Apollo Takes Bearish Stance on Software Sector with Strategic Bets Against Corporate Debt

In the software arena, **Palantir Technologies** exemplifies the risks Apollo is targeting. Palantir’s Q3 2025 results showed robust AI-driven revenue growth (guidance $4.396-$4.400 billion), with commercial sales at 45.2% of net sales, but its **extremely high P/E and P/S ratios** signal speculative pricing.[1] Bearish analysts like RBC Capital ($50 target) contrast Piper Sandler’s $225, while AI models predict $225 year-end 2025—yet operational risks abound, including government contract dependency (56% H1 2024 revenue), complex implementations, and security vulnerabilities flagged in late 2025.[1]

AI Bubble Fears Fuel Bearish Bets: Software Debt in the Crosshairs

Apollo’s **bearish software bets against corporate debt** tap into mounting **AI bubble concerns 2025**, where trillion-dollar investments—surpassing the Apollo program’s inflation-adjusted cost—raise fears of a correction.[3][4][5] Deutsche Bank warns of surging debt among hyperscalers (e.g., Microsoft, Google net debt-to-EBITDA rising; $35B+ IG bond issuance in 2025), circular financing (OpenAI’s $1.4T compute commitments), and technical barriers like diminishing returns on training costs (Llama 2 at $10M vs. Grok 4 over $1B).[3]

Industry voices underscore the divide: NVIDIA’s Jensen Huang dismisses a bubble citing chip demand, while OpenAI’s Sam Altman admits overexcitement, predicting massive losses for some.[5] Investor Michael Burry’s bearish positions on NVIDIA and Palantir echo Apollo’s caution, as does the Bank of England’s warning of a “sharp market correction” with material spillovers.[4][5] Bank of America forecasts a mere 4% S&P 500 upside in 2026 due to an “air pocket” in tech, not a full bubble.[6]

Key Risks for Software Corporate Debt

• Unsustainable Valuations: Palantir and peers trade at premiums demanding flawless execution; growth moderation could trigger derating.[1]
• Competition and Pricing Pressure: Rivals like Snowflake offer lower-cost AI alternatives, eroding margins.[1]
• Debt Spiral: Hyperscalers’ rising leverage amid capex surges ($500B by 2026) heightens default risks if ROI disappoints.[3]
• Macro Headwinds: Potential Fed pause on rate cuts, per Apollo’s analysis, amid resilient GDP but upside inflation risks.[2]
• Sociopolitical Backlash: Job displacement fears (20%+ in UK/EU) could spur regulations curbing AI adoption.[3]

Implications for M&A and Private Equity in Software

For **private equity exit strategies in SaaS** and software, Apollo’s positioning signals caution on leveraged buyouts of AI-hyped firms. **Cross-border M&A trends 2025** may slow as debt markets tighten, favoring resilient credits over speculative software plays.[2] Historical parallels include dotcom busts, though IMF’s Pierre-Olivier Gourinchas notes current AI boom is equity-financed, limiting systemic risk.[4]

Apollo’s strategy—leveraging its $400B+ AUM in credit—positions it to capitalize on **distressed software debt opportunities**, potentially acquiring assets at discounts if bubble fears materialize. C-level executives eyeing software deals should stress-test valuations against bear cases, prioritizing cash flow over hype.