Skip to main content

Blue Owl says software's AI woes are for equity investors, not lenders like itself [Business Insider]

In the chaotic world of private credit, where the lines between traditional lending and venture-style risk have blurred over the last decade, Blue Owl Capital is drawing a very clear line in the sand. The firm, one of the largest and most influential direct lenders in the world, is sending a pointed message to the market: the turbulence and potential losses tied to the artificial intelligence software boom are a problem for equity investors, not for the lenders who hold the debt.

The AI Software Paradox: Growth vs. Cash Flow

For the uninitiated, the AI software landscape has been a tale of two realities over the past eighteen months. On one hand, you have the infrastructure giants—the Nvidias, the hyperscalers, and the chip fabricators—who are raking in billions as the picks-and-shovels providers of the AI revolution. But on the other hand, you have the software companies themselves, the thousands of startups and mid-cap firms trying to build the actual applications. Many of these software companies are burning cash at an alarming rate, chasing market share in a hyper-competitive environment where customer acquisition costs are sky-high and monetization is often deferred.

This has created a classic tension. Lenders who provided capital to these software firms during the low-interest-rate era of 2020-2021 are now facing a reckoning. Some of these borrowers are running out of runway. Others are seeing their valuations slashed in half. The narrative in the financial press has been one of caution, suggesting that the private credit market is about to get a nasty surprise from the AI software hangover.

David Weisburd, a venture capitalist and commentator on the private markets, recently highlighted this dynamic in a post on X, noting that "the private credit market is about to learn a hard lesson about software lending." But Blue Owl is pushing back hard against that generalization.

Blue Owl’s Unflinching Stance: We Lend to Cash Flow, Not Hype

During a recent investor call and in subsequent conversations with analysts, Blue Owl executives made it crystal clear that their software lending strategy is fundamentally different from the venture debt model that is currently under stress. The firm’s argument is simple: they are not betting on future unicorns. They are lending to mature, cash-flow-positive software businesses that happen to be using AI as a tool, not to speculative, pre-revenue AI startups.

“The concern around software lending is real for certain pockets of the market, but it is not a Blue Owl problem,” a senior executive reportedly told investors. “We are not lending to companies that are burning cash to build AI models that may or may not work. We are lending to established software platforms that have recurring revenue, high retention rates, and predictable cash flows. The AI component is an add-on, not the core thesis.”

This distinction is critical. The firms Blue Owl targets typically have enterprise value-to-EBITDA ratios and debt-to-EBITDA leverage levels that are far more conservative than those of the typical venture-backed AI startup. They are lending against the stability of an existing software franchise, not the speculative value of a future AI breakthrough.

Why the Distinction Matters for Investors

For the average retail investor or limited partner allocating capital to private credit, this distinction is the difference between a safe yield and a potential loss. The broader private credit market, which now exceeds $1.7 trillion in assets under management, is often painted with a broad brush. When headlines emerge about a troubled AI software company defaulting on its debt, it creates a ripple effect of fear across the entire asset class.

But Blue Owl is essentially telling the market: “Read the fine print.” Their loan book is heavily weighted toward what they call “asset-light, cash-flow-heavy” businesses. These are companies like tax preparation software firms, HR management platforms, and enterprise resource planning systems that have been around for a decade or more. They are using AI to automate workflows or improve customer service, but their business models do not depend on the success of a speculative AI product launch.

This is a classic risk management play. By focusing on resilient, recurring revenue models, Blue Owl is insulating itself from the volatility that is inherent in the venture-backed AI ecosystem. The firm’s default rates in this segment remain significantly below the industry average for software lending.

The "Credit Moat" in a Volatile Market

The argument Blue Owl is making is essentially about creating a credit moat. In a rising interest rate environment, and with the economy showing signs of slowing, the ability to differentiate between truly risky software lending and conservatively underwritten software lending becomes a massive competitive advantage.

Many smaller lenders, desperate for yield, have been forced to take on more risk. They are lending to AI companies with thin revenue streams, betting that a growth spurt will save them. Blue Owl, with its massive $230 billion asset base, has the luxury of being picky. They can walk away from a deal if the leverage is too high or if the cash flow isn't there. This discipline is what allows them to sit back and watch the equity investors in those risky AI companies take the haircuts.

In fact, Blue Owl’s stance suggests that the real pain from the AI software correction will be felt in the equity markets—by venture capitalists, angel investors, and public market shareholders who bought high. Their loans, secured against the hard assets and recurring revenues of stable software firms, are designed to weather the storm.

The Bottom Line for Readers

So, what does this mean for you? If you are an investor in Blue Owl’s funds, the message is one of reassurance. The firm is telling you that its exposure to the most speculative corners of the AI market is minimal. If you are a competitor in the lending space, it’s a warning that the market is bifurcating: the safe lenders are getting safer, and the risky ones are about to get punished.

The AI revolution is real, but the financial structure around it is messy. Blue Owl’s bet is that they can collect their interest payments while the equity holders fight over the wreckage of the companies that couldn’t make the transition. It’s a classic lender’s playbook, and in a market full of hype, it’s refreshingly boring. And in finance, boring usually wins.

As the dust settles on the AI software correction, the winners will be those who understood the difference between lending to a business and gambling on a technology. Blue Owl is making it very clear that they are in the first camp.

Ahmed Abed – News journalist

Latest

Want to hire for your robotics startup? The autonomous vehicle industry is ripe for picking. [Business Insider]

Want to hire for your robotics startup? The autonomous vehicle industry is ripe for picking. If you are trying to build a robotics startup right now, you know the pain. You are competing against the defense industry, big tech, and legacy manufacturers for the same small pool of engineers. But there is a secret patch of talent that is suddenly, and somewhat unexpectedly, available. I’m talking about the autonomous vehicle industry. For the last decade, self-driving car companies hoarded talent. They paid six-figure salaries for people who could write a sensor fusion algorithm or calibrate a LIDAR array. But the tide has turned. The hype has normalized. The "robotaxi in every driveway" promise has been pushed back a decade. And as a result, some of the most brilliant hardware and software engineers in the world are looking for their next move. This isn’t about poaching desperate people. It is about recognizing that the AV sector has matured into a perfect training ground ...
Read more

In OpenAI trial, Elon Musk points to meetings with Barack Obama and Larry Page as proof he's serious about AI risks [Business Insider]

In a California courtroom last week, the ongoing legal battle between Elon Musk and OpenAI took a turn into the realm of high-stakes geopolitics and celebrity summits. The Tesla and SpaceX CEO, testifying in a trial that could reshape the future of artificial intelligence development, pointed to two specific private meetings to underscore his long-standing warnings about unregulated AI. Musk, who co-founded OpenAI in 2015 and later left the board, is currently suing the company and its CEO, Sam Altman, alleging breach of contract and a deviation from the original non-profit mission. But in his testimony, Musk pivoted from the legal minutiae to a broader narrative: his personal, decades-long crusade to prevent an AI apocalypse. The Obama Meeting: A Warning at the Highest Level According to court transcripts, Musk recounted a private meeting with former President Barack Obama. The billionaire claimed he used this high-level audience to directly warn the 44th president about the exi...
Read more

Disney has decided to keep ESPN

It's official: Disney has decided to keep ESPN. After months of speculation, boardroom drama, and whispered rumors about spinning off the "Worldwide Leader in Sports," the House of Mouse has chosen to hold onto its most controversial—and profitable—asset. For sports fans, this is a seismic moment that deserves more than a headline. The decision, announced late Tuesday, ends a prolonged period of uncertainty. Analysts had been divided; some argued that ESPN's linear cable model was a dinosaur in a streaming world, while others insisted the brand still held immense value. Disney CEO Bob Iger, who returned to the helm in late 2022, has now made his stance clear: ESPN is staying in the family. Why the Change of Heart? To understand this, you have to look at the numbers. For all the talk about cord-cutting, ESPN still generates massive cash flow. It commands the highest affiliate fees of any cable network—around $9 per subscriber per month. That adds up to billions in...
Read more

Inside the rise of vibe coding's newest crowd [Business Insider]

In the sprawling digital landscape of 2024, a new kind of programmer is emerging. They don’t speak in Python or JavaScript. They don’t debug with breakpoints. They don’t even own a mechanical keyboard. Instead, they converse with artificial intelligence, describing their desires in plain English, and watch as code materializes before their eyes. This isn’t a dystopian future; it’s the present reality of "vibe coding," and its newest crowd is changing what it means to be a developer. Vibe coding, a term that first gained traction in niche developer forums, refers to the practice of using large language models (LLMs) like GPT-4, Claude, or specialized coding copilots to generate entire applications based on natural language prompts. The "vibe" is the key ingredient. It’s not about precise technical specifications. It’s about the mood, the aesthetic, the feeling you want the software to evoke. A user might say, "Create a retro-futuristic weather app that feels l...
Read more

Tory Burch says she would 'never trade off' being a good mom while building her company — but something had to give [Business Insider]

In a rare, candid interview that peeled back the glossy veneer of entrepreneurial mythology, fashion mogul Tory Burch admitted that building a billion-dollar brand while raising three sons required a trade-off she never publicly discussed—until now. "I would never trade off being a good mom," Burch told a small group of journalists last week in New York. "But something had to give. And that something was my own sleep, my own health, and the illusion that I could do it all perfectly." The 57-year-old designer, whose namesake company is valued at over $5 billion, has long been held up as a paragon of work-life balance. Yet in her new memoir and in conversations surrounding its release, Burch is rewriting that narrative—not as a confession of failure, but as a realistic blueprint for the compromises that define modern motherhood and ambition. The myth of 'having it all' Burch launched her company in 2004 from her kitchen table in Manhattan, with three y...
Read more

Here's what's behind oil's 8-day climb back to Iran-war highs [Business Insider]

Oil prices have surged for eight consecutive sessions, climbing back to levels not seen since the height of tensions with Iran earlier this year. The rally has caught many traders off guard, but the underlying drivers are a mix of tightening supply, geopolitical risk, and shifting market sentiment. Here’s a breakdown of what’s really behind this sustained climb. The Supply Squeeze: OPEC+ Discipline Meets Global Demand The most immediate factor is the ongoing production cuts from OPEC+ members, led by Saudi Arabia and Russia. Since late 2023, the alliance has trimmed output by roughly 2 million barrels per day (bpd). This isn't new news, but the market is now feeling the cumulative effect. Stockpiles in major consumer nations, especially the United States, have been drawing down faster than expected. The U.S. Energy Information Administration (EIA) reported a larger-than-anticipated crude inventory draw last week of 4.5 million barrels. When supply is tight, any additional bullis...
Read more

I'm glad I escaped my cult leader husband [Business Insider]

I never thought I’d be writing this from a safe house, looking out a window that doesn’t have bars on it. But here I am. Free. And I need to tell this story, because there are other women out there who might be reading this and wondering if the man they married is actually the leader of a cult. If you are one of them, please keep reading. I am glad I escaped my cult leader husband, and I want you to know you can too. How It Started: The Man Who Seemed Perfect When I met David, I thought he was the most charismatic man I had ever encountered. He wasn’t wealthy, and he didn’t drive a fancy car. But he had this way of looking at you—like he could see right through your soul. He would talk about "higher consciousness" and "the divine path." It sounded spiritual, even beautiful. I was 24, lonely, and searching for meaning. David offered me a purpose. He said I was his "chosen partner," the only one who could help him build a community of light. Within six mo...
Read more

Supreme Court sides with anti-abortion center raising First Amendment fears about state probe

In a decision that legal experts say could reshape the boundaries of state authority over anti-abortion crisis pregnancy centers, the Supreme Court on Tuesday unanimously sided with a California-based organization, ruling that the state’s investigation into its practices raised serious First Amendment concerns. The ruling, while narrow in scope, has already ignited a fierce debate about the limits of government oversight and the protection of ideological speech. The case, National Institute of Family and Life Advocates v. Becerra , centered on a California law that required licensed crisis pregnancy centers to post notices about the availability of state-funded contraception and abortion services. The centers, which typically oppose abortion and do not provide referrals for the procedure, argued that the law compelled them to deliver a message that violates their religious and political beliefs. The state countered that the requirement was a straightforward consumer protection measur...
Read more

Meta earnings updates: Stock drops 6% as capex spending expected to balloon to new heights [Business Insider]

Meta Platforms Inc. delivered its latest quarterly earnings report after the closing bell on Wednesday, and the headline numbers were strong. Revenue beat expectations, user growth remained steady, and the company’s core advertising business continued to hum. But one number stole the show—and sent shares sliding 6% in after-hours trading: the eye-popping, ballooning capital expenditure forecast for 2025. The CapEx elephant in the room Meta’s management guided for full-year 2025 capital expenditures in the range of $60 billion to $65 billion. That’s a staggering jump from the $35 billion to $40 billion range the company had projected just a few quarters ago. To put it bluntly, Meta is preparing to spend like a tech giant that sees the future—and is willing to bet the farm on it. CEO Mark Zuckerberg, during the earnings call, framed this as a necessary investment in artificial intelligence infrastructure. “We’re building for the next decade,” he told analysts. “The compute power we...
Read more

Ukraine strikesRussia's Tuapse refinery, Putin says attacks intensifying on civilian targets

The ongoing conflict between Ukraine and Russia took another significant turn this week as Ukrainian forces struck the critical Tuapse oil refinery in southern Russia, while Russian President Vladimir Putin claimed that attacks on civilian infrastructure are intensifying. The developments mark a new phase in the war, with both sides ramping up operations far from the front lines. Strike on Tuapse: A Strategic Blow In the early hours of Tuesday, Ukrainian drones and missiles hit the Tuapse refinery, located on Russia’s Black Sea coast in the Krasnodar region. The facility, one of Russia’s largest and most modern oil processing plants, has been a frequent target for Ukraine since 2022. According to local officials, the attack caused a massive fire that burned for several hours before emergency crews could contain it. The refinery processes roughly 12 million tons of crude oil annually, supplying fuel to both the Russian military and civilian markets. “This is a direct hit on Russia...
Read more