AI disruption puts a target on software and knowledge-based businesses

Software and other knowledge-based businesses have undergone a sharp selloff in early 2026 arising from accelerating AI disruption risk, such as advancements in coding and business process agents. Price declines can be found across various sub-sectors—software, data providers, consulting, and others—in both equity and credit.

Looking in the rearview mirror, the competitive advantages of many of these businesses have historically translated to attractive corporate growth rates, profit margin profiles, and return on invested capital metrics. Their capital-light business models enabled them to generate growth with minimal investment in physical assets. Still, they have come under intense scrutiny amid ambitious forecasts about agentic AI capabilities.

As the extent of potential AI disruption has become more evident, we’ve held internal discussions, communicated with our third-party investment managers, scrutinized external research and conducted our own analysis to determine whether we’re entering a make-or-break period for these businesses. Together, these form an evolving mosaic, though we acknowledge the difficulty in forecasting technological change, particularly at inflection points.

An emerging opportunity set, not yet in focus

The recent decline in stock prices for knowledge-based businesses could be characterized as a “sell now, analyze later” approach. Investors are reasonably seeking to determine if companies will be able to survive, let alone continue to prosper, without reliable long-term information.

These businesses may ultimately prove to be well-positioned to leverage AI-driven productivity gains within their respective industries, particularly in highly specialized and mission-critical cases. But investors will need time and consistent proof that these companies can protect their competitive position, retain clients and steadily grow earnings.

Do we have confidence in the risk-reward profile of these impacted areas of the stock market? Not yet.

Do we believe investors are being adequately compensated to take contrarian positions in credit? Also, not yet.

Opportunities may emerge earlier in private credit markets than in equities as risk-reward expectations change and because investors underwrite each asset class differently. In simplistic terms, for an equity to do well, the business must thrive over the long term, but it only has to survive for a credit to do well.

Equity selloffs can offer attractive entry points to investors as risk-reward expectations improve with falling prices. Here, however, our confidence is mixed because it may be fair for investors to re-rate these businesses—adjusting their valuations lower—as they have long traded at lofty valuation multiples and their profitability could decline in the future. This poses challenges in establishing clear risk-reward expectations for equities as a whole, although select opportunities may present themselves.

An inflection point for capital-light business models

Although software businesses have occupied the spotlight, the selloff has also included other capital-light, knowledge-based business models such as consulting, data providers, and financial services.

The headline narrative has been that not only might agentic AI replace legacy code, but it could also disrupt embedded business logic and long-marketed “proprietary” data, which ultimately may turn out to be replicable or no longer where the value is created. In short, while the fallout has begun to extend beyond pure software companies, the eventual opportunity set for agentic AI disruption could be much broader.

With that in mind—and with an appreciation for the rapid tech-driven changes to the way we work and live—we continue to seek opportunities that offer attractive risk-reward potential across public and private markets.