One of the largest alternative asset managers on the planet is looking at its software portfolio and seeing a ticking clock. Apollo Global Management has spent roughly 18 months systematically reducing its exposure to software investments, driven by a straightforward concern: AI is about to eat a lot of these companies’ lunch.

Apollo has trimmed software holdings in its direct lending funds from approximately 20% of net assets in early 2025 to a target of under 10% by early 2026. That’s not a gentle rebalancing. That’s a firm with over half a trillion dollars in assets under management sprinting toward the exits on an entire sector.

The SaaS reckoning is already underway

Enterprise SaaS revenue multiples dropped 38% over a six-month period, according to the firm’s own analysis. The culprit is generative AI, which is rapidly commoditizing functions that SaaS companies used to charge premium prices for.

Co-President John Zito and other Apollo executives have been vocal about the risks facing what they call “generic” or “less-differentiated” SaaS products. If your software does something that a large language model can replicate or approximate, your moat just became a puddle.

CEO Marc Rowan and senior partner David Sambur have echoed similar themes, stressing that only companies willing to make substantial investments in AI capabilities will survive the current market upheaval.

What Apollo is actually worried about

There are three specific risks driving this decision.

First, commoditization. AI-native tools are emerging that can replicate core functionality of established SaaS products at a fraction of the cost.

Second, pricing power erosion. SaaS companies have historically enjoyed strong pricing power because switching costs were high and alternatives were limited. AI is dissolving both of those advantages simultaneously.

Third, competition from AI-native startups. These aren’t companies adding AI to existing products. They’re companies built from the ground up around AI capabilities, with fundamentally different cost structures and product philosophies.

For a lender like Apollo, these risks compound in an uncomfortable way. If a borrower’s revenue declines because AI ate its market, the company’s ability to service its debt deteriorates. And in private credit, where loans are often illiquid and held to maturity, you can’t just sell your position when the music stops.

The pivot, not the retreat

Apollo isn’t running away from technology broadly. The firm has made clear that it’s actively seeking AI-related opportunities in areas outside traditional software, particularly in infrastructure. Data centers, power generation, and the physical backbone that AI models require to function are all areas where Apollo sees durable investment potential.

The firm is also focused on integrating AI capabilities into its existing portfolio companies, essentially trying to ensure that the businesses it already owns are on the right side of the disruption curve.

Apollo also maintains a separate crypto-focused division, Apollo Crypto, which invests across blockchain technologies, decentralized finance, and AI infrastructure. While this arm operates independently from the firm’s software lending strategy, it reflects the same broader thesis: technology is reshaping financial infrastructure, and you’d better be positioned correctly.