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Investors are souring on the bonds of software companies that service industries ranging from automotive to finance as fast-paced artificial intelligence innovations threaten to upend their business models.
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Prices on Rackspace Technology Global Inc., McAfee, ION Platform Investment Group and CDK Global’s debt were tumbling this week. ION Platform’s euro-denominated bonds notched their steepest drop on record Wednesday, sending prices to the lowest since being issued in October, while the financial data and software company’s dollar notes due in 2032 lost as much as 4.25 cents on the American dollar to trade around 87 cents, according to Bloomberg-compiled pricing.
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Rackspace’s roughly US$318 million first-lien bond due in 2028 was bid at 25 cents Wednesday, down from 30.5 cents on Monday, according to a broker run seen by Bloomberg.
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Bond prices tumbled as advances in artificial intelligence rack up. Google announced plans to launch an AI assistant to browse for internet surfers Wednesday while a customer support startup, Decagon AI Inc., raised a new round of funding. Such developments are further stoking the angst about AI displacing enterprise software companies, driving a selloff in the sector’s stocks and bonds across the globe.
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“Software multiples have compressed amid uncertainty around whether incumbents can defend pricing power and sustain growth in an AI-first work-flow environment,” wrote Bruce Richards, chief executive officer and chairman of Marathon Asset Management, in a LinkedIn post last week.
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The 7.25 per cent bonds due in 2029 of CDK Global, a software provider for the auto sector, fell 3.6 cents Wednesday while cybersecurity firm McAfee’s tumbled more than 4 cents this week. Cerved Group SpA’s bonds also weakened, putting the securities of the ION-owned company among the worst performers across the European high-yield space on Wednesday.
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Some say the AI fears weighing on software companies are overdone.
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“While point-solution software faces disruption risk, large company platforms with complex workflows and proprietary data are better positioned to benefit from AI-driven automation,” wrote Union Bancaire Privé in its investment outlook for 2026 released this week.
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But a recent report by EY-Parthenon flagged that in the United Kingdom last year, software and computer services firms issued the highest number of warnings on earnings among listed firms.
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