Private Equity’s Hidden AI Bet

GMO /

22-05-2026

GMO argues that private equity portfolios have quietly become concentrated bets on leveraged, low-quality software companies just as AI threatens to disrupt the economics of software itself.

Over the last decade, public-to-private buyouts increasingly targeted highly leveraged, lower-profitability companies trading at elevated valuations relative to peers.
Roughly 40% of recent leveraged buyouts have been concentrated in software and services, an unprecedented sector concentration in private equity history.
GMO warns that private equity portfolios may be far more exposed to economic shocks, refinancing stress, and AI disruption than many allocators realize.
The report challenges the idea that private equity inherently provides diversification, arguing that most portfolios ultimately concentrate exposure toward smaller, lower-quality companies.

One of the report’s sharper observations is that the industry may have spent years buying software businesses precisely as AI begins commoditizing software creation itself.