Steve Eisman, the investor who shorted subprime mortgages before the 2008 collapse, said the next credit cycle is brewing inside private equity’s software loan book, and generative AI is the trigger.

Eisman pressed Apollo Global Management Inc (NYSE:APO) co-head of global originations Chris Edson on his “Real Eisman Playbook” podcast about how the buyout industry’s largest single sector exposure may be quietly unraveling.

A Third Of Every Buyout

Software has accounted for roughly a third of all private equity buyouts over the past five to six years, Edson said, with total capital exposure across the direct lending market running into “hundreds of billions of dollars.”

That matters because the loans behind those buyouts were underwritten on the assumption that SaaS revenue is the most reliable cash flow in business.

Eisman summarized the model as “future number of seats multiplied by the average price,” calling it “elegant” and “easy to predict.” Lenders extended credit at high multiples on exactly that predictability.

The two risks now, Eisman said, are that “the seats aren’t going to grow as fast, they may go down” and “your ability to raise price is probably a hell of a lot weaker than it’s been in 30 years.” Either pressure compresses the cash flow the loan was sized against. Both at once is a covenant problem.

Apollo originated $300 billion of assets last year and claims software exposure of just “a couple percent” of assets under management, with effectively zero on the Athene insurance balance sheet.

Edson said the firm’s value-oriented underwriting on cash flow multiples kept it out of enterprise-value-based software lending years ago.

Polymarket Is Not Buying The Eisman Thesis

Eisman is calling two prediction-market consensus prices wrong at the same time.

Polymarket’s “AI bubble burst by…?” contract assigns just 11% to a 2026 burst on $2.5 million of volume.

The “US recession by end of 2026?” market is pricing 26% Yes on $1.4 million of volume, well off its highs after the Iran hot war turned cold.

If Eisman is right, the leak shows up in private books before it shows up on either contract.

Software seat compression hits SaaS multiples first, bleeds into the BDC and direct-lending books bankrolling the buyouts, and only then reaches the NBER.

Microsoft Corp (NASDAQ:MSFT), Oracle Corp (NYSE:ORCL) and Salesforce Inc (NYSE:CRM) all report earnings into a market that may not yet be looking for it.

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