Anthropic's Claude Mythos AI model triggers sharp selloff in US software stocks

Anthropic Restricts Powerful AI Model Over Security Concerns

US software stocks fall sharply after Anthropic announced it would limit access to its latest AI model, Claude Mythos, to approximately 40 companies including Microsoft and Google 1

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. The decision came after the model discovered thousands of cybersecurity vulnerabilities across every major operating system and web browser, raising alarm bells about the disruptive potential of AI in the software industry 2

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AI Disruption Deepens Investor Fears About Legacy Software Companies

The S&P 500 Software and Services Index dropped 3.1% on Thursday, extending its year-to-date decline to nearly 26% 1

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. Michael O'Rourke, chief market strategist at JonesTrading, explained the dual concern: "If Mythos is that strong and that powerful and it's exposing these vulnerabilities that have been around for years, it just shows one, the weakness of the current software that's out there and two, that AI is still making incredible progress versus legacy software companies" 1

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Cybersecurity firms bore the brunt of the selloff. CrowdStrike, Okta, Cloudflare, and SentinelOne dropped between 4.7% and 7.7% in morning trade 2

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. Zscaler emerged as one of the biggest decliners on the S&P 500, plummeting 8.6% after BTIG downgraded the stock to neutral from buy, citing concerns over demand and potential competition 1

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SaaS Companies Face Existential Threat

Investor fears center on whether AI tools capable of automating human tasks could pose an existential threat to SaaS companies that sell subscription-based products to clients 3

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. Enterprise software developers felt the impact as Atlassian, Workday, Adobe, Salesforce, and Intuit dropped between 3.7% and 6.8% 2

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Steve Sosnick, chief market analyst at Interactive Brokers, noted the return of sector-specific anxieties: "We're getting back to being concerned about the prior software-specific concerns stemming from AI and private credit that are coming back to the fore" 1

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Company Valuations Reflect Growing Uncertainty

The market turmoil has significantly impacted company valuations. Zscaler now trades at 31.4 times expected earnings over the next 12 months, near the bottom of its historical range, compared to a multiple of 55.4 at the beginning of the year 3

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. Michael Clarfeld, portfolio manager at ClearBridge Investments, acknowledged the uncertainty: "Whether AI spells the end of the software business is an open question. Given the unprecedented dynamism and speed of AI, we do not pretend to have the answers" 3

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Anthropic's new AI model has exposed vulnerabilities that have existed for years, demonstrating AI's capacity to identify weaknesses faster than traditional security methods. The anxiety extends beyond public markets into private credit, where investors scrutinize lending to technology companies amid doubts over future growth . Carlyle Group shares dipped 1.5% as its flagship private-credit interval fund faced redemptions, while European software companies including SAP Global, Capgemini, and Temenos fell between 3% and 7% .