AI disruption could spark a ‘shock to the system' in credit markets, UBS analyst says

Core Viewpoint - The stock market is reacting negatively to software firms perceived as losers in the AI boom, with credit markets expected to face similar disruptions soon [1][2] Group 1: AI Disruption Impact - Tens of billions in corporate loans are projected to default over the next year, particularly affecting software and data services firms owned by private equity due to AI threats [1] - UBS analysts have updated their forecasts rapidly in response to accelerated AI disruption expectations from new models by Anthropic and OpenAI [2] - The market has been slow to react to the speed of AI disruption, necessitating a recalibration in credit evaluation methods [3] Group 2: Default Projections - UBS analysts estimate that borrowers of leveraged loans and private credit could see $75 billion to $120 billion in new defaults by the end of this year [4] - Default rates for leveraged loans and private credit are expected to increase by up to 2.5% and 4% respectively by late 2026, with these markets valued at $1.5 trillion and $2 trillion [4]