Bank for International Settlements warns AI risk to software firms is under‑priced

The Bank for International Settlements (BIS) says the rapid expansion of generative artificial intelligence is increasing uncertainty about future cash flows for software companies. Its latest bulletin argues that equity valuations and credit spreads do not fully reflect the heightened risk, as investors continue to assign high prices despite the potential for faster product obsolescence and intensified competition. The BIS notes that AI lowers entry barriers, putting pressure on profit margins and forcing firms to invest constantly to stay competitive. While stock performance has already shown some moderation, credit markets have not yet priced in the added risk, suggesting a divergence that could lead to a reassessment of valuations if the market fails to incorporate these AI‑related challenges.

The report concludes that the sector’s sustainability will depend more on companies’ ability to turn AI innovation into durable business models than on initial enthusiasm for the technology.