed users before construction is complete. For credit investors, the firm says financing depends less on predicting technology outcomes and more on counterparty strength, with many transactions supported by large hyperscalers and investment-grade corporate borrowers. The article also notes private credit opportunities are expanding beyond sponsor-backed leveraged buyouts to large corporate and investment-grade borrowers seeking flexible financing for AI-related capital investment.
BlackRock concludes that uncertainty itself creates opportunity, that diversification across investments and sectors remains essential, and that private credit managers best placed to succeed will focus on cash-flow generation and resist simplistic narratives.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.