AI Broke Software. Credit Felt It.

GOOD MORNING, Thursday showed that the AI disruption trade is no longer confined to stock prices. Blue Owl sold $1.4 billion of loans and moved to wind down a retail private-credit fund as investors worried about leveraged software companies whose business models may be vulnerable to AI. Shares of private-credit managers fell across the board. Walmart added a second signal: sales remained solid, especially online, but management warned that lower-income households are still stretched. Then oil climbed to a six-month high as Trump gave Iran another deadline. AI is changing who investors think can repay debt, while geopolitics is keeping the macro cost of that debt elevated.

MARKETS | TLDR

Wall Street snapped a three-day winning streak: The S&P 500 fell about 0.3%, the Dow lost roughly 0.5% and the Nasdaq slipped about 0.3% as private-credit stress, Walmart's cautious outlook and U.S.-Iran tensions outweighed pockets of earnings strength.
Private-credit managers sold off: Blue Owl's plan to sell $1.4 billion of loans and wind down a retail credit vehicle intensified concern that AI disruption in software could migrate from equity valuations into leveraged-loan portfolios.
Oil reached its highest level in six months: Brent rose to about $71.87 a barrel and WTI to $66.62 as President Trump gave Iran a new deadline to reach a nuclear agreement or face potential escalation.

CREDIT TRANSMISSION

AI Just Reached the Private-Credit Market

Blue Owl said it would sell $1.4 billion of loans across three funds, including $600 million from Blue Owl Capital Corporation II, and use the proceeds to begin returning capital as that vehicle winds down. The firm had previously restricted redemptions after abandoning a plan to merge the fund into a listed sibling. Shares of Blue Owl and other private-market managers fell as investors reassessed the risks inside retail private-credit products.

The important connection is software. Private-credit firms financed a large wave of leveraged software deals when recurring subscription revenue looked unusually durable. AI has challenged that assumption by raising the possibility that automation compresses seat counts, pricing power or growth at heavily indebted software vendors. What started as an equity-market multiple compression is therefore becoming a credit-quality question: if software cash flows weaken, can borrowers still service debt written against yesterday's economics?

Blue Owl's asset sale provided one reassuring data point because the loans were sold close to their current marks, suggesting the portfolio was not obviously stuffed with hidden losses. But liquidity structure is a separate issue. Retail credit vehicles promise periodic withdrawals against assets that do not trade continuously. If investors lose confidence faster than loans can be sold, AI disruption can become a funding problem even before it becomes a default problem.

CONSUMER BARBELL

Walmart Grew. Its Low-Income Customer Still Looks Tired.

Walmart reported U.S. same-store sales growth of 4.6% and a 27% increase in U.S. online sales, while global revenue rose 5.6% to $190.66 billion. E-commerce continued to gain share, fast-delivery usage rose more than 60% over the year and the company announced a new $30 billion buyback.

The headline strength masks a more divided consumer. CEO John Furner said households earning below $50,000 remain stretched, while much of Walmart's recent share gain has come from customers earning more than $100,000. The company guided fiscal 2027 net sales growth to 3.5%-4.5%, below the roughly 5% Wall Street expected, and adjusted EPS guidance also came in below consensus.

That matters because Walmart is increasingly becoming two businesses at once: a defensive value retailer for pressured households and a faster-growing digital platform attracting higher-income shoppers. Advertising rose 37% and membership income is becoming more meaningful, giving Walmart higher-margin revenue streams beyond merchandise. The consumer is not collapsing. Spending power is simply becoming more uneven — and Walmart is gaining share from both sides of that divide.

HEADLINES

Blue Owl's fund episode revives the liquidity question: Private credit can hold loans at relatively stable marks, but retail investors can request cash quarterly — a mismatch that becomes more important when sentiment toward software debt deteriorates quickly.
Walmart's e-commerce engine keeps accelerating: Global e-commerce sales rose 24%, Walmart U.S. online sales increased 27% and advertising grew 37%, showing how the retailer is building higher-margin digital economics on top of its low-price store network.
Initial jobless claims point to a still-firm labor market: A larger-than-expected decline in claims helped reinforce the view that labor conditions remain resilient enough for the Fed to avoid rushing toward rate cuts.
The U.S. goods trade deficit hits a record: The widening gap complicated an otherwise sturdy economic picture and added another moving piece to first-quarter growth estimates.
Trump puts another clock on Iran: A new deadline pushed crude to multi-month highs, showing how quickly geopolitical risk can re-enter inflation expectations even before any physical supply is disrupted.

UPCOMING

Supreme Court tariff ruling — potentially February 20: A ruling on the legality of Trump's tariff regime could immediately change the market's assumptions around import costs, corporate margins and inflation.
Nvidia earnings — February 25: Nvidia will be the clearest test of whether record hyperscaler spending is still translating into enough accelerator demand to overcome growing concerns about custom silicon and AI return on investment.
January PPI — February 27: Producer prices will show whether tariffs and resilient demand are keeping upstream inflation sticky enough to delay Fed easing.
U.S.-Iran negotiations — coming days: Any concrete diplomatic progress could remove part of crude's geopolitical premium; another breakdown would make energy a more important input into the Fed and consumer outlook.

DEEP INSIGTHS

Blue Owl and the AI-to-Credit Transmission

Read this for why the software selloff matters beyond public equities. Private lenders financed leveraged software companies on the assumption of stable recurring cash flows. If AI changes those cash-flow assumptions, loan marks, fund liquidity and retail confidence can all come under pressure before defaults actually rise.

Walmart's Q4 Earnings Release

The primary filing shows the operating mix behind Walmart's resilience: 4.6% U.S. comparable-sales growth, 24% global e-commerce growth, a 37% jump in advertising and a new $30 billion buyback. It is a useful look at how a traditional retailer is using digital scale to offset a more cautious consumer.