Demand for European software loans is showing signs of recovery after artificial intelligence (AI) concerns sparked a sell-off earlier this year.

AI-related concerns around software companies caused a broad sell-off in late February and early March, with European software loans recovering slightly in April and May before experiencing another, smaller sell-off in June.

According to data from PitchBook’s European Leveraged Loan Index (ELLI), demand for software loans rose again following the June sell-off.

PitchBook said that, before AI-related concerns emerged, software loans often traded at a premium to, or in line with, the broader market. While loans in the sector remain weaker than the wider market, the gap had begun to narrow, the firm said.

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Sentiment towards software has improved slightly, PitchBook said, with the weighted average bid for loans in the category rising to 92.45 by the end of July, from 92.25 at the end of June.

However, PitchBook said the returns generated by the software portion of the ELLI had improved but remained in negative territory, moving from a low of negative 7.86 per cent on 3 March to a milder 1.38 per cent loss year to date by the end of July.

“Looking at the performance for July, software generated a return of 1.07 per cent in the month, the second-best performance for sectors tracked by LCD,” PitchBook said.

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