Goldman Sachs: Private Credit May Deploy Capital at Scale into the Software Sector
Claire Weston
Goldman Sachs argues the market's pessimism on software default recovery rates is oversimplified. Private credit sits on ample dry powder and could step in big when funding dislocations appear — but returns hinge on picking the right sub-sectors.
What pressures is the software sector facing?
AI is disrupting traditional software business models, and leveraged-finance investors worry legacy software companies could be upended.
Some credit structures were built during peak valuations and low-rate conditions. Goldman says these may need "right-sizing" — in plain terms = the borrowing terms were too generous, and now the environment has changed, so the debt load needs recalculating.
A wave of loans matures in 2028, and persistent loan weakness since early 2026 has been dragging on sentiment.
What does the M&A data tell us?
PitchBook data shows U.S. software M&A volume hit roughly $17 billion in the first five months of this year — just 17% of the 2022 peak.
This means → buyer appetite has collapsed, sellers refuse to exit at depressed valuations, and capital movement across the sector is near-frozen.
This reflects a deep split over software's outlook: it is not that nobody wants to buy — it is that nobody is sure where AI will take these companies.
Are recovery rates really that low?
The market consensus assumes software defaults would yield weak recoveries — how much creditors get back. Goldman calls that view "oversimplified and overly pessimistic."
Goldman's strategists see stronger resilience in data infrastructure, cybersecurity, and sticky enterprise applications — segments where customers are hard to lose and asset values hold up.
In plain terms = not every software company is equally fragile. In certain sub-sectors, creditors would recover more than the market expects even in a default.
How will private credit deploy its dry powder?
Goldman strategist Amanda Lynam's team notes that private credit still holds substantial undeployed capital and has room to step in at scale when funding markets dislocate.
Goldman expects the market to show "more dispersion rather than broad-based deterioration," with investors assessing software on a more granular basis.
This means → whether dry powder turns into real returns depends not on the willingness to invest, but on the ability to distinguish which sub-sectors are worth the bet.
Content is for reference only, not financial advice.