Asks about contagion risk in credit markets given recent warnings.
Host
Victor Khosla
High yield credit market is $5.5T but relatively small; software disruption is a 'big stick' adding to existing stress.
Questions UBS report warning of 15% AI-triggered default surge in debt markets.
Host
Victor Khosla
UBS scenario is worst-case; tail risk in credit is now 'fat' due to software disruption uncertainty.
Asks if software exposure to AI is as severe as feared, citing NVIDIA CEO's more moderate view.
Host
Victor Khosla
AI will destroy segments, not all, of software; problems will emerge where private equity overpaid for growth.
Questions timeframe of disruption relative to credit asset durations.
Host
Victor Khosla
Less concerned about deep US recession; more concerned credit at 300bps spreads is mispriced.
Asks how mispricing corrects and why he's smiling.
Host
Victor Khosla
Correction happens over 3-6 months, not instantly; volatility creates opportunity for lending/turnarounds.
Compares current opportunity pipeline to early 2022.
Host
Victor Khosla
Pipeline grew from $75B (100 deals) pre-rate hikes to $300B today.
Asks about debt financing for AI hyperscalers/software companies and market receptivity.
Host
Victor Khosla
These companies issue in investment grade at tight spreads; we target 15% returns, so not our market.
Asks about AI exposure in real economy companies like steel.
Host
Victor Khosla
AI can add $50-75M EBITDA in steel via better scrap purchasing; must invest to capture value.
Asks about AI productivity vs. job destruction narrative.
Host
Victor Khosla
Primary AI disruption is in high-knowledge businesses; 40% of our portfolio is real assets (infrastructure, real estate) insulated from that.