Turns out, the cockroaches Jamie Dimon warned about last year didn’t stay hidden for long.

Private credit is back in the spotlight once again, with fund managers under pressure amid the so-called “SaaSpocalypse,” as concerns over struggling software companies grow and investors head for the exits.

Here’s how that’s playing out:

• Apollo is capping withdrawals from its flagship private credit fund after redemption requests surged to over 11% of shares—more than double its quarterly limit—leaving investors able to withdraw only a fraction of what they requested. Software remains its largest exposure, accounting for 12.3% of loans.
• Ares is facing similar pressure, with its $10.7 billion Strategic Income Fund hitting its redemption ceiling. Investors requested to redeem roughly 11.6% of shares, forcing the fund to enforce a 5% cap.
• KKR/Future Standard: Moody’s downgraded a fund managed by the firms to junk, citing deteriorating asset quality and a rise in non-performing loans to 5.5% of the portfolio.

It’s not all bad news

Shares of Apollo, Ares, and KKR are all down sharply over the last six months as investors worry that the risks of holding on through the private credit industry upheaval are beginning to outweigh the rewards.

Of course, these fund managers argue that the restrictions are not signs of distress, but rather a form of disciplined stewardship. Limiting withdrawals helps avoid forced asset sales at unfavorable prices, protecting long-term value and balancing the interests of investors seeking liquidity with those who remain invested.

While doom-and-gloom headlines have pervaded as private credit problems come to light, Goldman Sachs says the risks may be overstated in the grander scheme of things. Economist Manuel Abecasis noted that private credit makes up only about 4% of lending to the private non-financial sector, and a rise in defaults to between 3% and 4% would shave just 10 basis points off GDP, suggesting limited systemic impact.

On the other hand, DoubleLine CEO Jeffrey Gundlach warned that today’s stagnant, directionless market environment resembles the period leading up to the 2008 financial crisis, where muted performance masked underlying vulnerabilities that only became apparent later. He pointed to private credit as one area where stress may not be as contained as investors believe.

The house always wins

But no matter how it all plays out, one industry will prosper: banks.

Big banks are playing both defense and offense: pulling back risk, tightening credit, and scrutinizing exposure to limit downside, while at the same time positioning to profit from the stress by structuring trades that let clients bet against private credit. However, as might be expected, this dynamic is somewhat controversial, as banks are effectively taking positions against firms that are simultaneously their clients and competitors.

As pressure builds in private credit, banks may have the luxury of playing both sides. But if conditions deteriorate sharply, they risk being exposed on both fronts rather than benefiting from either.—SY

🟢 What’s up

• Gap rose 3.24% after it partnered with Google’s Gemini to let shoppers check out directly inside the AI platform, becoming the first major fashion brand to push into agentic commerce.
• Jefferies jumped 2.6% on reports that Japan’s SMFG is exploring a potential takeover of the US investment bank.
• Applied Optoelectronics surged 18.94% on a new order for 800G data center transceivers from a major hyperscale customer, pulling optical peers Corning 8.43% and Lumentum 10.02% higher as well.
• US-based Netgear rose 10.88% following an FCC ban on imports of foreign-made consumer routers.
• CVS climbed 2.12% after reaching a settlement with the FTC over insulin pricing.

What’s down

• Estée Lauder fell 9.85% after confirming merger discussions with Spanish fashion company Puig Brands.
• ImmunityBio dropped 21.12% after the FDA issued a warning over misleading promotions tied to its cancer therapy.
• Concentrix slipped 19.81% as an earnings miss overshadowed a revenue beat.
• Circle Internet Group tanked 20.11% and Coinbase fell 9.76% thanks to reports that a proposed crypto bill could ban rewards on stablecoin balances.
• SAP fell 4.03% following a JPMorgan downgrade, citing slowing cloud backlog growth and limited visibility into reacceleration.
• Software companies tumbled as Anthropic and AWS ramped up AI automation efforts. Salesforce fell 6.23%, Datadog dropped 5.15%, Microsoft slipped 2.73%, and CrowdStrike declined 4.92%.

Pikachu is in a panic: Nintendo announced today that it is cutting the production of its Switch 2 console by 30%, from 6 million units down to 4 million, due to slower holiday sales than anticipated. The company’s US-traded ADR shares sank 5.13% on the news.

It’s a bitter pill for shareholders to swallow: The June debut of the $450 console was met with huge demand, and Nintendo sold over 3.5 million units in just four days—crushing the 2.7 million original Switch consoles sold in the first month on shelves back in 2017. But the OG Switch is still a viable platform for many gamers who don’t feel the need to jump ship, while Nintendo’s slate of games for the new console hasn’t been as enticing as hoped.

Today’s decline has nearly erased what was otherwise a strong month for the company. The surprise success of Pokopia, a new game that combines two of Nintendo’s strongest franchises (Animal Crossing and Pokemon), pushed shares 18% higher through mid-March since its release on March 5. Now, the stock is up just 1.71% this month.

It’s the latest blow for Nintendo, which is enduring higher production costs thanks to a global shortage of memory chips, a key part of its consoles. In fact, the company may soon have to raise the price of its consoles to offset rising costs.

Slowing sales and higher prices is not a winning combination for a stock that’s already down 21.62% over the last 12 months.—MR

Elon’s most famous ventures look like the stuff of science fiction, but his latest—and perhaps most ambitious plan of all—is less flashy: Vertical integration.

Terafab may sound like a character in Super Mario Bros, but it’s actually Musk’s planned mega-factory being built in Austin, Texas to power Tesla, SpaceX, and xAI. The goal there is to produce AI chips at a massive scale to support the entire Elon-verse vision, including self-driving systems, humanoid robots, and even space-based data centers.

As per usual, Musk was humble about the project, calling it the “most epic chip-building exercise in history by far.”

Zoom out: Demand for AI chips is exploding, and Musk’s various ventures rely on huge data centers to power his vision. Right now, the AI titans are depending on companies like Nvidia and TSMC being able to scale production, and creating his own chip supply chain could be an enormous boost to Musk’s businesses. But analysts argue Musk’s plan to house chip design, fabrication, and production all under one roof will be expensive, and difficult to pull off.

Spend money to make money

Musk said in the announcement Saturday that he’s aiming to scale roughly 1 terawatt of computer power per year, which Bernstein analyst Stacy Rasgon said could require up to $13 trillion in spending to accomplish.

So, who gets all that money?

Mizuho analyst Jordan Klein wrote that Musk will need Dutch firm ASML’s lithography machines to actually make his own chips. He’ll also require water-fab-equipment from KLA, as well as manufacturing and packaging equipment from the likes of Applied Materials, Lam Research, and TE Connectivity, according to Klein.

Klein cautioned against investors seeing Terafab—and the subsequent stock winners—as a done deal. But if Terafab does happen, it could be a cash cow for equipment makers.

“This Terafab project with both SpaceX and Tesla is expected to cost up to $25 billion to produce at TSLA’s Giga Texas, making it the largest semiconductor fab in human history,” explained Dan Ives in a note yesterday.

That’s a whole lot of chips.—LB

• Despite, well, everything going on, Barclay’s just upped its S&P 500 price forecast.
• The New York Stock Exchange is partnering with software company Securitize to develop 24/7 tokenized securities trading.
• The top CFOs on Wall Street are warning that AI is coming for admin workers next.
• Some not-so-terrible airline news: United Airlines is planning to add about 250 new planes to its fleet.
• Kalshi is partnering with Fidelity National Information Service in the latest sign that prediction markets are hitting the mainstream.
• NASA is spending over $20 billion to build a base on the moon.

Economic reports: Economic readings remain few and far between, with just the import price index tomorrow. But we’ll hear from Fed governor Stephen Miran, the sole dissenting vote at the last FOMC meeting.

Earnings announcements: Chewy, Cintas, Jefferies, and Ondas Holdings