Artificial intelligence has already shaken equity markets, but analysts now believe credit markets could face the next wave of disruption as companies struggle to adapt.
UBS credit strategist Matthew Mish warned that tens of billions of dollars in corporate loans may default within the next year.
Software and data services companies owned by private equity groups are seen as particularly vulnerable to rapid technological change.
The analyst said lenders are beginning to factor in what he described as a rapid disruption scenario as AI capabilities accelerate faster than expected.
He explained: “We’re pricing in part of what we call a rapid, aggressive disruption scenario.”
Forecasts Rapidly Rewritten
UBS recently revised its outlook after new artificial intelligence systems significantly advanced expectations around commercial deployment timelines.
Mish said the market had underestimated how quickly businesses would be forced to adapt operationally and financially to automation technology.
He noted: “The market has been slow to react because they didn’t really think it was going to happen this fast.”
He added: “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.”
The shift has already affected equities across several industries including finance, real estate, and transportation as investors reassess long-term profitability assumptions.
Default Wave Could Reach $120 Billion
UBS estimates leveraged loans and private credit markets could see between $75 billion and $120 billion in defaults by the end of the year.
Those sectors finance lower-rated companies and carry higher leverage, making them sensitive to declining revenues and technological competition.
In a more severe scenario, defaults could double and trigger broader funding stress across financial markets.
Mish warned: “The knock-on effect will be that you will have a credit crunch in loan markets.”
He continued: “You will have a broad repricing of leveraged credit, and you will have a shock to the system coming from credit.”
Winners And Losers Of The AI Economy
Companies appear to fall into three main categories based on resilience to automation technology according to the UBS research framework.
First are creators of large language models which could dominate value creation as adoption spreads across industries.
Second are financially strong software firms capable of integrating artificial intelligence to defend their competitive positions.
The final group consists of heavily indebted private equity owned software businesses which face the greatest structural threat.
Mish concluded: “The winners of this entire transformation — if it really becomes, as we’re increasingly believing, a rapid and very disruptive or severe [change] — the winners are least likely to come from that third bucket.”
