Anthropic's Claude AI Sparks $1 Trillion Market Disruption as Software Stocks Tumble

Claude AI May Make Analyst Groupthink Even Worse

The past week of volatility showed how fickle and conformist financial markets are: One minute we're in an artificial-intelligence bubble that's about to burst, the next we're witnessing AI disruption across multiple industries. The latter belief underpinned the latest $1 trillion rout, triggered by new legal and financial tools from AI firm Anthropic PBC. At least, that's what the herd decided. Anthropic's open-source legal plugin for Claude Cowork isn't as effective as tools from legal AI specialists such as Harvey and Legora. Yet many investors saw it as an opportunity to rush to the exits on positions they were already nervous about. The irony is that whizzy financial AI tools like Anthropic's could make that mob mentality worse. Anthropic said its new Claude Opus 4.6, unveiled on Thursday, can analyze company data, regulatory filings and market information and then generate detailed assessments that would typically take a person days to complete1. That's all well and good, but consider what would happen if a tool like Claude became as popular among analysts and investors as ChatGPT, which is now used weekly by 10% of the global population. Such an ascendancy is plausible. Cloud computing is dominated by Amazon Inc., Microsoft Corp. and Alphabet Inc.'s Google, and the use of AI models is already confined to a small number of players: OpenAI's ChatGPT and Google's Gemini, with Anthropic's Claude coming up swiftly from behind. Now imagine what happens when equity analysts -- already well known for their corporate obsequiousness and pack mentality -- are all listening to the same quarterly earnings report, and using the same one or two AI models to transcribe, analyze and suggest advice based on that call. If market participants are all drawing from the same models trained on largely the same historic data, it's probable they'll not only miss the black swan events that have never happened before, but reach similar conclusions and investment strategies. "It should make good analysts more productive, but it's not going to replace the 50 analysts all vying to 'congratulate management,' 'interpret' the call, or end the conflict of interest that skew their ratings to nearly all 'buys,'" says Richard Kramer, founder and managing director of London-based Arete Research Services LLP. This is what Federal Reserve Governor Michael Barr meant last year when he warned that the ubiquitous use of generative AI tools by investors "could lead to herding behavior and the concentration of risk, potentially amplifying market volatility." Anthropic says its new model's so-called context window has expanded to 1 million tokens from 200,000, meaning it can digest thousands of pages of financial documents in one pass, which is genuinely impressive. But it could also accelerate the concentration problem. Claude, just like ChatGPT, is still a probabilistic text generator designed to predict the most likely next word, not the most original one. This means its outputs tend to echo what's already familiar. So when one model becomes the obvious choice for complex financial research, an increasing number of firms will find their strategies resembling each other even more. Sign up for the Bloomberg Opinion bundle Sign up for the Bloomberg Opinion bundle Sign up for the Bloomberg Opinion bundle Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. We're already seeing a similar phenomenon with content on the Internet, in the form of a linguistic and cultural flattening. When Tim Berners-Lee invented the World Wide Web in 1989, he envisioned an "anarchic jumble" of wild ideas. That's precisely what first emerged: gloriously weird pockets of content that were all discoverable, from a teenager's Buffy fan page on GeoCities to Usenet groups debating Tolkien linguistics, hamster care or stock picks. But the rise of large online platforms and search engine optimization wrung out much of that initial creativity; generative AI tools look set to homogenize it further as more people use ChatGPT to write their LinkedIn posts, blogs, marketing material and more. A 2024 study in Science Advances found that while stories co-authored with GPT-4 were more polished, they bore "uncanny resemblances to one another, lacking the unpredictable edge that human-only stories often contain." That should come as no surprise when models are picking the most statistically familiar token. A healthy financial market is one underpinned by a diversity of opinions. That helps keep pricing honest and panic at bay. So it's ironic that in adopting AI to steal a march on their rivals, market participants could now make themselves even more likely to follow the crowd, developing a kind of market monoculture. That could set them up to inflate the same bubbles and miss the same systemic vulnerabilities -- at least more than they already do. So much for that competitive edge. More from Bloomberg Opinion: * AI (Probably) Won't Kill All the Stonks: Opinion Wrap * Anthropic's Secret Weapon Is Its Manic Productivity: Parmy Olson * Wall Street's Doom-Mongering on Software Is Bizarre: Dave Lee Want more from Bloomberg Opinion? OPIN <GO> . Or subscribe to our daily newsletter .

Rise of AI means companies could pass on SaaS

The writing is on the wall as AI companies race to add vertical functionality Software stocks have taken a beating over the last month as investors grow concerned that AI could put vertical SaaS vendors out of business. The downturn is remarkable for analysts in the tech sector who have seen top SaaS companies grow revenues by 20% or more each year, year after year. "I think that investors are uncertain about SaaS stocks and how they create value," Lisa Lawson, analyst with Omedia told The Register. "SaaS has been so lucky in that they've experienced double-digit [revenue] growth for a very long time. Like pretty impressive double-digit growth for a long time. Now that growth isn't just based on how they can be more efficient. It's that they have new competition in the form of OpenAI and Anthropic. So yes. Investors are concerned about how SaaS can continue to grow, and prove its value and price points." In the last month Adobe, Microsoft, Salesforce, SAP, ServiceNow and Oracle have shed more than $730 billion in value as of Tuesday's market close. The iShares Expanded Tech Software Sector ETF, which houses 114 of the largest software stocks, is down 19 percent from a month ago, erasing the gains it has made since last April, and it is now nearly 30 percent off its high in September. During ServiceNow's earnings call last week, CEO Bill McDermott attributed the downturn to his company's M&A strategy, which he said likely resulted in the loss of $10 billion in market cap. He told analysts on the call that the company was done making acquisitions. "So now the worry is gone, you can give us back to market cap," he said on the Jan. 28 call. Alas, investors have only punished the stock more since they hung up the phone, sending share prices down 18 percent and erasing an additional $20 billion-plus from its market cap. The ITSM superstar that is used by enterprises around the world and posted strong earnings has lost $115 billion in market value since Jan. 5. Lawson said there are reasons to be worried that this is not a blip. "Just in January, both OpenAI and Anthropic announced a HIPAA-compliant life sciences health care tool that does directly compete against the Veevas of the world, and the Salesforce life sciences offerings," Lawson said. "These are very specific examples of these AI first companies directly competing with SaaS and directly competing with both the platforms and vertical solutions, and point solutions." Those moves by two of the largest foundation models echo the warning that Microsoft CEO Satya Nadella issued a year ago, when he said AI agents posed a risk to SaaS companies. Over the last month, no software stock has lost more value than Microsoft: more than $450 billion in value as of close on Feb. 3. "I think the notion that business applications exist, that's probably where they will all collapse in the agent era, because if you think about it, they are essentially CRUD databases with a bunch of business logic. The business logic is all going to these agents. These agents are going to be multi-repo CRUD," Nadella said on the Bg2 Pod referring to multi-repository create, read, update, delete databases. "They're not going to discriminate between what the back end is. They're going to update multiple databases and all the logic will be in the AI tier so to speak. Once the AI tier becomes the place where the logic is, then people will start replacing the backends." Nadella later compared it to the shift that happened when the relational database was created and separated the data tier from the application, which allowed developers to build business logic on top of the database. "So the CRUD database will then get orchestrated outside of the business logic tier of the SaaS application is what's going to happen," he said. However, Forrester vice president and principal analyst Charles Betz told The Register he doubts that will happen on a large scale. "I don't subscribe to his point of view for this simple reason: there are about 20,000 legal jurisdictions worldwide and complying with applicable regulation is a major reason why people trust vendors like SAP," he said. "At the very least, we are many years away from agentic systems being able to ingest regulations and comply with them in the systems they are going to generate on the fly." Betz said AI is shaping customer behavior, but he sees it being used to support buying decisions, rather than a wholesale replacement of SaaS stacks. Besides, running a software stack is a lot of work. "Even if you are using an AI to maintain it, keeping software up to date is a chore and a cost," he said. "The economics of SaaS may change, I don't doubt that. But this idea it evaporates? Nah." That's the same point made by managed service provider Jason Slagle, CEO of CNWR Inc., which installs and operates massive hardware and software deployments, dealing with dozens of vendors, for customers across the US. "So someone vibe codes some AI slop to do business functions. How do they maintain it? I see things integrating into Hubspot or Salesforce, not replacing it," he told The Register. "That isn't to say there won't be corrections. There are a ton of underwhelming SaaS applications that are features not products. Those will be the ones to go. The stocks that are getting a beating are a correction from a huge overvaluation that we've seen for a number of years. That overvaluation is just moving to AI." ®

Anthropic's breakout moment: how Claude won business and shook markets

Anthropic achieved a breakout moment this week, as investors bet the start-up has cornered the market selling AI products to businesses, worth hundreds of billions of dollars in revenue. The AI lab has kept a lower profile than rivals OpenAI, Google and Meta, which have focused on consumer-facing products, instead pitching its models as tools for developers and companies. That strategy came into focus over recent days with the release of new software that spooked public markets. Anthropic also captured attention with a Super Bowl advert that took aim at rivals, eliciting a tetchy response from OpenAI chief Sam Altman. The five-year-old San Francisco group has stepped into the spotlight as it puts the finishing touches on a roughly $35bn funding round at a $350bn valuation and takes steps towards a blockbuster initial public offering this year. Anthropic grew from $1bn in annualised revenue at the start of last year to more than $9bn by the end of 2025. The company has guided investors that annualised revenue will exceed $30bn by the end of this year and continue on a steep trajectory from there, according to people familiar with its finances. Anthropic's traction with businesses, product focus and stable leadership mean it is increasingly seen as a safer long-term bet than OpenAI, according to 12 investors who spoke to the FT. "Anthropic is a well-run company with a simple capital structure that's just working," said Mike Paulus, a billionaire former Andreessen Horowitz partner whose family office backs the start-up. "Sentiment has moved to the idea that enterprise is really where you get paid for AI." The San Francisco-headquartered start-up was founded in 2021 by a group of ex-OpenAI researchers, including siblings Dario and Daniela Amodei, chief executive and president, respectively. Since then, it has cultivated a sober, safety-orientated image, reinforced by lengthy blog posts by its CEO warning of the dangers of untrammelled AI. Anthropic's Claude Code tool for software engineering has become the industry leader since its launch a year ago. The system can read a company's existing code, plan tasks and execute them. It marks an early demonstration of "agentic" capabilities investors hope will unlock massive new markets, as AI models gain the ability to carry out complex tasks independently. It captivated workers and spawned the term "Claude benders" for marathon sessions building websites or apps with the tool. "Anthropic wanted to build with Claude Code internally, [but] when they saw how good it was they productised it aggressively," said Matt Murphy, a partner at Menlo Ventures, which first invested in Anthropic in 2023. Anthropic faces fierce competition from Google and OpenAI, with OpenAI releasing updates to its own coding tool, Codex, this week. An investor in both Anthropic and OpenAI insisted both could still thrive. "Anthropic's magic around coding is totally different from OpenAI's magic around ChatGPT replacing search." Another OpenAI backer highlighted Anthropic's modest market share: "Coding does not equal enterprise, it equals developers." But the wager being made by investors in Anthropic's ongoing funding round -- set to include Nvidia, Microsoft and top-tier venture capital firms including Lightspeed Venture Partners, Sequoia Capital and Altimeter Capital -- is that the company's tools will go further, reinventing white-collar jobs. "We took a view that AI is not 'enterprise' software in the traditional sense of going after IT budgets: it captures labour spend, at some point you're taking over human workflows end to end," said Sebastian Duesterhoeft, a partner at Lightspeed. The firm wrote a $1bn cheque to Anthropic last year, its single largest investment. In a bid to press home its advantage, Anthropic released a powerful new model on Thursday, called Claude Opus 4.6, and has pioneered techniques to train its models and manage their interactions with applications and databases. Over recent days, it released a set of "plug in" tools catering to specific industries, including law, sales, finance, marketing and customer support. On Friday, Goldman Sachs announced it was working with Anthropic on an AI agent to automate roles at the bank. These moves helped trigger a sell-off in public markets this week, with billions of dollars wiped from stocks related to data, enterprise software, advertising and publishing. "Anthropic's story has been very consistent: increasing intelligence will unlock greater market share. That feels very nebulous until you see what they actually mean," said Lillian Li, an investment manager at Baillie Gifford, which first backed Anthropic in 2025. Market reaction this week reflected "a realisation moment", she added. Li and other investors highlighted the start-up's mission-oriented culture as crucial to its success, in attracting and retaining talent. "Culture is an afterthought at most places," said one. "But for them it's a religion, they're evangelical about their beliefs over there." All seven Anthropic co-founders remain at the company. According to multiple investors, that stability provides an advantage over OpenAI, which has seen eight of its 11-strong founding team depart since it was launched in 2015. Altman himself was briefly ousted by the company's board in 2023. This week the company pledged not to introduce advertising into its products, distancing itself from rivals such as OpenAI, which has begun trial ads in ChatGPT in the push for new revenues. Anthropic plans to broadcast the decision via a series of tongue-in-cheek television adverts due to run at this weekend's Super Bowl. The ads are backed by a Dr Dre track with the lyrics: "what's the difference between me and you? You talk a good one but you don't do what you supposed to do". Daniela Amodei has claimed they are not directed at any other company. Altman described the ads as "clearly dishonest" and "on brand for Anthropic doublespeak" on X, before telling the tech podcast TBPN that the war of words was "a sideshow". Altman said: "People are excited for a food fight between companies but the amazing capabilities of these models, the product, the groundswell of excitement around Codex, that feels a lot more important."

Global software, data firms slide as AI disruption fears compound jitters over $600 billion capex plans

LONDON, Feb 6 (Reuters) - Global technology and data stocks slid again on Friday, as a rout showed no signs of abating on worries over the impact of powerful new AI models on their business and the billions hyperscalers plan to spend on their tech roll out this year. The risks to software and data and analytics firms following the release of a new plug-in from Anthropic's Claude has jolted world markets this week, just as some of the so-called hyperscalers unveil plans to spend over $600 billion on their various AI rollouts this year. Amazon (AMZN.O), opens new tab shares dropped 8% in premarket trading on Friday after the company's hefty capital expenditure plans deepened investor worries over Big Tech's AI spending spree. London-listed data and analytics firm RELX (REL.L), opens new tab, meanwhile, slid almost 5%, while Sage (SGE.L), opens new tab fell nearly 4% and Experian fell over 2%. Shares in London Stock Exchange Group (LSEG.L), opens new tab also fell further and was set for a second straight week of steep losses. The stock is down 7% this week. Europe's Capgemini (CAPP.PA), opens new tab fell 3% and Wolters Kluwer (WLSNc.AS), opens new tab was down nearly 4%. This week's drawdown in AI-exposed shares has weighed on broader equity markets. Global shares (.MIWO00000PUS), opens new tab are on track for the worst week since November, down 1.6%. The broad S&P 500 index is off 2% this week, while U.S. software and data services companies have burned around $1 trillion in market value since January 28 alone (.SPLRCIS), opens new tab. "Fresh AI bubble fears are surfacing after big tech companies massively increased their capex spending for the year - about $650 billion across the four hyperscalers who have reported earnings over the last fortnight," said Neil Wilson, Saxo UK Investor Strategist, in a note. The rout has been particularly acute in India. Indian software exporters plunged another 2% on Friday and looked set to end a tumultuous week that has seen $22.5 billion in market value losses. India's IT (.NIFTYIT), opens new tab index has shed almost 7% this week. Investor nerves over potential AI‑driven disruption are coinciding with a growing tendency to punish big tech firms for signaling even heavier spending on the technology. Google parent Alphabet also upped its spending plans on Thursday, sending its stock down as much as 8% intra-day though they ended Thursday largely flat. Shares were trading flat in premarket trading on Friday (GOOGL.O), opens new tab. "A recurring theme is emerging: both Alphabet and Amazon delivered strong underlying business performance, driven by better-than-expected growth in cloud. But that hasn't been enough to distract markets from their ballooning capital investment plans," said Aarin Chiekrie, equity analyst, Hargreaves Lansdown. Reporting by Lucy Raitano; Editing by Amanda Cooper and Dhara Ranasinghe Our Standards: The Thomson Reuters Trust Principles., opens new tab

AI fears pummel software stocks: Is it 'illogical' panic or a SaaS apocalypse?

The software sector faced renewed market concerns this week after artificial intelligence company Anthropic released new AI tools, triggering a sell-off in software-as-a-service and data provider stocks. Anthropic's new AI tools, built for its Claude "Cowork" AI agent, are designed to handle complex professional workflows that many software and data providers sell as core products. The tools and other similar AI agents target functions ranging from legal and technology research, customer relationship management and analytics. That has raised concerns that AI could undercut traditional software business models. The S&P 500 Software & Services Index, which has 140 constituents, fell over 4% on Thursday, extending its losing streak to eight sessions. The index is down about 20% so far this year. Shares of Thomson Reuters, Salesforce and LegalZoom were among the hardest hit in U.S. trading this week, with the sell-off spreading to Asian IT firms Tata Consultancy Services and Infosys. Despite the market jitters, analysts and tech executives remain divided on the long-term impact of these AI tools on these industries.

What's Behind the 'SaaSpocalypse' Plunge in Software Stocks

Since ChatGPT arrived on the scene some three years ago, analysts have been warning that entire industries, including software programming, legal services and film production, are at risk of being disrupted by artificial intelligence. But it took a wave of disappointing earnings reports, some improvements in AI models, and the release of a seemingly innocuous add-on from AI startup Anthropic to suddenly wake up investors en masse to the threat. The result has been the biggest stock selloff driven by the fear of AI displacement that markets have seen. And no stocks are hurting more than those of software-as-a-service (SaaS) companies. The Nasdaq 100 notched its worst two-day loss since October, erasing more than $550 billion in market value.That includes the hundreds of billions of dollars in market valuation that have been wiped from software and data stocks in what traders are calling a "SaaSpocalypse" that began Feb. 3 and continued into Feb. 4. Few in the software and data spaces have been spared; among the stocks hit were those of the London Stock Exchange Group Plc, Thomson Reuters Corp. and Oracle Corp. What are software-as-a-service companies and why are their shares getting pummeled? Software-as-a-service companies charge customers for applications that they access through the internet, usually through a web browser. SaaS vendors typically charge recurring fees for that access as opposed to employing the traditional approach of selling licenses. In return, their customers get the benefits of regular maintenance, upgrades, new features and patches. The SaaS model has been embraced by software developers including Microsoft Corp., Salesforce Inc. and Adobe Inc. and generated well over $400 billion in cloud spending in 2023 alone. But recently, warnings increased that AI tools posed a threat to the SaaS business model, weighing on the companies' stock performance. In late January, the pressure from AI accelerated after Anthropic introduced a series of plug-ins that automate business tasks, making the work faster and cheaper. Fears have grown that tools like these could eventually render such businesses, which rely on a strong user base for their subscription model to work, obsolete. Shares of software companies including Microsoft, Salesforce, Oracle, Intuit Inc. and AppLovin Corp. tumbled, dragging down the technology sector and weighing on the broader stock market. A Goldman Sachs basket of software stocks shed about 15% over the last seven trading days to its lowest level since April, roughly 25% below a September peak. How might AI services hurt the businesses of SaaS providers? The main threat AI poses to software-as-a-service businesses is the potential disruption to the way SaaS companies make money off their applications. Get the Bloomberg Deals newsletter. Get the Bloomberg Deals newsletter. Get the Bloomberg Deals newsletter. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. The latest news and analysis on M&A, IPOs, private equity, startup investing and the dealmakers behind it all, for subscribers only. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. SaaS companies typically charge businesses per user for software that their employees log into and use. AI -- and autonomous AI agents that perform tasks without humans in the loop in particular -- threaten to break that model because the technology can automate some of the work typically done by the people using SaaS products. That means an SaaS vendor may end up with fewer users to license and charge. There also is a concern that AI will make some SaaS tools less important. Many of these software products analyze and draw connections between data sets, help businesses manage their workflow, and generate reports. AI firms are increasingly developing and selling tools that perform similar tasks without the need for a dedicated platform. Not everyone agrees that these fears are warranted. Nvidia Corp. Chief Executive Officer Jensen Huang called the software stock selloff "the most illogical thing in the world." Huang argues that AI will need software products and improve them, not replace them. "Would you use a screwdriver or invent a new screwdriver?" he asked. To that point, several major SaaS providers have heavily invested in integrating AI into their products. SAP SE CEO Christian Klein has called the threat of AI to his business overblown. "To make this very clear, we are winning deals because of AI," he told analysts after reporting the company's earnings last month. What is Anthropic and what do its tools do? Anthropic is one of the largest AI model developers in the world. It's best known for building general purpose AI systems. Claude, its flagship AI chatbot, is a primary rival to OpenAI's ChatGPT. Anthropic has built its name on the idea that it develops its large language models in a safer and more responsible way than competitors. On top of building models, Anthropic has offered enterprise and developer tools that companies use to integrate AI into their own businesses and workflows. That's where the recent plug-ins that helped send some stocks sliding even further come in. Anthropic's plug-ins are designed to help businesses across several industries automate tasks. The one that ultimately caught Wall Street's attention was customized for the legal community, allowing attorneys to use its AI systems to more effectively review contracts, manage compliance workflows, and perform other administrative work. Several legal AI startups including Harvey and Legora already offer such services, so it wasn't fully clear why the Anthropic plug-in stood out as particularly concerning to software and data firm investors. What is clear is that the Anthropic plugin has become a powerful symbol, a proxy for what AI in general could do if it continues to advance, including displacing the legal AI startup ecosystem and putting the fortunes of an entire host of traditional software providers at risk. It signaled that all kinds of businesses may be vulnerable to being dislodged by more advanced, AI-centered technology.

US stocks drop on fears AI will hit software and analytics groups

US tech stocks fell sharply on Tuesday as fresh concerns about the impact of AI on software businesses swept across Wall Street. The tech-heavy Nasdaq Composite shed 1.4 per cent, while the broader S&P 500 was down 0.8 per cent. Markets were dragged lower by large declines for a host of analytics groups following AI company Anthropic's launch of productivity tools for its Claude Cowork platform that can help automate legal work. Analytics groups Gartner and S&P Global dropped 21 per cent and 11 per cent, respectively, while Intuit and Equifax both declined more than 10 per cent. Moody's fell 9 per cent and FactSet lost 11 per cent. A JPMorgan index tracking US software stocks slid 7 per cent, taking its loss this year to 18 per cent. "Software is getting a shellacking," said Charlie McElligott at Nomura. "The irony, the hilarity, is that everyone was breathing a big sigh of relief on the AI hyperscaler trade after Oracle got funding yesterday," he added, referring to the software group's several-times-subscribed $25bn bond offering on Monday. "The second-order impacts of the AI rollout are being felt today." Index heavyweights were caught up in Tuesday's sell-off, with chipmaker Nvidia down 2.8 per cent and Microsoft losing 2.9 per cent to extend its recent decline. Oracle dropped 3.4 per cent. "All the software players are clients of the hyperscalers" such as Amazon, Microsoft and Alphabet, said Mike O'Rourke at Jones Trading. "If the guys who are supposed to buy the computing power are being disrupted, that's bad for the hyperscalers, too. "If legal can be disrupted [by Anthropic's new tool] then so can consulting and financial services," he added. AMD, an AI chip rival to Nvidia, fell about 8 per cent after market on Tuesday despite the company beating Wall Street estimates both on last quarter's revenue and its $9.8bn sales forecast for the current quarter. Chief executive Lisa Su said the company was "entering 2026 with strong momentum" led by "rapid scaling" of its data centre business. A deal with OpenAI last year established the start-up as the first customer for AMD's upcoming MI400 AI chips, which compete with Nvidia's. But investors are fretting about skyrocketing memory chip costs driven by data centre demand eating into the margins of large US tech companies such as AMD, Intel and Apple. Many investors have in recent months trimmed their positions in software stocks as concerns over the risks of AI to the sector have mounted, leaving them easily spooked by new developments, according to Jeremy Abelson at Irving Investors. "Positioning is at multiyear lows and risks are at multiyear highs," Abelson said. "I've covered software for a long time and I've rarely seen a day where almost everything is off by 4 to 15 per cent." Private equity groups, many of which have piled into software in recent years, also tumbled. Ares Management dropped 10 per cent, as did KKR, and Apollo fell 4.8 per cent. Others pinned the scale of Tuesday's moves on herd mentality, with Steven Grey, chief investment officer at Grey Value Management, pointing to the "impossible-to-predict impact of AI" shaking up stocks. Shares of software companies listed in Asia also slumped. In Australia, shares of Xero and WiseTech fell 13.1 per cent and 8.3 per cent, respectively, while the Hong Kong shares of China's Kingsoft Corporation slipped 5.7 per cent. In India, IT services firms including Infosys and Tata Consultancy Services sold off in early trading. The moves were reminiscent of the sharp market sell-off in January last year that was triggered by the advances of Chinese AI start-up DeepSeek, whose emergence wiped hundreds of billions of dollars off the value of major US tech stocks. Sectors including transport and consumer staples, which are viewed as relatively immune to AI disruption, advanced on Tuesday as software slipped. In London, information provider Relx took a hit of more than £6bn. Relx dropped 14.4 per cent on Tuesday, reversing the fortunes of one of the best-performing stocks in recent years and a company widely regarded as one of the UK's brightest hopes for AI success. Relx owns the leading legal information and analytics platform LexisNexis. Shares of rival publishers and analytics groups that support legal services also dropped, with Wolters Kluwer down 12.7 per cent on Euronext in Amsterdam. Anthropic's new legal tool -- which promises to automate contract reviews, compliance workflows and legal briefings -- was among those launched to automate specific tasks within a company that also covers marketing and customer support. Shares in European advertising companies declined on Tuesday, with Publicis off 9 per cent and WPP down almost 12 per cent. In the US, Omnicom fell more than 11 per cent. Traditional media companies such as Relx have reinvented themselves as data-led analytics businesses, with hopes that they will be among Europe's AI winners given their access to proprietary data and research. Relx was in the UK's top 10 most valuable companies last year, just above Barclays, but recent investor fears over US tech companies bringing in AI tools aimed specifically at corporate clients have begun to erode its share price. LSEG has a deal with Anthropic to license some of its financial markets data to Claude. The group also derives substantial earnings from Workspace, a data and news competitor to Bloomberg's ubiquitous terminals. Workspace has more than 350,000 users among portfolio managers, investment banks and wealth advisers. Shares in LSEG lost 12.8 per cent, its worst one-day performance in five years.

AI apocalypse trade has a buggy logic

TORONTO, Feb 4 (Reuters Breakingviews) - Fears of an artificial intelligence-led corporate apocalypse are causing market hallucinations. Large language model (LLM) developer Anthropic recently launched new tools that promise to automate tasks, opens new tab ranging from sales to legal and financial analysis. It caused a stock selloff on Tuesday and Wednesday for IT and professional services firms, the magnitude of which implies that some widely used products will disappear overnight. Investors are overreacting. Incumbent software companies have had a difficult time on the stock market since ChatGPT's release in November 2022. The BVP Nasdaq Emerging Cloud Index is barely up since then, whereas AI-heavy technology giants have surged. The fear is that LLMs could make trivial work of many enterprise tasks that currently require dedicated software, like managing expenses. With the new additions to Anthropic's Claude Cowork product, these fears are spreading. Data and publishing group RELX (REL.L), opens new tab plunged 14% on Tuesday, while consultancies and advertising agencies like WPP felt the pain too. Thomson Reuters, the parent of Reuters Breakingviews, dropped 16%. The worry is that companies will eventually just deploy bespoke AI tools, generated through Claude or similar LLMs, rather than using external services. Just looking at revenue growth rates, it's easy to see the cause for concern. The constituents of the BVP Nasdaq Emerging Cloud Index, for example, grew sales by 16% on average, according to Bessemer Venture Partners. Professional services firms grow typically well below even that level. Anthropic and OpenAI on the other hand, are multiplying their top lines each year. Also, Gartner estimates, opens new tab that IT spending on AI models will grow 1.5 times faster than on software between 2025 and 2027. Still, some of the stock moves look too extreme. Take London-listed RELX, whose value fell by $9 billion to $55 billion on Tuesday. It sells data and analytics tools for customers covering the legal and risk management businesses, and also publishes academic journals. According to UBS analysts, 88% of the UK group's revenue is subject to very little LLM disruption. RELX's legal database division LexisNexis, where AI risks could arise, made up only 12%, opens new tab of overall operating profit in the most recent full financial year. Apply a 15-times multiple to the roughly $660 million of adjusted operating profit that Bank of America analysts expect for the at-risk legal segment in 2026. The resulting $10 billion of implied value is close to the market capitalization that RELX lost. In other words, investors are assuming LexisNexis is worthless as a business division. In fact, the pace of revenue growth in the segment has picked up from low single digits in 2019 and 2020 to mid-single digits now. RELX and its legal-services peer Thomson Reuters have rolled out AI tools trained on their respective databases. The general lesson is that valuable business data still sits with the incumbents. Nvidia (NVDA.O), opens new tab boss Jensen Huang on Wednesday called the notion that AI will replace software and related tools "illogical". The market is yet to hear that message. Context News* AI developer Anthropic on January 30 launched plugins for its Claude Cowork product. The new additions are designed to help users automate tasks across legal, sales, marketing and data analysis. * The BVP Nasdaq Emerging Cloud Index fell 6.4% on February 3. Shares of data firms RELX and Thomson Reuters fell 14% and 16% respectively on February 3. Editing by Liam Proud; Production by Maya Nandhini * Suggested Topics: * Breakingviews Breakingviews Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time. Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on X @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors. Pranav Kiran Thomson Reuters Pranav Kiran is an editorial assistant for Reuters Breakingviews, based in Toronto. He joined Breakingviews in January 2022. Prior to Reuters, he covered mergers and acquisitions at Mergermarket, India. Pranav holds a bachelor's degree in IT and a master's degree in communications.

How exposed are software stocks to AI tools? We put vibe-coding to the test

Software, legal services and video games stocks have been selling off in recent weeks on fears that new AI features and tools could wipe them out. But how real is that threat? We decided to find out. CNBC's Deidre Bosa and I used Anthropic's AI coding tool "Claude Code" with the goal of creating a replacement for Monday.com, a project management platform with a $5 billion market cap. We didn't expect to get anywhere -- we're not developers and we don't have any coding experience. But we have become adept at vibe-coding tools, which are AI tools that can build functioning apps based on commands in plain English from users, including those with limited technical chops. We started out simple, telling Claude to build a project management dashboard similar to Monday, with features like multiple project boards, assigned team members and a status dropdown. It spit out a working prototype in minutes. We then asked Claude to research Monday on its own, identify main features and recreate them. It added a number of other features, including a calendar. The real magic happened when we connected the clone to an email account, essentially spinning up a customized project manager for our personal lives. The AI found Dee's forgotten calendar invite for a kid's birthday party (which she definitely didn't have a gift for yet) and it added reminders to book tickets for an upcoming trip and sign a waiver for another kid's birthday party. It took us under an hour, and had we been paying users, it would have cost something like $5 to $15 in compute credits, depending on how much we went back and forth with the AI agent. As more data centers get built out, that cost could start to come down. So which companies should investors worry about? Silicon Valley insiders we talk to say the most exposed names are the ones that "sit on top of the work" -- tools like Atlassian, Adobe, HubSpot, Zendesk, and Smartsheet, that aren't core to businesses. They say cybersecurity stocks like CrowdStrike and Palo Alto are harder to disrupt since they have network effects that no one would want to try to replicate and maintain. Systems of record may be safer, but not immune. Salesforce, for instance, anchors a business with enterprise data, making it harder to clone with a weekend coding project. With the wholesale sell-off in software this year, that may be a chance for investors to separate between the need-to-haves and nice-to-haves.

Wall Street's Doom-Mongering on Software Is Bizarre

Anthropic is more likely to sell its AI to specialized software companies to power new features, rather than trying to replace them, according to Huang and other experts. Just four paragraphs on the website of Anthropic PBC were enough to spark a $300 billion stock rout. A Jefferies analyst called it the "SaaSpocalypse," a run on the shares of specialized software companies that Wall Street thinks are vulnerable to a one-stop-shop AI tool. Anthropic, known for its Claude bot, quietly announced a plug-in for its Cowork feature that could "speed up contract review, NDA triage, and compliance workflows for in-house legal teams." That was the catalyst for software stocks being dumped across the board on Tuesday, the news apparently confirming long-simmering fears that even if these software companies aren't eradicated, their profit margins are in for a beating. Both assumptions are highly premature. "It is the most illogical thing in the world," Nvidia Chief Executive Officer Jensen Huang said in reaction to the selloff. It ignores much of what we know about how businesses use technology. General-purpose AI is indeed becoming more capable, but better AI does not automatically mean less need for specialized software. That Anthropic's AI can skim over legal documents does not address the risk, workflow, accountability and integration features present in tools built specifically for that task. When things go wrong, companies expect there to be a dedicated support team on hand to fix it. More to the point: It would be entirely self-defeating for Anthropic to attempt to replace specialized software rather than turn the companies that make it into customers. Why would Anthropic seek to displace Britain's Relx Plc, or Ireland's Experian Plc, two big losers in the selloff, when the fastest and must enduring route to profitability would be to just sell them the AI they need to power new features within those trusted and relied upon services? See also SAP, ServiceNow and Synopsys. As Huang put it: "There's this notion that the tool is in decline and being replaced by AI. Would you use a screwdriver or invent a new screwdriver?" For a vivid example of the future of software as a service, consider Canva, the specialized tool for skilled designers that has integrated AI as a feature, not the main event. Another example is Replit, the vibe-coding platform that offers a far more comprehensive all-in-one platform for app development than Anthropic's Claude Code but utilizes Anthropic's underlying models. Traders have a habit of overestimating tech companies' abilities to solve especially difficult and specialized problems. Remember when health-care stocks fell through the floor when Amazon.com Inc. announced it was making a medical play? Or when grocery stocks dropped after the company announced it would disrupt that industry? Or, my personal favorite, how about when Match Group lost 20% of its value when Mark Zuckerberg announced Facebook Dating? Perhaps AI is different, a disruption of greater magnitude. But that doesn't mean similarly knee-jerk behavior is now suddenly rational. Will the software industry become disrupted? Unquestionably -- but it was also disrupted by the advent of the internet and the arrival of mobile computing. There were both winners and losers. As JPMorgan Chase & Co. analyst Tony Ogg put it, software stocks are being "sentenced before trial." Sign up for the Bloomberg Opinion bundle Sign up for the Bloomberg Opinion bundle Sign up for the Bloomberg Opinion bundle Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Get Matt Levine's Money Stuff, John Authers' Points of Return and Jessica Karl's Opinion Today. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. The mindset is contagious. Before this week's SaaS selloff, something similar happened in the gaming sector: Around $40 billion of market capitalization was erased from video game companies when Google announced Project Genie, an AI tool for producing interactive experiences "generated in real time" by AI. Shares of TakeTwo Interactive Software Inc. are down almost 8% since. Excuse me? Putting aside the fact that AI stands to make game companies vastly more cost efficient and ambitious, the idea that Google's generative tool poses any threat to the creative geniuses behind Grand Theft Auto would be like sacking Steven Spielberg because someone invented a new camera. Whether it's SaaS, video games or any other AI-primed industry, the underlying theme is this: Wall Street doesn't have the temperament for the AI era. The market panics when it thinks there is bad news and gets overly exuberant when the mood is good. This is due in part to the hype coming out of the AI companies themselves -- though even some of AI's biggest boosters don't think the doom-mongering on software is warranted. More From Bloomberg Opinion: * Nvidia's OpenAI Doubts Are a Warning for Microsoft: Parmy Olson * Chinese AI's First Moneymaker May Be Video: Catherine Thorbecke * Musk's AI Startup Is a Payload SpaceX Can't Afford: Thomas Black Want more Bloomberg Opinion? Terminal readers head to OPIN <GO>. Or subscribe to our daily newsletter.

AI wiped out $400 billion this week -- and it's only getting started

Why it matters: The software-industry selloff, sparked by Anthropic's latest release, is ultimately just a baby step in a bigger transformation that may reshape how we all live and work. * It's also the first tangible verdict on what happens when AI starts eating entire categories of work, well before the long-feared white-collar bloodbath even really begins. Driving the news: Anthropic recently released a suite of software-killing tools -- prompting investors to reconsider software companies' value, with the sector down 25% in the last week. * One, Claude Code, promises to write code on users' behalf, essentially creating software at will. * The other, Cowork, offers plugins designed to help AI agents operate like a full-time coworker. Zoom in: AI isn't just hitting software valuations, it's changing how these companies operate from the inside out. * OpenAI CEO Sam Altman said he felt "useless" and "sad" using his own AI to code. * Software engineers using the technology are also talking to each other less than ever, showing the "death of a community," Peter Coy writes. The big picture: As of this week, investors are seriously looking at AI not just as a productivity boost for software firms, but as a substitute. * "AI is not just going to do something to labor ... it's going to do something to profits," Shelby McFaddin, portfolio manager of a $2.6 billion fund, tells Axios. * One strategist likened it to BlackBerry: It survived, but its business model and valuation never recovered after being fully disrupted. Yes, but: Some investors are still bullish on software stocks, especially now that they come at a discount. * The winners could be companies offering software toolkits, rather than single-use apps. * Software incumbents will also be hard to replace: "With AI, code may become cheap, but context is expensive ... you can't LLM your way past 10 years of customer data," Pitchbook noted in a report. What we're watching: Stock prices are a bet, but sales are are the actual proof. * Growth has already slowed for software names -- and is a metric to watch for other industries that could be disrupted by AI. * Customer retention will signal if people are switching to AI tools, David Fetherstonhaugh, EVP at VistaShares, tells Axios. * Watch for the market to price in AI's broader labor hit across several industries in about a year-plus, McFaddin said. What's next: Investors' fears about AI's impact on software companies could spread to other industries the emerging tech stands to disrupt. The bottom line: Markets just ran the math on software in an AI world -- and didn't like the answer.

Global software stocks hit by Anthropic wake-up call on AI disruption

MILAN, Feb 4 (Reuters) - European and U.S. software stocks struggled to find support on Wednesday as a sector-wide selloff spread to Asia, fuelled by mounting worries that advances in artificial intelligence could upend companies' business models. European data analytics, professional services and software stocks fell for a second day in volatile trade, mirroring losses in global peers, after Anthropic's new legal artificial intelligence model underscored the threat to businesses seen as most exposed to AI disruption. Britain's RELX (REL.L), opens new tab and the Netherlands' Wolters Kluwer (WLSNc.AS), opens new tab - major providers of analytics to the legal industry - dropped about 3% in morning trade before paring some losses, after plunging more than 14% and 12% respectively on Tuesday. Shares of U.S. software and services firms (.SPLRCIS), opens new tab were mixed in premarket trading after a near 13% slide over five straight sessions. Nasdaq-listed Thomson Reuters , the parent company of Reuters News, was flat in light volume after Tuesday's record 16% slump on fears that AI could threaten its core legal division. London Stock Exchange Group (LSEG.L), opens new tab slid as much as 6.9%, extending Tuesday's near 13% drop. Indian IT exporters (.NIFTYIT), opens new tab also fell sharply, while Japanese software and systems developers NEC (6701.T), opens new tab, Nomura Research (4307.T), opens new tab and Fujitsu (6702.T), opens new tab sank between 8% and 11%, dragging the Nikkei (.N225), opens new tab benchmark index lower overnight. The rout comes amid wider concern that a tech bubble could burst, posing financial stability risks. JP Morgan analyst Toby Ogg said investors were focused on long-term growth questions that stretch far beyond traditional three-year forecasts. "The sector isn't just guilty until proven innocent, but is now being sentenced before trial," he said. "Our sense from investor discussions is that general appetite to step in remains generally low," he added, citing risks including competition from AI-native firms and clients building their own solutions in-house. ANTHROPIC THE SPARK BEHIND THE SELLOFF One trigger for Tuesday's selloff was Anthropic's launch of plug-ins for its Claude Cowork agent on Friday, enabling automated tasks across legal, sales, marketing and data analysis. Advertising stocks - viewed as among the most exposed in European media to AI - also stayed under pressure. France's Publicis (PUBP.PA), opens new tab was last down 3.6% and Britain's WPP (WPP.L), opens new tab lost 3%, both hitting new lows. Shares in SAP (SAPG.DE), opens new tab, Europe's largest software company, dropped more than 3%, a week after a disappointing cloud revenue forecast wiped around $40 billion off its market value. With stellar gains in chipmaker Nvidia (NVDA.O), opens new tab and so-called AI hyperscalers like Microsoft (MSFT.O), opens new tab pushing U.S. stocks to record highs, regulators and policymakers - including the International Monetary Fund and the Bank of England - have warned of the risks of a potential bubble. "All innovation means there is going to be disruption at some point, and we appear to be at a significant point in that journey for software and IT services companies," said Ben Barringer, head of technology research at Quilter Cheviot. "There is a lot of uncertainty around exactly what AI agents can do, and as such, investors are choosing to shun the software market altogether, leaving nowhere to hide." Salesforce , CrowdStrike (CRWD.O), opens new tab, Adobe (ADBE.O), opens new tab each dipped about 0.2% in U.S. premarket trading, while Intuit (INTU.O), opens new tab eased 0.6%. Atlassian Corp (TEAM.O), opens new tab firmed 0.6%. Reporting by Danilo Masoni. Additional reporting by Medha Singh and Siddarth S. Editing by Amanda Cooper, Dhara Ranasinghe and Mark Potter Our Standards: The Thomson Reuters Trust Principles., opens new tab

Anthropic Insiders Afraid They've Crossed a Line

"It kind of feels like I'm coming to work every day to put myself out of a job." At $183 billion AI firm Anthropic, the stakes have always been high. Now with the stock market in a nosedive, however, some of the company's employees are realizing they may have had a hand in tipping the first in a long series of dominoes. Last week, Anthropic -- one of the leading AI companies on the market -- released a new tool called "plugins." It was described as an assistant that can support people working in legal, marketing, finance, data analysis, or customer service roles. When it hit the market, law firms and other entities with legal exposure immediately went into shock, taking the "Legal" plugin as an existential threat, despite Anthropic's insistence that "all outputs should be reviewed by licensed attorneys." Investors immediately felt the pressure from increasing competition, and soon the broader stock market was in a massive sell off. While AI agents -- semi-autonomous AI systems like Anthropic's Legal plugin -- have yet to prove themselves in the real world, plenty of the company's staffers are worried they've already crossed the Rubicon. "It kind of feels like I'm coming to work every day to put myself out of a job," one staffer told The Telegraph. Another lamented that "in the long term, I think AI will end up doing everything and make me and many others irrelevant." An Anthropic spokesperson declined to comment to the Telegraph on the sell-off. While it remains to be seen what real-world effects the company's tools will have on the actual economy, Anthropic's push into AI agents represents a strategic embrace of a type of AI that was once relegated to startup engineers and vibe coders of Silicon Valley. It's a hell of an entrance into the mainstream spotlight, and one which is already having a major impact on the markets.

The Knock-On Energy Effect Of Anthropic's Market Disruption

Markets took a tumble this week as AI-company Anthropic released new add-ons to Claude that can perform a range of functions typically filled by software providers. Shares of software-as-a-service companies like Adobe, Intuit, and Salesforce declined sharply on fears that AI tools might chip away at their business. (TIME co-chair and owner Marc Benioff is the CEO and founder of Salesforce). Legacy tech giants with large AI businesses like Microsoft, Amazon, and Google were also hit hard. A trillion dollars in market cap was wiped out in a week before regaining some ground on Friday.

Anthropic's Claude triggered a trillion-dollar selloff. A new upgrade could make things worse. | Fortune

Earlier this week, the release of industry specific plug-ins for Anthropic's new Claude Cowork tool triggered a broad selloff across enterprise software stocks, as investors panicked that AI tools like Claude would render traditional enterprise software-as-a-service companies obsolete. What Anthropic unveiled Thursday might spell yet more trouble for those older software companies, further heightening market anxiety. The AI company debuted Claude Opus 4.6, an advanced AI model capable of conducting sophisticated professional tasks and spinning up and coordinating whole teams of AI agents. Anthropic says Opus 4.6's performance on real-world professional tasks is a substantial step up from previous iterations. On select evaluations designed to measure this real-world performance, the company said it outperformed competing models, including OpenAI's GPT-5.2. (On Thursday, OpenAI also released GPT-5.3-Codex, which it says is its top performing coding model to date and exceeds the prior version in capabilities.) But it the new feature in Opus 4.6 that lets autonomous teams of AI agents tackle complex projects together that might have the greatest impact on productivity within companies, and which might pose the greatest threat to SaaS vendors such as Salesforce, Microsoft, and Workday, which have been trying to get existing customers to upgrade to their own AI agent platforms. (In a direct challenge to Microsoft's Copilot offerings, Opus 4.6 includes a plugin with PowerPoint, enabling Anthropic Claude model to easily spin up entire slide decks without the need to export files between applications.) The agent teams feature allows users to deploy multiple AI agents simultaneously that handle different aspects of a larger project. The agents work in parallel and communicate with each other to coordinate their efforts -- mimicking how human teams divide and conquer complex assignments. The teams feature is only available in a research preview for API users and subscribers. Financial data providers bore the brunt of investor anxiety over the new release, with FactSet Research Systems dropping 10%, while S&P Global, Moody's, and Nasdaq all saw sharp declines. These losses add to a global selloff that began earlier this week following Anthropic's rollout of industry-specific plugins. The Claude Cowork plugins, which Anthropic had billed as a relatively minor product update, triggered investor anxiety over the sustainability of traditional enterprise software companies across multiple sectors, including legal services, financial data, and real estate. The new model's research and analysis abilities are likely what spooked financial services investors on Friday. Anthropic said Opus 4.6 excels at financial analysis and research, with the model's performance on certain benchmarks indicating its "usefulness for financial research tasks such as screening, due diligence data gathering, and market-intelligence synthesis" -- work that is currently a part of the business models of financial services firms. Claude Opus 4.6's expanded one-million-token context -- a measure of the amount of data an AI model can ingest at one time -- window may also bolster the model's financial and professional capabilities by allowing Claude to simultaneously consider vast arrays of documents and financial data that would have overwhelmed earlier versions. Many analysts argue the market's response is overblown. Wedbush's Dan Ives, for example, noted that large organizations have ingrained workflows and processes that can't simply be switched over to new AI tools overnight. "Predictions of the death of SaaS and enterprise applications are premature," Gartner analysts wrote in a Thursday research note, adding that Cowork and its plugins are "potential disruptors for task-level knowledge work but are not a replacement for SaaS applications managing critical business operations." Rather than triggering a so-called "SaaSapocalypse," Gartner said the new model "exposes how much day-to-day knowledge work remains manual, making it ripe for automation." The release comes as Anthropic broadens its enterprise ambitions beyond software development. Opus 4.6 is designed to support complex business processes and help enterprises apply AI beyond coding tasks. It builds on the recent popularity of the company's Claude Cowork product, which is a non-technical version of the popular Claude Code tool for programmers. Anthropic has over 300,000 business customers, many of whom first came in for developer‑focused tools before expanding into broader Claude products. The company's push from coding into other professional domains, such as knowledge work and customer support, is increasing competitive pressure on incumbent software providers, which now risk facing Anthropic's models as cheaper, more capable alternatives in parts of their workflows. OpenAI also put pressure on stocks with the release of its own coding assistant on Thursday. In the release, the company emphasized that the tool extends beyond pure programming and into tasks like documentation and presentations, presenting another potential overlap with traditional business software.

Is the AI bubble popping itself? Software's break from the tech stock boom raises concerns

Wall Street's main preoccupation this week could be summed up like this: Is the software sell-off overdone or does it signify the start of an unraveling AI bubble? Software stocks continued their rout on Thursday, with the iShares Expanded Tech-Software Sector ETF (IGV) down more than 9% week to date. Anthropic's latest updates to Claude have stoked fears that agentic AI could prove an existential threat to an industry that relies on selling enterprise software packages to as many individual users as possible. Software stocks entered a bear market last week, but are now down nearly 30% from its most recent high. Investors turned against a trade deemed crowded and expensive after its exorbitant run the last few years. The IGV surged more than 58% in 2023, and 23% in 2024. It rose a bit more than 5% in 2025. Those who feel the sell-off has gone too far argue that agentic AI is unable to meaningfully hurt incumbents in the industry. They expect it could be as much a flash in the pan as DeepSeek AI was around this time last year. The Chinese company shook the industry last year by unveiling an open-source AI model that was developed at a very low cost. John Campbell, head of the Systematic Core Equity team at Allspring Global Investments is in this camp. "The selloff in software is overdone," he wrote. "Many of the established players are not going to be easily disrupted by agentic AI. They are actively developing their own agents to improve the functionality and profitability of their existing software." Software on sale If anything, many consider the pullback a buying opportunity. Some say they are waiting for a deeper drawdown before they step in, and urged investors to pick their winners carefully. Long-time tech analyst Fred Hickey brushed off the software rout. He said software stocks are on his list of potential buys if the broader sector is hit by a wave of trader capitulation as he expects. "I think that argument is mostly ... hogwash and as a result, I considered buying some of the stocks," Hickey wrote in a newsletter on Tuesday. "However, after looking at the valuations, I decided they were still too high," especially when factoring in stock-based compensation. According to Jefferies, 73% of software stocks are oversold, an eight-year high. Indeed, Tyler Radke, U.S. software equity research co-head at Citigroup Research, told CNBC's "Power Lunch" on Wednesday that investors can start selectively adding companies that will be "relevant as we get to the other side of this AI trade." His preference is for companies exposed to hyperscale data volumes. Microsoft , MongoDB and Snowflake top his list. 'The first victims' To be sure, others worry the slide has further to go. Greg Swenson, co-portfolio manager for the Leuthold Select Industries Fund, said there could be more of a "washout," even if there is a near-term bounce. He pointed out that the IGV is trading at a P/E just below 40-times trailing earnings, a level that is more attractive than it has been but could hardly be regarded as cheap. "Things don't usually tend to bottom at, like, historical median or average levels," Swenson told CNBC. "It tends to go quite a bit of a ways through it, like this, when there's this type of emotional sell-off." He also worried the rout could prove more lasting than investors expect. Unlike the temporary impact of DeepSeek, he said, this bout of selling could point to deeper troubles in the overall tech sector, even among the hyperscalers that have taken on more debt as they ramp up capital expenditures. "I think this is probably more of a durable move," Swenson said. That could have ramifications beyond just software stocks. Companies with private credit holdings such as Blue Owl and Ares Management have tumbled . The pair are down 9% and 16%, respectively, week to date. Hardika Singh, economic strategist at Fundstrat Global Advisors, told CNBC she expects the sell-off has "gotten ahead of itself," but will be watching to see how software companies proceed. If they're able to adapt to the changing technology, that's a healthy signal for the AI trade, she said. "If they can revamp here, pivot here, it'd be great. The sell-off would end up being like a 'DeepSeek moment,' where we forget about it a year later and this is just like a healthy correction," she said. "But if they cannot revamp themselves, I think this is a rupture of the AI trade." If that occurs, software would be the "first victims of the AI industrialization in this economy," she added. Ongoing rotation More than anything, the action confirmed a bias toward other parts of the market this year. "Real economy" sectors such as energy, industrials and materials, which can benefit from the data center buildout, saw demand. Larry McDonald, author of the Bear Traps report, said he prefers global value stocks, which could outperform as money continues to rotate through the economy. After all, he pointed out, it won't take more than a little of the $30 trillion shifting out of Nasdaq Composite to make a major difference in other parts of the market. That seemed to play out this week. Only the Dow Jones Industrial average is higher week to date, as of Thursday. The equal-weighted S & P 500 also outperformed, gaining 0.7%.

Anthropic's AI Tools Rattle Software Stocks, Prompt Rethink of Sector Valuations - Decrypt

Investors seem to be repricing SaaS as foundation model firms move into full workflow automation. Shares of several information and professional-services companies slid sharply this week amid Anthropic's unveiling of a legal-automation tool that rattled investors' confidence in the sector's long-term pricing power. Thomson Reuters sank 18%, Pearson fell 7%, and LegalZoom dropped nearly 20%, as the selloff spread across software, financial services, and asset management stocks, erasing roughly $285 billion in market value, Bloomberg reported. The panic began after Anthropic announced 11 open-source plugins for Claude Cowork on January 30, but focused on one in particular. That included a legal plugin, which automates contract review, NDA triage, and compliance workflows. In a nutshell, it does the grunt work that keeps thousands of paralegals and junior associates employed. The panic wasn't just about one plugin doing document review -- it was about what the component represents: foundation model companies beginning to build full-fledged workflow products, willing to take on the enterprise software industry directly. "The market's response was a signal, not that AI agents will immediately replace these businesses, but that investors are finally pricing in the structural risk that foundation model providers can now compete directly with the software layer," Scott Dylan, founder of Nexatech Ventures, told Decrypt. The fear isn't speculative, he said. "That's a polite way of saying if Anthropic can build a legal workflow tool in-house, what's stopping them from doing the same for finance, procurement, or HR?" Dylan added. If AI agents can do that, why would anyone pay per-seat pricing? That's the business model that built Salesforce, Bloomberg, and every SaaS giant. And now cracks are beginning to appear. "The selling pressure reflects a deepening structural debate," Schroders analyst Jonathan McMullan told Reuters. "Investors are aggressively repricing these areas as the historical 'visibility premium' erodes; the speed of AI advancement makes long-term valuations harder to defend, particularly as AI tools allow businesses to do more with fewer staff, threatening the traditional model of charging per software user." Those concerns have also spread beyond legal tech. Advertising giants Omnicom and Publicis tumbled by 11.2% and 9%, respectively. Australian cloud accounting firm Xero had its worst day since 2013, dropping 16%. So what do the people actually doing the work think? Asked whether advances in AI agents pose a threat to legal work, Joel Simon, founder and partner of Simon Perdue, a firm practicing across Texas and New Mexico, struck a measured note. "We live in a world where judgment and credibility matter more than raw processing power," Simon told Decrypt, arguing that human assessment still outweighs pure computational speed. "AI is able to comb through massive amounts of information, flag patterns, and surface issues faster than a junior associate ever could. If anything, this has been a relief because it has cleared the runway so we can focus on strategy, witness prep, storytelling, and decision-making under pressure." Simon said his firm has already integrated AI into day-to-day work, describing the technology as an accelerator rather than a substitute for lawyers. It's already being used to draft outlines, condense discovery materials, and test potential lines of questioning, while attorneys retain control over judgment, narrative, and courtroom strategy. "AI doesn't take the stand," he said. "We do." In two to three years, Simon predicts, "trial attorneys who embrace AI will be more valuable, not less. The job will look leaner with fewer hours wasted on rote work, more time spent on case theory, client counseling, and courtroom execution. Nexatech's Scott Dylan had a less optimistic take. "The honest answer is that AI agents are going to displace certain types of work -- particularly repetitive, rules-based tasks that can be well-specified," he told Decrypt. "Contract review, NDA triage, compliance checklists. These are exactly the workflows that Anthropic is targeting, and they're performed by tens of thousands of paralegals and junior associates," But Dylan is not completely pessimistic. "Displacement isn't the same as elimination. What's more likely is a compression at the entry level. Junior roles that used to be training grounds -- associate work at law firms, analyst tasks at consultancies, first-line customer support -- will shrink," he said. Dylan said that workers will need to learn how to adapt and overcome. "I don't think we're heading toward a world where humans become redundant," he said. "The scenario where agents handle all knowledge work, and humans are left wondering what to do with themselves is, frankly, unlikely in any timeframe that matters." In the long term, human workers will prevail in "roles that require physical presence or high-touch human interaction," such as healthcare, personal services, and skilled trades, Dylan added. But until society adapts, there will be a painful period for everyone, and investors are already pricing in all these elements. IDC predicted that by 2028, pure seat-based pricing will be obsolete, with 70% of software vendors shifting to consumption-based, outcome-based, or organizational capability pricing. If an agent does the work, customers expect to pay for results, not logins. For now, enterprise software companies are experimenting with different models. Bain & Company analyzed over 30 SaaS vendors introducing generative AI. Nearly 35% increased per-seat pricing with bundled AI features. Another 35% adopted hybrid models with usage-based add-ons. The rest are experimenting with outcome-based pricing -- charging per contract reviewed, ticket resolved, or lead generated, rather than per seat occupied. The challenge now is asking customers to spend more before they see savings. A SaaS company pitching a $40,000 AI agent to replace an $80,000 sales rep faces a problem: in the short term, the customer needs both the employee and the agent while evaluating outcomes. That's a 50% cost increase for an undefined period. "The issue is that most agents today rely on APIs that burn through tokens quickly, which can create costly and unpredictable bills if they're not tightly monitored, Davis Householder, managing director of MYCO Management, told Decrypt. "In those cases, you're just replacing one SaaS subscription for another." "Unlike normal gen-AI's, the risk with agents isn't occasional failure but failure at scale," Householder added. In the next couple of years, people can likely expect major disruptions to their working lives. Layoffs, driven mostly by fear, could occur alongside more complex automation workflows as tooling matures. The development of richer multi-agent ecosystems with better APIs and coordination protocols could present another challenge. Regulatory attention will also focus in as governments realize autonomous agents can be weaponized or generate social instability. In the medium term, infrastructure could harden. There will be better regulations for work environments in which humans interact with agents. We'll likely see agent marketplaces with reputation systems, vetted skills, and standardized protocols for autonomous agent-to-agent transactions. Along the way, expect to see a few high-profile security breaches that serve as wake-up calls. In the long term, this is likely to be a restructuring rather than an extinction event. As AI compresses margins and commoditizes basic functionality, the strongest firms consolidate power. The real value may shift away from seat-based software and toward proprietary data, including legal databases, financial benchmarks, compliance logic, licensed into agent-driven systems. Service remains, but data becomes the core business. In the meantime, the implications are stark. An MIT study found 11.7% of U.S. jobs could already be automated using current AI technology. Research published by the World Economic Forum in 2025 argues that almost 60% of workers worldwide will need to undergo "reskilling" to remain relevant in the post-agent era. "We need to address our education system and revamp the way in which we train people so they are using AI to do their jobs better rather than letting AI do their jobs entirely, which puts them at risk with employers who seek to cut costs," Amrita Bhasin, CEO of Sotira and consultant to Fortune 500 companies, told Decrypt. "There is no feasible way to prevent AGI," she said. "We need to support the average American worker and ensure that they have the skills, training, and ability to compete in an increasingly competitive and/or unstable job market that AI threatens." Companies and professionals that adapt -- learning to work alongside AI agents, shifting from execution toward oversight, and anchoring their value in judgment rather than process -- are likely to fare better. Those that fail to adjust risk being revalued, much like the stocks that sold off this week.

Software scramble shows the next phase of AI disruption is here

Why it matters: The software selloff dragged down the entire market on Tuesday -- it's the first example of how the market will respond when presented with evidence that AI could disrupt or even replace an entire industry. Driving the news: Software stocks slid after Anthropic rolled out new AI automation capabilities for several different sectors of enterprises. * Selling started in legal software/data-adjacent names, including Experian, the London Stock Exchange Group, Thomson Reuters and LegalZoom, then broadened across the sector. * The iShares Expanded Tech-Software Sector ETF (IGV) is down more than 14% over the past six sessions, following a 15% drop in January (its worst month since 2008). What they're saying: Software sentiment is the "worst ever," according to a note from Jefferies. * It's "radioactive," Anurag Rana of Bloomberg Intelligence tells Axios. * While AI is disrupting the sector, there is still an acknowledgement that there could be winners and losers. * But it's not clear who will survive, so investors are getting out entirely. Between the lines: Anthropic sees itself as a complement rather than as a competitor to software providers. * Anthropic is able to securely connect with other tools and applications, meaning it can be your "home page" of sorts while you interact with any number of software services running through the back end. * Claude can "render interfaces directly within it," so it could theoretically "drive even more engagement and interactivity... with all these other business systems," Scott White, head of product for enterprise at Anthropic, tells Axios. Threat level: AI could of course replace those software services entirely at some point. * "Our concern is that the seat-compression and vibe coding narratives could set a ceiling on multiples," Billy Fitzsimmons, analyst at Piper Sandler, wrote in a note. Reality check: It's not the first time Wall Street has turned sour on software. * Mobile was once set to threaten Microsoft's software business as everyone was going to be spending time on phones, not desktops. * Microsoft's stock is up 789% over the last decade, so it clearly survived. * This "happens a lot" within software, and there's not much companies can do to fix it, Bloomberg Intelligence's Rana says. What we're watching: How long the software-apocalypse lasts.

Nvidia CEO: Software Selloff 'Most Illogical Thing in the World'

Nvidia Corp. Chief Executive Officer Jensen Huang, leader of the company whose gear is central to the worldwide build-out of artificial intelligence data centers, said this week's sell-off in the shares of software companies amid concerns about AI disruption makes no sense. Software products are tools, and artificial intelligence will use those tools, not reinvent them, Huang said during an appearance at a Cisco Systems Inc. event late Tuesday. "It's the most illogical thing in the world," he said. "There's this notion that the tool is in decline and being replaced by AI. Would you use a screwdriver or invent a new screwdriver?" Software-related stocks fell for a second day on concern that tools being released by AI model developer Anthropic and others will eventually automate a slew of work being done inside companies. Nvidia's Huang said his own company has extensively adopted such tools, and the result has been freed-up time for his employees to focus more on what the firm is good at: designing semiconductors and computer systems. A new AI automation tool from Anthropic PBC sparked a $285 billion rout in stocks across the software, financial services and asset management sectors on Tuesday as investors raced to dump shares with even the slightest exposure. A Goldman Sachs basket of US software stocks sank 6%, its biggest one-day decline since April's tariff-fueled selloff, while an index of financial services firms tumbled almost 7%. The Nasdaq 100 Index fell as much as 2.4% at one point before trimming losses to 1.6%. The selloff started before the US market opened as traders pointed to a release on the Anthropic website as the reason behind steep declines in the shares of credit and marketing services company Experian Plc, business and legal software maker RELX PLC and the London Stock Exchange Group Plc. Asian software stocks also slid, with shares of Indian information technology companies the latest to buckle. Bellwether Tata Consultancy Services Ltd. sank as much as 6%, while Infosys Ltd. dropped 7.1%. Cloud-based accounting software maker Xero Ltd. fell as much as 16% in Sydney trading, the most since 2013. Asia's broader tech sector showed some resilience as it remains dominated by hardware makers -- particularly chipmakers -- that have been key beneficiaries of the AI investment boom. Thomson Reuters Corp. and Legalzoom.com Inc. were among the worst performers in the US and Canada, pushing the iShares Expanded Tech-Software Sector ETF down 4.6%, its sixth consecutive day of declines. The ETF is coming off a 15% plunge in January, its worst month since 2008. "This year is the defining year whether companies are AI winners or victims, and the key skill will be in avoiding the losers," said Stephen Yiu, CIO of Blue Whale Growth Fund. "Until the dust settles, it's a dangerous path to be standing in the way of AI." Shares of business development companies were caught in the selling, with Blue Owl Capital Corp. falling as much as 13% for a record ninth-straight decline that dragged the stock to the lowest since 2023. Fears of disruption have rattled credit globally, sending software loans in the broadly syndicated market lower last week. As publicly traded entities, BDCs provide a real-time window into the otherwise opaque direct-lending market. Ares Management Corp., KKR & Co. and TPG Inc. each fell by more than 10% at one point, while Apollo Global Management Inc. and Blackstone Inc. dropped by as much as 8%. Get the Bonus Points newsletter. Get the Bonus Points newsletter. Get the Bonus Points newsletter. Go in-depth on Bloomberg's games, Pointed and Alphadots, with quizmaster Aimee Lucido. Go in-depth on Bloomberg's games, Pointed and Alphadots, with quizmaster Aimee Lucido. Go in-depth on Bloomberg's games, Pointed and Alphadots, with quizmaster Aimee Lucido. Bloomberg may send me offers and promotions. Plus Signed UpPlus Sign UpPlus Sign Up By submitting my information, I agree to the Privacy Policy and Terms of Service. Anthropic is part of a rash of AI startups developing tools for the legal industry. Long before Anthropic's plugin, startups including Legora and Harvey AI were flooding the legal industry with tools they say will save lawyers from grunt work. Investors have been pouring money into AI products for the legal industry for more than two years. Harvey AI was valued atBloomberg Terminal $5 billion in June, and Legora raised funds at a $1.8 billion valuation in October. Anthropic stands in contrast, however, in that it builds its own models that can be customized for an industry's specific needs. Its position in the AI ecosystem as a major model developer gives it the unique advantage of disrupting both traditional legal news and data services as well as legal AI upstarts. Firms like Legora rely on the underlying models from developers like Anthropic. On its website of plugins, Anthropic included a legal tool that it says can automate work like contract reviewing and legal briefings. "All outputs should be reviewed by licensed attorneys," according to the website. "Anthropic launched new capabilities for its Cowork to the legal space, heightening competition," Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters, the provider of business and legal information. "We view this as a sign of intensifying competition, and thus a potential negative." Another Anthropic release in January -- of its Claude Cowork tool -- boosted jitters for investors who have been monitoring the software sector for AI-related risks to its businesses for months. Other companies have also released products exacerbating the selloff; video-game stocks were caught up in the slide last week after Alphabet Inc. began to roll out Project Genie, which can create immersive worlds with text or image prompts. There are other signs that software companies are lagging their tech sector peers. So far this earnings season, just 71% of software companies in the S&P 500 have beaten revenue expectations, according to data compiled by Bloomberg. That compares with 85% for the overall tech sector. Bloomberg LP, the parent of Bloomberg News, competes with LSEG and Thomson Reuters in providing financial data and news. Bloomberg Law sells legal research tools and software.

Why one Anthropic update wiped billions off software stocks

Tech workers have been worried for years now about the AI tidal wave coming for their jobs, but their bosses are starting to worry too. Stocks plunged this week as fears escalated that AI advancements will take a bite out of business for many software and services companies. The market losses are tied to updates to Anthropic's AI-powered workplace productivity suite, Claude Cowork, which threatens to replace some software tools ubiquitous in the professional world. Companies with business in research and legal software like Thomson Reuters and LegalZoom dropped dramatically on the Anthropic news, with a wide swath of software stocks following suit. Intuit, PayPal, Equifax all dropped by over 10%, with enterprise software companies like Atlassian and Salesforce deepening their own losses, which started well before the latest AI news. The S&P North American software index also slid further this week, worsening a recent losing streak punctuated by a 15% decline in January - the index's worst month in nearly two decades. Unlike Claude Code, a coding tool designed for developers, Anthropic built Claude Cowork as a powerful, general purpose AI agent for non-coders. Available to Anthropic's $100-per-month premium subscribers, Claude Cowork can knock out easier tasks like searching, collecting and organizing files, but it's also capable of taking on much bigger challenges like making slide decks, producing reports and pulling and synthesizing information from other business software tools, like Zendesk and Microsoft Teams.

Anthropic Just Sent Shockwaves Through the Entire Stock Market by Releasing a New AI Tool

Last week, Anthropic released a new AI tool for automating legal work, precipitating a mass stock market selloff over fears that the tech could upend huge software customers in industries ranging from law to finance, Reuters reports -- an urgent example of the power that AI currently has over financial markets and even the economy writ large. The S&P 500 software and services index fell by nearly nine percent over five trading sessions, and is down over 20 percent from its October peak following the release of the AI tool. The Nasdaq 100 Index is similarly despondent, down by around 2.6 percent. Thomson Reuters, Reuters' parent company which operates a large legal division, saw its stock plunge by over 20 percent over five days. Both the SaaS heavyweight Salesforce and the global cloud-based cybersecurity firm Crowdstrike fell by around percent, but eased on Wednesday. The stock rout is a sign of the tense fears over AI automation's potential to disrupt entire industries and especially those focused on knowledge work -- despite the tech's still considerable shortcomings. "We are not yet at the point where AI agents will destroy software companies, especially given concerns around security, data ownership and use," Ben Barringer, head of technology research at Quilter Cheviot, told Reuters, The buzz centers on a new plugin for Anthropic's Claude Cowork AI agent, which was released last month. Simply titled "Legal," Anthropic says it can speed up and even automate contract review, non-disclosure agreement triage, and compliance workflows -- "all configurable to your organization's playbook and risk tolerances." Of course, none of what it produces should be construed as legal advice: "All outputs should be reviewed by licensed attorneys," Anthropic cautions. Nonetheless, this was taken as bad news for legal divisions everywhere, the shockwaves of which were felt in the larger market. Morgan Stanley analysts summarized the anxieties in a note to Thomson Reuters: "Anthropic launched new capabilities for its Cowork to the legal space, heightening competition," they wrote. "We view this as a sign of intensifying competition, and thus a potential negative." There's still considerable doubt over the efficacy of AI agents in the workplace. A MIT study found that companies which integrated AI into its workflows saw no meaningful increase in revenue, while analysts have observed that the tools haven't led to a bump in productivity, either. Its introduction into the legal sphere has been particularly fraught, with numerous lawyers landing in hot water with a judge after their AI tools incorrectly cited sources and fabricated caselaw. Perhaps AI agents will find some general purpose use among white collar workers, but there's a long way to go before they can have a sniff at highly specialized fields. "It feels like an illogical leap to extrapolate Claude Cowork Plugins, or any similar personal productivity tools, to an expectation that every company will hereby write and maintain a bespoke product to replace every layer of mission-critical enterprise software they have ever deployed," JP Morgan analyst Mark Murphy told Reuters. Even so, it's undeniable that AI has the market feeling pretty jumpy.

Traders pile into tech hedges after software rout | Fortune

The unrelenting selloff in software shares has left tech investors antsy enough that they're starting to pony up for protection against yet another steep slide. There's good reason for the concern. Software stocks plunged again Wednesday, with the Goldman Sachs software basket clocking its seventh straight drop to bring its loss for the year to 19%. The rout bled into broader measures of the tech sector, dragging the Nasdaq 100 down 1.4% so far in 2026. That uncertainty sent insurance against a 10% drop in the Invesco QQQ Trust Series 1 ETF soaring to the highest level since March 2020 relative to bets on a rally, data compiled by Bloomberg show. Meanwhile, implied volatility in the iShares Expanded Tech-Software Sector ETF is at its highest level since April's tariff turmoil, pushing up options premiums. And while there are signs the selling has become overdone, the ructions in the industry caused by artificial intelligence applications are severe enough that pricing a bottom has become a fraught exercise. "The question is how low do you go?" said Michael Bailey, director of research at wealth management firm FBB Capital Partners. "Investors hate software, that's pretty clear." That's delivered a brutal reckoning for the industry's heavyweights, most notably Microsoft Corp., Oracle Corp., Salesforce Inc. and Palantir Technologies Inc. They've all seen double-digit share declines this year, with investors increasingly worried that AI tools will disrupt their businesses. Then there's Adobe Inc., the owner of Photoshop and inventor of the .pdf file format. Some investors see its rock-bottom valuation and 20% year-to-date share-price drop as a harbinger of what awaits its peers. "Adobe, is that the canary in the coal mine?," Bailey said. "Could the entire software sector trade down to that level? If so, watch out below. That's a pretty significant risk." While insurance against that outcome will soften any blow, Vishal Vivek, a strategist at Citigroup Inc. says the best approach is to put in the work to suss out winners and losers. "We are past that stage where you could trade AI as a whole, and you have to start picking your spots," he said. The old dichotomy of hardware versus software is breaking down. "It's not even hardware versus software anymore, it's within hardware memory versus others, semi-cap equipment versus chip makers." For now, investors haven't seemed to be so discerning. A Goldman Sachs Group Inc. basket of software firms has now lost $2 trillion in value from highs reached last year, a roughly 30% drop. Hedge funds are unwinding their positions too. Software is by far the most net sold subsector year-to-date, according to Goldman's prime brokerage desk data. Software net exposure finished at a new record low of 4.2% versus 7% at the start of 2026 and historical peak of 17.7% last week. "Even though software is now in a bear market and has entered oversold territory, no one is stepping in to defend the complex yet and buyers continue to beware," the bank's trading desk wrote in a note to clients Tuesday. Salesforce's upcoming earnings on Feb. 26 will be a crucial test, Bailey said. If the enterprise software giant beats expectations, that could mark at least a pause in the rout, if not an outright reversal. Even if Salesforce delivers, there remains the problem that AI may pose an existential threat to some software firms. "The reality is setting in that we need to find out which of these companies are actually going to outperform and which companies are going to terminal value," Vivek said.

'The market's in seek and destroy mode': The new Anthropic AI model scaring lawyers and legal firms

Anthropic, one of the biggest and most influential tech companies in the world, is launching a new model: Claude Opus 4.6. Until now, this would mostly be big news for techies, where Anthropic is admired as the maker of Claude Code, the code-writing AI tool which many engineers say is taking over their work entirely. All of a sudden, however, the impact of these tools is being felt more widely, after a seemingly small release from Anthropic shook some sections of the stock market. Earlier this week, Anthropic released a plug-in to their Claude chatbot, which added new tools for legal analysis. This relatively minor update sent shares of several large legal data firms tumbling. Thomson Reuters, which owns legal database Westlaw, fell nearly 16%. Analytics company RELX fell 12%. This may seem strange to outsiders because Anthropic is still relatively unknown outside the world of tech. A poll by US research firm Blue Rose Research at the end of last year found that it was known by less than 5% of the population. But analysts say that market participants, impressed by the advances in coding, are starting to wonder if the same gains can be made in other sectors. "The market's in seek and destroy mode," says James Sym, partner at London-based equity firm Goodhart. "It's just trying to find the next loser from AI. That's what you've seen in the last couple of days." Anthropic's latest release may add to this sense of urgency, because it is directly aimed at knowledge workers. As well as a number of improvements to coding - the ability to handle large codebases, for instance, and longer tasks - the new model is designed to deal with the kind of problems non-coders face in apps such as Excel and PowerPoint, where Claude will now be able to work directly. "Users can build slides from a corporate template, restructure a storyline, convert bullets into diagrams, or generate a full deck from a description - all without leaving the app," the firm says, although users will have to pay for the privilege. It adds that this is "our most capable model for all enterprise and knowledge work". Anthropic says its new model outperforms its old model on a number of key benchmarks, pointing to an assessment by Norway's Sovereign Investment, which found that "across 40 cybersecurity investigations, Claude Opus 4.6 produced the best results 38 of 40 times in blind ranking against Claude 4.5 models". Read more from Sky News: Man who stabbed nine-year-old in the heart guilty of murder Even Starmer's allies are unsure about his future But the firm is playing down the impact of its knowledge work tools, directing people to statements made by legal software-makers who build specialist tools using Claude Code. "There is an important difference between a plugin and operating a collaborative, matter-centric, production-grade platform used by hundreds of the world's leading legal teams," says Max Junestrand, CEO at Legora, an AI tool for lawyers. The market is not seeing things in such a nuanced way, says Sym of Goodhart, who suggests this could be the "canary in the coal mine" for the end of the exuberance around AI. "If you think about how bubbles in history have evolved over time, they normally follow a bit of a pattern, and what happens is fewer and fewer companies seem to be the winners. That is what's obviously happened at the moment. "This may well be just part of that normal pattern where you're seeing the market decide, actually, it is only going to be a very narrow set of people who win. And of course, the step after that is the whole bubble bursts. And that is what we could be looking at."

Private credit stocks plummet on concern about exposure to software industry disrupted by AI

Blue Owl signage outside the Seagram Building at 375 Park Avenue in the Midtown East neighborhood of New York, US, on Tuesday, Jan. 20, 2026. Shares of stocks with significant private credit market holdings were diving on fears about exposure to the industries being disrupted by artificial intelligence, most notably, software. Shares of Blue Owl, TPG, Ares Management and KKR were all down by double digit percentages on Tuesday. Apollo Global was off by 7%. BlackRock shed 5%. Publicly traded software stocks have been slammed this year as investors grew increasingly concerned about AI eating into their future growth and profit margins as companies use programs like Anthropic's Claude Code to build their own software. The iShares Software ETF is down 20% this year, including another 5% decline on Tuesday. UBS analysts estimate 25% to 35% of the private-credit market is exposed to the risk of AI disruption (other sources say that software, specifically, accounts for about 20 percent of outstanding loans for private-direct lenders). By comparison, the high yield corporate bond market (Using the iShares iBoxx High Yield Corporate bond ETF as a proxy) has only 8 percent exposure to technology, reflecting a broader diversification among the syndicated market than the private-credit market.

Why a new AI tool hammered some software stocks this week

Anthropic's AI tool adapts a workplace assistant for white-collar industries. Shares of some software companies worldwide plummeted in recent days after Anthropic unveiled an artificial intelligence tool viewed by some investors as a potential replacement for widely-used enterprise products. The selloff came in response to a set of new plugins for a digital tool called Claude Cowork, an AI-fueled workplace assistant that can author documents and organize files. The plugins, released on Friday, allow customers to adapt the tool for narrow sectors like legal, finance or data marketing. Thomson Reuters, a data and services firm, and legal-tech company Legalzoom.com each fell more than 15% on Tuesday. Double-digit drops also befell RELX, the London-based parent company of data-analytics firm LexisNexis, and financial-data company FactSet. Shares of major enterprise-software companies Salesforce and Workday also declined earlier this week. Most of those companies recovered a portion of their losses on Wednesday, but all remained below where they stood at the outset of the week. The turmoil comes amid a years-long run of stock market gains buoyed by enthusiasm about AI, though some analysts have voiced concern about the risk of an AI bubble. Analysts who spoke to ABC News agreed that the selloff in software firms indicated a perceived threat to established products in the sector. But they differed about the whether the new AI tool poses a risk of an imminent shake up in the enterprise-software business. Some analysts said it's too early to tell. Jim Reid, a research strategist at Deutsche Bank, said the market's tailspin exemplified a months-long trend of heightened competition for favor from investors over AI. "Over the last few months, the market has clearly shifted from the 'every tech stock is a winner' mindset to something far more brutal: a true winners and losers landscape," Reid noted in a memo to clients on Wednesday. Reid referred to a memo he wrote in October, in which he warned: "AI is likely to be transformative," but "identifying the long-term winners and losers at this early stage is close to pure guesswork." In turn, Reid said at the time, investors would likely "see plenty of volatility this year as market sentiment swung on this." Anthropic CEO Dario Amodei forecast that an economic earthquake may be set off by AI. Last June, Amodei told Axios the technology could cut U.S. entry-level jobs by half within five years. In a blog post in October, Amodei touted the potential capacity of AI at work, saying it can "be given tasks that take hours, days, or weeks to complete, and then goes off and does those tasks autonomously, in the way a smart employee would, asking for clarification as necessary." Anthropic did not immediately respond to ABC News' request for comment. Entry-level tasks in white collar professions stand at risk from AI, some analysts previously told ABC News, pointing to the technology's ability to perform written and computational tasks as opposed to manual work. Vasant Dhar, a professor of data science at New York University who studies AI, said rudimentary legal services amount to "low-hanging fruit" for possible disruption. "You go to a lawyer and they charge you thousands of dollars for boiler-plate stuff," Dhar said. "Reviewing standard contacts isn't a big deal." Some analysts voiced skepticism about the potential impact of the AI advance, however. "It's a strong model and it's extremely impressive. But I do not see enterprises moving away from traditional vendors because of this," Dan Ives, a managing director of equity research at investment firm Wedbush, told ABC News. Ives pointed to the difficulty scaling up enterprise AI tools for use at large companies with thousands of employees, who've developed processes using other products. "You can't just snap your fingers and go to an AI model on an enterprise scale," Ives said. Despite disagreement about the ultimate adoption of Anthropic's tool, analysts acknowledged the turmoil in markets this week. Ed Yardeni, the president of market advisory firm Yardeni Research and former chief investment strategist at Deutsche Bank's U.S. equities division, said software stocks had been "hard hit" by the Anthropic plugins but he emphasized ambiguity regarding their long-term impact. "It's too soon to tell how useful the new tools will be," Yardeni said in a memo this week.

'Get me out': Traders dump software stocks as AI fears erupt

Wall Street has been skeptical about software stocks for a while, but sentiment has gone from bearish to doomsday lately with traders dumping shares of companies across the industry as fears about the destruction to be wrought by artificial intelligence pile up. "We call it the 'SaaSpocalypse,' an apocalypse for software-as-a-service stocks," said Jeffrey Favuzza, who works on the equity trading desk at Jefferies. "Trading is very much 'get me out' style selling." The anxiety was underscored Tuesday after AI startup Anthropic released a productivity tool for in-house lawyers, sending shares of legal software and publishing firms tumbling. Selling pressure was evident across the sector with London Stock Exchange Group, which has a large data analytics business, falling 13%, while Thomson Reuters plunged 16%. CS Disco sank 12%, and Legalzoom.com plummeted 20%. Perceived risks to the software industry have been simmering for months, with the January release of the Claude Cowork tool from Anthropic supercharging disruption fears. Video game stocks got caught up in the slide last week after Google-owner Alphabet began to roll out Project Genie, which can create immersive worlds with text or image prompts. All told, the S&P North American software index is on a three-week losing streak that pushed it to a 15% drop in January, its biggest monthly decline since October 2008. "I ask clients, 'what's your hold-your-nose level?' and even with all the capitulation, I haven't heard any conviction on where that is," Favuzza said. "People are just selling everything and don't care about the price." The concerns are brewing in private equity as well, with firms including Arcmont Asset Management and Hayfin Capital Management hiring consultants to check their portfolios for businesses that could be vulnerable, according to people with knowledge of the matter. Apollo cut its direct lending funds' software exposure almost by half in 2025, from about 20% at the start of the year. Among U.S. public companies, so far this earnings season just 67% of software companies in the S&P 500 have beaten revenue expectations, according to data compiled by Bloomberg. That compares with 83% for the overall tech sector. While all software stocks have beaten earnings expectations, that's mattered little in the face of concerns about long-term prospects. For example, Microsoft reported solid earnings last week, but investors' focus on slowing growth in cloud sales put fresh scrutiny on the amount it's spending on AI, sending the stock tumbling 10% on Thursday. January was the worst month for Microsoft shares in more than a decade. Meanwhile, earnings reports from ServiceNow and SAP gave investors additional reasons to be cautious about growth prospects for software companies. Microsoft fell 2.9% on Tuesday, its fourth straight negative session. On the flip side, Palantir Technologies gave a bullish revenue forecast when it reported earnings after the bell on Monday. It also posted fourth-quarter revenue growth of 70%, exceeding Wall Street estimates. Shares rose 6.9%. "The fear with AI is that there's more competition, more pricing pressure, and that their competitive moats have gotten shallower, meaning they could be easier to replace with AI," said Thomas Shipp, head of equity research at LPL Financial, which has $2.4 trillion in brokerage and advisory assets. "The range of outcomes for their growth has gotten wider, which means it's harder to assign fair valuations or see what looks cheap." Those AI-related fears led Piper Sandler to downgrade software firms Adobe, Freshworks and Vertex on Monday. To be sure, some investing pros view the sell-off in software stocks as an opportunity. The Sycomore Sustainable Tech fund, a European open-end fund that has beaten 99% of its peers over the past three years, bought Microsoft shares amid the downturn on the expectation that the company will eventually emerge as an AI winner. It doesn't hurt that the software giant's stock looks cheap at the moment, trading for less than 23 times estimated earnings, the lowest in about three years. The central issue facing investors who want to buy software stocks is separating the AI winners from the losers. Clearly, some of these companies are going to thrive, meaning their stocks are effectively on sale after the recent rout. But it may be too early to determine who they are. "The draconian view is that software will be the next print media or department stores, in terms of their prospects," said Favuzza at Jefferies. "That the pendulum has swung so far to the sell-everything side suggests there will be super-attractive opportunities that come out of this. However, we're all waiting for an acceleration, and when I look out to 2026 or 2027 numbers, it is hard to see the upside. If Microsoft is struggling, imagine how bad it could be for companies more in the path of disruption, or without its dominant position." Bloomberg's Subrat Patnaik, David Watkins and Stephen Kirkland contributed.

Skillsoft Lenders Tap Counsel Again as Software Distress Worsens

Some lenders to Skillsoft Corp. re-engaged law firm Gibson Dunn & Crutcher for legal advice as its loans fall deeper into distress, according to people familiar with the matter. The cloud-based learning company has struggled to break out of an earnings rut as artificial intelligence reshapes the software industry, said the people, who asked not to be identified discussing a private matter. Gibson Dunn previously represented lenders during Skillsoft's Chapter 11 bankruptcy in 2020. The company is now seeking a strategic review of an underperforming asset to shore up its balance sheet, the people said. Messages left with Skillsoft and Gibson were not returned. Skillsoft's debt has tumbled since December, when it disclosed plans to sell Global Knowledge, an instructor-led training unit that it acquired by goingBloomberg Terminal public through a blank-check company shortly after exiting court protection in 2020. Global Knowledge has been a drag on the overall business, recording an 18% year-over-year decline in revenue to $28 million for the quarter ended Oct. 31. Skillsoft's total revenue dropped 6% to $129 million in the three-month period and reported a net loss of $41 million. The company's roughly $582 million loan due in 2028 was quoted Tuesday at 65.25 cents on the dollar, down from 81.875 cents on Dec. 2, according to data compiled by Bloomberg. Apollo Global Management's John Zito left the audience of investors stunned. Addressing a gathering in Toronto last fall, he said that the real threat for private capital markets wasn't tariffs, inflation or a prolonged period of elevated interest rates. Rather, he said, "the real risk is -- is software dead?" Zito's comments, being reported for the first time, marked a forthright challenge to one of private equity's most entrenched assumptions. For years, investors have funneled hundreds of billions into software businesses, banking on steady growth and resilient, recurring revenues. But the artificial intelligence revolution is now testing that foundation. As worries mount, firms including Arcmont Asset Management and Hayfin Capital Management have hired consultants to check their portfolios for businesses that could be vulnerable, according to people with knowledge of the matter. Apollo cut its direct lending funds' software exposure almost by half in 2025, from about 20% at the start of the year. The uncertainty about the eventual winners and losers is roiling multiple markets. On Tuesday, stocks seen as vulnerable to AI dropped after Anthropic released a new tool, exacerbating worries about disruption to businesses. In recent days, Blue Owl Capital Inc. revealed huge outflows from a tech-focused fund, and two European software firms put loan deals on ice. While various business models are threatened, software-as-a-service is particularly vulnerable. AI-native firms can often offer quicker and cheaper solutions, meaning companies that once operated in a defensible sector are now at risk of competition from new players. Anthropic's Claude Code and other "vibe-coding" startups are disrupting traditional SaaS by allowing users with no coding experience to build software. That's dramatically lowering the programming skill barrier and undermining rigid, one-size-fits-all products. "Technology private equity, in its current form, is dead," Isaac Kim, a partner at venture capital firm Lightspeed who previously led Elliott Investment Management's tech private equity business, said in a recent LinkedIn post. The sector has been a hugely popular target for buyout firms and their private credit cousins. From 2015 to 2025, more than 1,900 software companies were taken over by private equity buyers in transactions valued at more than $440 billion, according to data compiled by Bloomberg. Deals were easily waved through most investment committees because the model was simple. Revenues are "sticky" because the tech is embedded into businesses, helping with everything from payroll to HR, and the subscription fee model meant predictable cash flows. But now, lenders are zeroing in on how prospective borrowers are dealing with the new technology challengers, according to people familiar with the matter. It's the first question software bosses are being asked during meetings about borrowing, they said. Buying a software business, improving margins and adding leverage "assumes the underlying product remains relevant long enough for financial engineering to work," Kim said in the post. "AI has changed that assumption." Last year, two outsourcing companies, KronosNet and Foundever, fell into difficulty amid increased investor scrutiny around AI. The debt of both is now trading at distressed levels. Bond prices on other software names, including McAfee and ION Platform Investment Group, have tumbled. Also in 2025, CVC Capital Partners' credit unit took the keys of a contact center support business called Sabio Group after its previous owner struggled to find a buyer. "Everyone's focused on these bubble risks, I think the biggest risk is actually the disruption risk," Blackstone's Jon Gray said on Bloomberg TV. "What happens when industries change overnight, like what we saw to the Yellow Pages back in the nineties when the Internet came along." In private markets, debt-laden firms have sought forbearance on borrowings, and big name lenders have slashed valuations on loans to software companies such as Edmentum and Foundever, some to distressed levels. Here's what credit strategists are saying...* UBS: While the timing of future disruption remains uncertain, under an "aggressive AI disruption" scenario, we expect defaults to rise unevenly across markets to 2%-4% in high yield, 6%-8% in leveraged loans, and 12%-13% in private credit. * Citigroup: We initiate an underweight recommendation on software loans, in line with our general cautious positioning in the asset class. In our view, yields in the 6%-8% range for much of the sector mean it has limited appeal beyond real money and CLO investors. * Morgan Stanley: We like shorting loan total return swaps vs. high yield total return swaps on the back of higher software exposure and worse convexity. * Barclays: Software equities are down around 15% YTD, and software BSLs have declined 3-4 points in the past few weeks. At a minimum, this decline could increase the LTVs of the loans that BDCs make to the sector. More serious risks include possible obsolescence of some software borrowers, which could introduce more material asset quality issues in BDC portfolios. Credit Exposure Sentiment in the equity market has grown increasingly bearish. The S&P North American software index fell 15% in January, its biggest monthly decline since October 2008. Private credit's exposure to software may be much higher than some figures suggest. Barclays estimates so-called business development companies -- investment funds that lend directly to firms -- have around 20% of their portfolios tied up with the sector, but others say it's substantially more. "If your software business is in healthcare, the fund classifies it as a healthcare exposure," said Robert Dodd, an analyst at Raymond James. "The software exposure is meaningfully higher than it looks." An additional worry is the software industry's asset-light model. With less physical infrastructure to seize to try recoup money, that can mean bigger losses. Zito's recent comments represent a change in how the AI threat is being assessed. Back in 2022, shortly before Hellman & Friedman and Permira paid just over $10 billion to buy Zendesk Inc., the software firm's board of directors set out the risks the firm was facing. They cited a potential recession, persistently high inflation and economic headwinds. Not mentioned: AI. Just over a week after the sale closed in November 2022, ChatGPT launched. But firms under threat aren't just sitting back. Many have harnessed the technology themselves, and for those that do it effectively, AI could be a boon. Annual recurring revenue from Zendesk's in-house AI offering, for example, now exceeds $200 million, amounting to 10% of revenue, a person with knowledge of the matter said. Some firms expect AI will help them to reduce costs. Brian Ruder, co-CEO of Permira, says there are risks, but the concern has been overdone. "If you look back at previous platform shifts in technology, history tells us there will be winners and losers on both sides of the AI-native and incumbent SaaS equation," he said. In the boom times, star businesses such as Coupa Software and Cloudera traded at almost 60 times earnings, according to data from Pitchbook. In 2025, software-as-a-service firms were bought by private equity at an average multiple of 18 times, down from 24 the previous year. The software industry's "halo of invulnerability" has been inappropriate for some time, said Robin Doumar, founder of private credit manager Park Square, adding that metrics like huge earnings multiples "defy financial logic." "That chapter I hope has come to a close."

Trillion-dollar tech wipeout ensnares all stocks in AI's path | Fortune

There have been many AI-driven selloffs in the three years since ChatGPT burst into the mainstream. Nothing, though, quite rivals the rout rippling through stock and credit markets this week. For one, there's the sheer speed and breadth of it. In the span of two days, hundreds of billions of dollars were wiped off the value of stocks, bonds and loans of companies big and small across Silicon Valley. Software stocks were at the epicenter, plunging so much that the value of those tracked in an iShares ETF has now dropped almost $1 trillion over the past seven days. For another, this drubbing, unlike many previous ones, was triggered not by fears of a bubble but rather concern that AI is on the verge of supplanting the business models of a wide swathe of companies that doomsayers have long predicted were at risk. "I don't think it is an overreaction," said Michael O'Rourke, chief market strategist at Jonestrading. "For two years, we have been talking about how AI is going to change the world and that it is a multi-generational technology. In the past few weeks, we have seen signs of it in practice." The spark was innocuous on its face: AI startup Anthropic PBC released a new tool for legal work, like reviewing contracts. On its own, the product isn't seen as a game-changer -- yet. But coming after a year in which Anthropic's coding tools helped transform software development -- part of a broader wave of AI innovation -- the four-paragraph launch announcement was taken extremely seriously. "While today it's legal tech, tomorrow it might be sales or marketing or finance," wrote Jackson Ader, an analyst at KeyBanc. Adding to investor unease, even companies long seen as the prime beneficiaries of the AI boom are showing signs of fatigue. In earnings reports, Alphabet Inc. said capital spending on AI would be higher than anticipated, while Arm Holdings Plc issued a revenue forecast that missed expectations. Both stocks fell in after-hours trading. "We start with just selling off software, now we're selling everything," said Gil Luria, a managing director at D.A. Davidson. It "self-perpetuates, stocks go down enough then that creates negative momentum, and then other people sell." The rout is hardly limited to US listed companies. London Stock Exchange Group Plc, Tata Consultancy Services Ltd. and Infosys Ltd. have all tumbled this week on AI displacement fears. It's also widened to include the industry's Wall Street backers, from lenders to private equity owners for whom software firms have been popular targets. More than $17.7 billion of US tech company loans in a Bloomberg index dropped to distressed trading levels during the past four weeks. Losses deepened in Asia on Thursday, with a drop in South Korean memory chipmaker Samsung Electronics Co. dragging down the world's best-performing equity benchmark. Taiwan's tech-dominated market also slid, while Arm's sales warning weighed on shares of its majority owner SoftBank Group Corp. in Tokyo. In many ways, the anxiety remains hypothetical. Leading software makers ServiceNow Inc. and Salesforce Inc., for example, haven't missed earnings numbers or told Wall Street that AI was causing them to lose customers. Software companies have spent the last few years developing their own AI tools, generally promising the ability to use AI in a secure way, tapping customer data already stored within their systems. Still, many vendors have thus far reported disappointing results. Microsoft Corp. said last week that it had 15 million paying users of its Copilot tool -- a tiny sliver of the company's user base of hundreds of millions. The latest developments raise the specter that AI leaders will overtake established industry players in innovation, and the fear is that the reckoning will happen sooner rather than later. "It is going to be an interesting year," said Dec Mullarkey, managing director at SLC Management. "What we're seeing now is kind of the early stages of this repositioning on who are going to be the winners and losers, who are the most vulnerable as we go through this process."

Why Anthropic's Claude Cowork sparked $300 billion tech market sell-off this month - see which sectors are winning and losing amid AI boom

Anthropic Claude Cowork: A sudden jolt rippled through the technology sector in early February 2026, when nearly $300 billion in market value vanished in about a single trading day, forcing investors to rethink where value truly sits in the age of artificial intelligence. The sharp adjustment was concentrated in software, data services, and IT outsourcing stocks, and it followed the launch of Anthropic's Claude Cowork, a set of open-source plugins that allow AI agents to complete tasks autonomously from start to finish. In demonstrations, the system independently conducted legal research and prepared filings, working from raw inputs rather than inside traditional software workflows. That moment shifted how markets view AI. Instead of seeing it mainly as a productivity tool layered onto existing software, investors began treating it as a potential replacement for entire categories of software and services. The speed and scale of the sell-off reflected how quickly that change in perception was priced in. Also read: Spotify stock plunges after KeyBanc cuts SPOT stock price target - here's what investors need to know ahead of earnings tomorrow Some of the first pressure showed up in seat-based SaaS companies. Shares of Salesforce, ServiceNow, and Adobe fell between 6% and 8% as investors questioned how per-user pricing models hold up if AI agents allow one person to do the work of many, as per a report. IT services and outsourcing firms were also hit hard. Indian companies such as Infosys and TCS, which rely on billing hours for manual data work and entry-level coding, saw sharp declines as those tasks are precisely the areas Claude Cowork's autonomous plugins appear able to automate, as per a Forbes report. High-margin data and legal service providers experienced even steeper drops. Stocks like Thomson Reuters and LegalZoom slid 15% to 20% as markets priced in the risk that AI agents could handle legal research, drafting, and triage. Also read: BTC USD price prediction: Bernstein breaks down why recent Bitcoin crash is weakest bear case in history and predicts crypto will hit $150,000 in 2026 At the same time, investors continued to recognize that much of the value in these businesses comes from proprietary, licensed, and continuously updated datasets that are difficult for large language models to replicate. The sell-off did not suggest that software itself is disappearing, but it did highlight how business models may be changing. The traditional subscription-per-seat approach looks increasingly vulnerable as AI agents take on more work directly. Newer companies such as Palantir and Harvey are already experimenting with outcome-based billing, charging for completed tasks rather than access to tools, as per the Forbes report. For users, this could mean software becomes less visible. Instead of logging into multiple platforms, people may simply describe a goal while an AI agent navigates systems, tools, and data to deliver the result. As some parts of software struggled, other areas emerged as potential winners. Semiconductor companies like Nvidia drew attention because autonomous agents require far more computing power than basic text generation. Reasoning-heavy workloads increase demand for high-performance accelerators, and Nvidia's Rubin platform was built with these agentic tasks in mind. Model developers such as Anthropic and OpenAI also sit in a strong position. When a single agent can replace multiple software tools by completing tasks end to end, value concentrates at the model level. Pricing shifts from access to software toward successful outcomes, giving model builders greater leverage. Cloud providers including Amazon and Google stand to benefit as well. Autonomous agents operate continuously rather than sporadically, driving higher demand for compute, storage, and power. In this environment, companies that control data centers, energy access, and infrastructure begin to look like landlords of an always-on agent economy. Some investors are also looking beyond pure software. The reset in valuations has renewed interest in physical-world AI, where intelligence must be paired with machines that operate in the real world. Tesla's stock has increasingly diverged from traditional software names as it is viewed more as a play on robotics and autonomous mobility through projects like Optimus and Cybercab. Who benefits from AI agents? Chipmakers like Nvidia and cloud providers like Amazon and Google stand to gain. What is Claude Cowork? It's a set of open-source plugins that let AI agents autonomously handle complex tasks from raw inputs.

The tech stocks free fall doesn't make any sense, BofA says in rebuke to investors while doubling down on the sector's longevity | Fortune

BofA senior analyst Vivek Arya's team put together the note that recalled the famous John Maynard Keynes quote that markets can remain irrational longer than investors can remain solvent, "yet we believe recent software-led moves weighing on leading AI chip stocks appear internally inconsistent." The market appears to be reacting, as Edwards noted, to Palantir CEO Alex Karp's typically outspoken argument on a Monday night earnings call. AI is now so good at writing and managing enterprise software that many software-as-a-service (SaaS) companies risk becoming irrelevant. The ensuing selloff wiped out $300 billion in market cap, with Microsoft, Salesforce, and ServiceNow taking significant hits. Jason Lemkin, the so-called "godfather of SaaS," wrote on his blog that early 2026 was seeing a "crash" in SaaS stocks, while BofA's Arya described it as an "indiscriminate selloff" that resembles the reaction to China's DeepSeek in January 2025. That moment proved an "overblown selloff," and this moment just doesn't make logical sense, Arya argued. The SaaS selloff relies on two mutually exclusive scenarios BofA wrote: "AI capex deteriorating to the point of weak ROI and unsustainable growth, while simultaneously ... AI adoption will be so pervasive and productivity-enhancing that long-standing software workflows and business models become obsolete. Both outcomes cannot occur at once." If AI is powerful enough to disrupt established industries, the infrastructure spending supporting it cannot collapse. Conversely, if the spending is collapsing due to poor returns, the technology cannot be pervasive enough to threaten legacy software models. Far from predicting a crash, BofA is doubling down on the sector's longevity. BofA forecasts that AI capex will quadruple to reach $1.2 trillion by 2030, driven by the need for leading compute, memory, and networking capabilities. The report emphasizes that we are still in the early innings of this story. "AI is a tool, not a widespread product ... yet," the analysts write, noting that harnessing intelligence for commercial products will take "the next several years". Continued investment is required not just for training models to improve accuracy, but to sustain "inference" -- the actual processing of user traffic. Without this infrastructure, hyperscalers serving billions of users simply cannot expand. Contrary to Arya's point, the current volatility may be seen as risk repricing under uncertainty, rather than as an illogical or paradoxical conclusion. Markets don't wait for equilibrium logic to resolve before repricing risk because investors discount future cash flows, not conceptual coherence. When an influential earnings release like Palantir's drops, increasing uncertainty around other companies' earnings projections, both optimism (for infrastructure builders) and pessimism (for SaaS players losing pricing power) can coexist. Today's chip valuations have also already priced in years of double-digit growth, so any friction in the buildout justifies short-term selloffs. If AI remains mostly a tool awaiting monetization, then current market valuations may already have overestimated future returns. Investors are now adjusting expectations to match the slower commercialization timeline that BofA itself admits is still "several years" away. Just as AI is reshaping software, it is also reshaping investor time horizons, and that adjustment may be a rational reason for volatility, not a contradiction. BofA argues that the selloff has created an attractive entry point. Leading names such as Nvidia (NVDA), Broadcom (AVGO), AMD, and Credo Technology (CRDO) are trading near or below 1x projected earnings growth (PEG). This is notably cheaper than the S&P 500 and large-cap growth peers, which trade at 1.5x-2x. Furthermore, BofA suggests the market is worried about the wrong things. While investors fret about demand constraints, earnings commentary from major tech firms continues to point to supply constraints. The real bottlenecks for the AI buildout are "power, land, data-center shells," and components like advanced memory and optics. These physical limitations act as a "natural governor on overbuild risk," preventing the glut of supply that bears are fearing. The firm concludes that the chip industry remains "positively levered to the AI buildout," and that current pricing discounts a deceleration in earnings that simply "may not materialize."

Private Equity's Giant Software Bet Has Been Upended by AI

Apollo Global Management's John Zito left the audience of investors stunned. Addressing a gathering in Toronto last fall, he said that the real threat for private capital markets wasn't tariffs, inflation or a prolonged period of elevated interest rates. Rather, he said, "the real risk is -- is software dead?" Zito's comments, being reported for the first time, marked a forthright challenge to one of private equity's most entrenched assumptions. For years, investors have funneled hundreds of billions into software businesses, banking on steady growth and resilient, recurring revenues. But the artificial intelligence revolution is now testing that foundation. As worries mount, firms including Arcmont Asset Management and Hayfin Capital Management have hired consultants to check their portfolios for businesses that could be vulnerable, according to people with knowledge of the matter. Apollo cut its private credit funds' software exposure almost by half in 2025, from about 20% at the start of the year. The uncertainty about the eventual winners and losers is roiling multiple markets. In recent days, Microsoft Corp. shares dropped on concern that its massive outlay on AI won't bring as big a payoff as once hoped, Blue Owl Capital Inc. revealed huge outflows from a tech-focused fund, and two European software firms put loan deals on ice. While various business models are threatened, software-as-a-service is particularly vulnerable. AI-native firms can often offer quicker and cheaper solutions, meaning companies that once operated in a defensible sector are now at risk of competition from new players. Anthropic's Claude Code and other "vibe-coding" startups are disrupting traditional SaaS by allowing users with no coding experience to build software. That's dramatically lowering the programming skill barrier and undermining rigid, one-size-fits-all SaaS products. "Technology private equity, in its current form, is dead," Isaac Kim, a partner at venture capital firm Lightspeed who previously led Elliott Investment Management's tech private equity business, said in a recent LinkedIn post. The sector has been a hugely popular target for buyout firms and their private credit cousins. From 2015 to 2025, more than 1,900 software companies were taken over by private equity buyers in transactions valued at more than $440 billion, according to data compiled by Bloomberg. Deals were easily waved through most investment committees because the model was simple. Revenues are "sticky" because the tech is embedded into businesses, helping with everything from payroll to HR, and the subscription fee model meant predictable cash flows. But now, lenders are zeroing in on how prospective borrowers are dealing with the new technology challengers, according to people familiar with the matter. It's the first question software bosses are being asked during meetings about borrowing, they said. Buying a software business, improving margins and adding leverage "assumes the underlying product remains relevant long enough for financial engineering to work," Kim said in the post. "AI has changed that assumption." Last year, two outsourcing companies, KronosNet and Foundever, fell into difficulty amid increased investor scrutiny around AI. The debt of both is now trading at distressed levels. Bond prices on other software names, including McAfee and ION Platform Investment Group, have tumbled. Also in 2025, CVC Capital Partners' credit unit took the keys of a contact centre support business called Sabio Group after its previous owner struggled to find a buyer. "Everyone's focused on these bubble risks, I think the biggest risk is actually the disruption risk," Blackstone's Jon Gray said on Bloomberg TV. "What happens when industries change overnight, like what we saw to the Yellow Pages back in the nineties when the Internet came along." In private markets, debt-laden firms have sought forbearance on borrowings, and big name lenders have slashed valuations on loans to software companies such as Edmentum and Foundever, some to distressed levels. Last Thursday, Blue Owl revealed in a filing that investors have pulled around 15% of net assets from one of its funds. Exposure Private credit's exposure to software may be much higher than some figures suggest. Barclays estimates so-called business development companies -- investment funds that lend directly to firms -- have around 20% of their portfolios tied up with the sector, but others say it's substantially more. "If your software business is in healthcare, the fund classifies it as a healthcare exposure," said Robert Dodd, an analyst at Raymond James. "The software exposure is meaningfully higher than it looks." An additional worry is the software industry's asset-light model. With less physical infrastructure to seize to try recoup money, that can mean bigger losses. Zito's recent comments represents a change in how the AI threat is being assessed. Back in 2022, shortly before Hellman & Friedman and Permira paid just over $10 billion to buy Zendesk Inc., the software firm's board of directors set out the risks the firm was facing. They cited a potential recession, persistently high inflation and economic headwinds. Not mentioned: AI. Just over a week after the sale closed in November 2022, ChatGPT launched. But firms under threat aren't just sitting back. Many have harnessed the technology themselves, and for those that do it effectively, AI could be a boon. Annual recurring revenue from Zendesk's in-house AI offering, for example, now exceeds $200 million, amounting to 10% of revenue, a person with knowledge of the matter said. Some firms expect AI will help them to reduce costs. Brian Ruder, co-CEO of Permira, says there are risks, but the concern has been overdone. "If you look back at previous platform shifts in technology, history tells us there will be winners and losers on both sides of the AI-native and incumbent SaaS equation," he said. In the boom times, star businesses such as Coupa Software and Cloudera traded at almost 60 times earnings, according to data from Pitchbook. In 2025, software-as-a-service firms were bought by private equity at an average multiple of 18 times, down from 24 the previous year. The software industry's "halo of invulnerability" has been inappropriate for some time, said Robin Doumar, founder of private credit manager Park Square, adding that metrics like huge earnings multiples "defy financial logic." "That chapter I hope has come to a close."

Is Anthropic's Agentic Artificial Intelligence (AI) Tool, Claude Cowork, Software's DeepSeek Moment?

Typically, when there's a deep sell-off across a sector, it's preceded by a triggering event. Since the debut of OpenAI's ChatGPT, investors and analysts have been scratching their heads, trying to predict just how severely the spread of artificial intelligence (AI) systems could upend the world as we know it. The common view is that the disruption could be immense. However, every bear and bull market typically needs a spark. AI itself has had many ups and downs, such as the emergence of China's DeepSeek, an AI chatbot that rivaled ChatGPT and allegedly required only a fraction of the resources to develop and train. However, there is wide disagreement about how much DeepSeek actually spent to develop its chatbot, and AI stocks have bounced back from the plunge they experienced after it hit the scene. They have, though, experienced many ebbs and flows. Recently, the emergence of Anthropic's Claude Cowork, an agentic AI tool, has led investors to dump shares of companies in the software sector, which not long ago was a market darling. Selling pressure has been intense. Is the arrival of Claude Cowork the software industry's DeepSeek moment? What is Claude Cowork? Claude is Anthropic's AI chatbot, and it rivals ChatGPT in popularity. While the two have their differences -- one being that Claude is viewed as the better chatbot for business work -- they are largely seen as peers, with ChatGPT still having the edge in terms of weekly active users and valuation. Recently, Claude introduced Cowork, an agentic AI tool that Anthropic believes will change the way people work and conduct their daily digital lives. Claude can execute non-coding tasks on your computer and within specific files. Using the Cowork desktop app, users can provide the tool with access to certain files and folders and then prompt Claude to complete tasks. Now, it's still early, but, according to its website, some of Cowork's capabilities include creating a daily briefing that pulls from data from Slack, Notion, and GitHub; conducting research and analysis and create PowerPoint presentations and Excel workbooks; and aggregating customer feedback from a variety of data sources, including customer relationship management systems, transcripts, and more. Cowork can also help manage legal documents by consolidating many lawsuit documents into a chronological set of exhibits. Several legal tech stocks sold off significantly once this capability came to light. Why Claude Cowork is a problem for software The obvious answer is that Claude Cowork can, in theory, handle many different workflow tasks done previously by people or software solutions, challenging many business software models. Additionally, investors probably assume this is just the tip of the iceberg. If Claude Cowork can already complete simple tasks like these, what will it be able to do in a year? Or three? However, perhaps the biggest threat of all this is that, even if Claude Cowork is not an immediate or terminal threat to many software companies, its arrival signals the start of what's likely to be much more competition in the space, which will hurt companies' margins and therefore decrease valuations. In that light, the intense selling may also be driven by a valuation reset in the sector. Is this Software's DeepSeek moment? I certainly see some similarities. The emergence of a new AI tool is triggering a widespread sector sell-off. But investors should remember that AI stocks also rebounded significantly after their DeepSeek-triggered plunge, primarily because, as more information emerged, it began to look as though DeepSeek had spent far more money to create its chatbot than it claimed. While we are early in the current software sector sell-off, I do think the event has become indiscriminate, meaning that while some of it is justified, some stocks are getting caught up in the fray that may not deserve it. After all, many software companies are poised to adopt AI and use it to further monetize their businesses. Data-intensive software companies like Snowflake have already signed deals with OpenAI and Palantir. Still, investors should be cautious before buying the dip. There are several questions that investors should ask before picking up shares of any of these companies: How much of this company's business could a tool like Claude Cowork or similar future tools actually steal or replicate? Does the software company you are examining have a prudent AI strategy that could help it avoid being left in the dust? Finally, valuation and fundamentals are arguably more important than ever before. AI is going to be a competitor to software, so the software companies you invest in should be profitable, with growing revenues, and not trading at nosebleed valuations.

US software stocks stabilise after bruising selloff on AI disruption fears

Software and data services stocks stabilized on Thursday after a bruising selloff, as investors looked for clues on whether fast-advancing artificial intelligence tools are starting to dent demand for traditional software and subscription businesses. ServiceNow ⁠gained 0.7%, Salesforce added 0.1%, while Microsoft dipped 0.8% in premarket trading after sharp falls earlier this week. The S&P 500 software and services index has shed more than $800 billion in market value over the past six sessions. Price performance of overseas tech stocks was also mixed. Shares in London Stock Exchange Group added 6.4%, while data analytics firms RELX rose 2.4% and the Netherlands-based Wolters Kluwer gained 1.5%. In contrast, India's software exporters index , which houses HCL Technologies and Wipro, slipped 0.7%, a day after plunging 6% in their worst session for nearly six years. Thomson Reuters, which owns the Westlaw legal database and the Reuters news agency, gained 3.1% in thin volumes after fourth-quarter results were largely in line with estimates. The company said it was seeing tangible benefits from AI investments. The stock suffered a record one-day plunge earlier this week after investors raised concerns that a new plug-in from Anthropic's Claude could disrupt its legal business. "The market is putting a question on the earnings compounding nature of software companies, whether that gets disrupted," said Manish Kabra, London-based lead U.S. equities and multi-asset strategist at Societe Generale. "At the moment, we have not suggested people to buy software for that reason. I think a lot of cyclical sectors will do better." The software selloff has come alongside a broader rotation out of technology and into value-oriented sectors such as consumer staples, energy and industrials, which were laggards in the bull market that began in October 2022. Alphabet dropped 2.6% after the Google parent said its capital expenditure could as much as double this year, stoking concerns over payoff from the massive AI investments. Market volatility has ⁠spiked across equities, commodities and ⁠digital assets in recent weeks, which market participants attribute to leveraged investors rapidly unwinding positions. Precious metals gold and silver resumed their slide on Thursday after a historic rout earlier this week. "This is a lot of relative bets out there going wrong, and then there's some kind of reset going on in the market internals, but time will tell," John Hardy, Saxo's global head of macro strategy, said on a podcast. "There's a lot of leverage in this market. We've reached record leverage in terms of margin lending, etc., so forewarned is forearmed."

SaaSpocalypse: Is AI shifting from software enhancer to replacement? (IGV:BATS)

Haven't investors been through this before? And even recently? Market headlines over the past few days have been flashing warning signs about the tech sector, with the Nasdaq Composite (COMP:IND) dropping 4% over the past week. While that is AI advancements are now seen as potentially replacing, rather than enhancing, traditional SaaS offerings, causing significant stock declines and investor fear. There is uncertainty whether recent sharp stock losses reflect bargain opportunities or a fundamental, lasting reset in the SaaS industry due to AI disruption. A $1T selloff was triggered by fears of AI replacing software services, major price plunges in key stocks, and bearish sector sentiment.

Tech stocks go into freefall as it dawns on traders that AI has the ability to cut revenues across the board | Fortune

Until very recently, the narrative around AI was that the $600 billion of annual corporate capital expenditure ("capex") fuelling it was good for stocks in the short term. The companies receiving that money as new revenue (AI model makers, data center constructors, and the energy companies supplying them) would be the immediate beneficiaries. The efficiencies delivered by AI would be good for tech and non-tech companies alike. The Big Tech hyperscalers have always argued that the demand from their revenue-paying clients far exceeded their ability to supply AI services. That narrative was turned on its head in the last 24 hours as it dawned on traders that AI also has the ability to reduce the revenues of a vast range of adjacent tech companies. The argument -- advanced by Palantir CEO Alex Karp and CTO Shyam Sankar on their recent earnings call -- is that AI is now so good at writing or managing enterprise software that it threatens to make irrelevant a range of tech companies that have, for years, enjoyed recurring revenues by providing enterprise apps to companies on a software-as-a-service (SaaS) basis. That led to a widespread sell-off of tech stocks, wiping away $300 billion in market cap in a single session. S&P 500 futures were flat this morning after closing down 0.84% last night. SaaS companies took major hits: Microsoft closed down 2.87%, SAP was down 3.29% this morning on the German market, Salesforce lost 6.85% yesterday and was further down in overnight trading, ServiceNow was down 6.97% yesterday and was marginally lower overnight, also. Palantir's Sankar said on the call that his company's "AI Forward Deployed Engineer" product -- which allows clients to manage software and code bases through natural language commands -- is able to reduce the time it takes to complete "complex SAP ERP migrations" from "years of work" to "as little as 2 weeks." (ERP stands for "enterprise resource planning," and it refers to a service offered by SAP around helping companies transition from aging legacy systems into new ones.) Karp added, "In the American market, we have inbound [requests from clients] where people have already seen proof points at other companies and not on one use case," he said. "[There is] a myriad of use cases." Jefferies analysts Akshat Agarwal and Ayush Bansal -- who focus on Indian enterprise tech companies -- published a note this morning arguing that AI has the ability to reduce the revenues of a wide range of tech companies: "Anthropic's Cowork plug‑ins and Palantir's claims of faster SAP migrations highlight how AI could potentially erode application service revenues for IT firms. With application services being 40-70% of revenues [for tech companies in India], IT firms face growth pressures. Consensus growth estimates don't fully reflect this, posing downside risk to valuations," they warned. Claude Cowork is like a general purpose work assistant that can organize tasks and files autonomously. "Software stocks have been correcting on the back of this, however, we believe the impact of this could extend well beyond software-potentially disrupting downstream application‑managed services (AMS) revenues for IT services firms." "Our checks suggest that use of AI is clearly compressing migration timelines which in turn may drag application implementation revenues for IT services firms," they added. "AI is going to be drag on revenue growth of IT firms over the next one to two years." Ed Yardeni of Yardeni Research made a similar argument in a note to his clients: "Software stocks were especially hard hit because Anthropic rolled out new tools for its Cowork product. It's too soon to tell how useful the new tools will be, but investors decided to cut the valuation multiples of software stocks." SAP was approached for comment.

'Software-mageddon' leaves investors bargain-hunting but wary

Wall Street's software sector is experiencing a significant downturn, dubbed "Software-mageddon," as investors grapple with the disruptive potential of artificial intelligence. This selloff, marked by substantial market capitalization losses, has led some to consider buying beaten-down stocks, while others await clearer signals of AI integration and its impact on future software sales. Wall Street's "Software-mageddon" has been snowballing. Now investors are debating whether it is time to warm up to the beaten-down stocks. The fallout for the software industry, which includes a handful of signature stocks of the recent bull ⁠market, reflects growing anxiety over the potential disruption caused by artificial intelligence, as investors increasingly divide the sector into perceived winners and losers. The volatility also comes as investors shed tech holdings for other market areas that have mostly lagged in recent years while investors await quarterly updates during the heart of corporate earnings season that could further shake asset prices. "The selloff, which arguably started last quarter, is a manifestation of an awakening to the disruptive power of AI...," said James St. Aubin, chief investment officer at Ocean Park Asset Management, Santa Monica, California. "Perhaps this is an overreaction, but the threat is real and valuations must account for that." The S&P 500 software and services index has tumbled 13% in just the past week, shedding more than $800 billion in market capitalization in that time, driven by sharp falls in companies including Intuit, ServiceNow and Oracle. Relative to the overall S&P 500, the software group put up its worst three-month performance as of Tuesday since May 2002, during the fallout from the dot-com bubble bursting, according to Evercore ISI equity strategists. Those steep declines have set off technical signals that could indicate at least a temporary bottom for the group, and some portfolio managers have been doing modest buying of the beaten-up names. Investors, however, hesitated to declare an all-clear sign. "There is some long-term value in these names and they are getting to a point where I feel they are looking more attractive," said Jake Seltz, portfolio manager at Allspring Global Investments in Minneapolis, who has been adding "at the margin" to some holdings including ServiceNow and Monday.com in recent months. Seltz said he was waiting for catalysts to buy more aggressively, such as software companies reporting strong AI-related product revenue or more announcements from enterprise customers that they are deploying such software. TURNING AWAY FROM TECH STOCKS Fears about the implications from a new tool from Anthropic's Claude large language model set off the latest bout of volatility, which has been compounded by disappointing earnings reports including from software giant Microsoft . The S&P 500 software index is down about 25% since its recent peak at the end of October -- a period that has seen the S&P 500 little changed. Options traders showed a lack of appetite for scooping up the battered software names. "This has been Software-mageddon," said Art Hogan, chief market strategist at B Riley Wealth. The steep declines for software names also comes during a broader market rotation away from technology names and into value and quality stocks in other sectors, such as consumer staples, energy and industrials, which until recently had been less favored than tech during the bull market that began in October 2022. "The right reason to sell these expensive companies is that there are other opportunities in things that are better valued and have more room to run, not because you're panicking about a crash in software and tech companies," said Jim Masturzo, chief investment officer at Research Affiliates. LOOKING FOR VALUE AFTER THE FALL Whether that value is now found in software is the debate facing investors. Among the biggest decliners so far this year are Intuit, ServiceNow, and Salesforce. Microsoft is the worst performer this year among the "Magnificent Seven" megacap stocks. Other sharp declines this week included technology and content company Thomson Reuters, which owns the Westlaw legal database and Reuters news agency. The software swoon meant the group was looking oversold on a technical basis, suggesting it was close to "at least a near-term bottom," said Walter Todd, ⁠chief investment officer at Greenwood Capital in South Carolina. His ⁠firm has done some modest buying of shares of ServiceNow and Microsoft in recent days. While not looking to "bet the farm" on software, "I do think it is starting to present value," Todd said. "I don't think this wholesale replacement of the existing software infrastructure for the AI solution in these situations is realistic." Brad Conger, chief investment officer at Hirtle, Callaghan & Co., said he has begun weighing potential purchases of shares including SAP, Adobe and Intuit that have been hit hard in the selloff. "You could argue that they are due a bounce." But he added that he is not yet prepared to become a buyer at present levels as he is not "comfortable that they have reached a level where the worst threat is priced in." To some investors, the fallout was similar to the swift declines precipitated last year by the emergence of the low-cost Deepseek AI model, which led to questions about the AI financial ecosystem. "We are starting to get a better sense of what AI's capabilities are, the market is doing some repricing, signaling less confidence in future software sales growth in an AI-driven world," said Rene Reyna, head of thematic and specialty product strategy at Invesco. "Is it overdone? We can't tell yet. But selling can beget more selling."

Anthropic's New AI Tools Shake Confidence in Traditional Enterprise Software

Anthropic's Claude Opus 4.6 Sparks Selloff as AI Expands into Legal and Financial Workflows Anthropic's launch of Claude Opus 4.6 and new Claude Cowork tools triggered a sharp reaction in markets. Enterprise software shares and financial data providers slid as the company outlined wider ambitions in professional services. Anthropic described as an AI system that runs complex "knowledge work" in law, finance, and business operations. That framing raised questions about how much value traditional software firms can continue to capture. Financial data providers felt the pressure. FactSet fell, while S&P Global, Moody's, and Nasdaq also lost ground after the announcement. Investors linked those moves to Anthropic's claim that Opus 4.6 performs advanced financial analysis, builds models, and works directly in spreadsheets and documents. Earlier in the week, new industry plug-ins for the Claude Cowork environment had already weakened sentiment. Those tools targeted legal services, real estate platforms, and corporate research workflows. The follow-up launch of Opus 4.6 reinforced concerns that Anthropic now aims at the core of several mature software categories. Enterprise SaaS names also came under scrutiny. Some portfolio managers started to reassess whether businesses will keep paying for overlapping platforms once AI agents handle much of the daily analysis inside existing office suites.

U.S. software stocks hit by Anthropic wake-up call on AI disruption

U.S. software stocks extended their slide on Wednesday, driven by fears of disruption caused by artificial intelligence, with some analysts warning of more volatility as investors assess whether the challenge is existential for the sector. The selloff was triggered by a new legal tool from Anthropic, which showed the AI industry's growing push into industries that can unlock lucrative enterprise revenue needed to fund massive investments in the technology. That push has sparked fears of disruption in industries ranging from finance to law and coding. Grappling with slower progress in the development of the AI models that power their technology, startups such as OpenAI and Anthropic are under pressure to justify their steep valuations. Their strategy is reminiscent of how Amazon disrupted several industries by first winning a niche online book market and then using that foothold to build a business that now spans retail, cloud and logistics. Some analysts said the success of AI startups was, however, far from guaranteed, given that they lack the specialized data that is crucial to businesses in the industries. "It feels like an illogical leap to extrapolate Claude Cowork Plugins, or any similar personal productivity tools, to an expectation that every company will hereby write and maintain a bespoke product to replace every layer of mission-critical enterprise software they have ever deployed," said Mark Murphy, Head of U.S. Enterprise Software Research at J.P. Morgan. The S&P 500 software and services index .SPLRCIS slid nearly 13 per cent over five straight sessions and is down 26% from its October peak, whereas the S&P 500 .SPX scaled an all-time high just this week. "We are not yet at the point where AI agents will destroy software companies, especially given concerns around security, data ownership and use," said Ben Barringer, head of technology research at Quilter Cheviot. "During times of volatility, people often shoot first and ask questions later. As a result, this is not necessarily an isolated incident and further volatility is likely to come." The impact was felt not just across technology companies but also private credit firms that lend heavily to software firms. Blue Owl Capital tumbled 9.8 per cent on Tuesday, while Ares Management dropped 10.2 per cent and KKR fell 9.7 per cent. Nasdaq-listed Thomson Reuters, the parent company of Reuters News, was down about two per cent after Tuesday's record 16 per cent slump on fears that AI could threaten its core legal division. Salesforce, CrowdStrike, Adobe and Intuit eased between two and 6.6 per cent. European data analytics, professional services and software stocks fell for a second day in volatile trade, while Britain's RELX and the Netherlands' Wolters Kluwer- major providers of analytics to the legal industry - dropped about four per cent and 1.8 per cent, respectively. London Stock Exchange Group slid as much as 6.9%, extending Tuesday's near 13 per cent drop. Indian IT exporters also fell sharply, while Japanese software and systems developers NEC 6701.T, Nomura Research 4307.T and Fujitsu 6702.T sank between 8% and 11%, dragging the Nikkei .N225 benchmark index lower overnight. The declines came even as Nvidia CEO Jensen Huang played down fears AI would replace software and related tools, calling the idea "illogical" and saying "time will prove itself." Some analysts said the sell-off reflected a scramble to shield portfolios from AI disruption as the rapid advances in the technology muddy valuations and cloud business prospects beyond the standard three-to-five year forecasts of companies. Software is seen as especially vulnerable to disruption as tools such as Claude increasingly automate the routine tasks that have long underpinned the industry's pricing power. "We are now in an environment where the sector isn't just guilty until proven innocent but is now being sentenced before trial," J.P. Morgan analyst Toby Ogg said. "Our sense from investor discussions is that general appetite to step in remains generally low," he added, citing risks including competition from AI-native firms and clients building their own solutions in-house. One trigger for Tuesday's selloff was Anthropic's launch of plug-ins for its Claude Cowork agent on Friday, enabling automated tasks across legal, sales, marketing and data analysis. Advertising stocks - viewed as among the most exposed in European media to AI - also stayed under pressure. France's Publicis was last down 4.1 per cent and Britain's WPP WPP.L lost 3.3 per cent, both hitting new lows. Shares in SAP, Europe's largest software company, dropped nearly four per cent. With stellar gains in chipmaker Nvidia and so-called AI hyperscalers like Microsoft pushing U.S. stocks to record highs, regulators and policymakers - including the International Monetary Fund and the Bank of England - have warned of the risks of a potential bubble.

Markets Begin Pricing AI as Labor Rather Than a Feature | Investing.com UK

This was not another AI tantrum. It was the market that finally stressed the end state. Over the past three years, every AI-driven selloff has been framed as unwinding excess enthusiasm. This one was framed as future earnings being pulled forward and then erased. The difference matters. The speed and breadth of the drawdown indicate a market that is no longer debating valuation but rather survivability. The epicentre was software for a reason. Software was where the margin fantasy lived most comfortably. High switching costs, recurring revenue, sticky workflows. AI was supposed to enhance that toll booth. Instead, the market is now confronting the possibility that AI walks around the booth entirely. The near-$1 trillion collapse in software equity value in a single week was not a panic over slowing growth. It was the first serious attempt to price business model displacement. What triggered it was almost irrelevant in isolation. A modest AI product release. No blockbuster claims. No immediate revenue threat. But markets trade implications, not press releases. After a year in which AI tools materially reshaped software development itself, the marginal innovation suddenly carried exponential weight. If legal workflows can be automated at the margin, then sales, marketing, finance, and compliance follow. Desk language was blunt for a reason. Today, one vertical, tomorrow the enterprise stack. Credit confirmed what equities were hinting at. More than $17 billion of US tech loans slipped into distressed territory over four weeks. That does not happen on vibes. That occurs when lenders begin to question the durability of forward cash flow. Equity can debate stories. Credit debates math. When both move together, a structural component is failing. Asia was not reacting emotionally. It was repricing exposure. Korea's memory-heavy index rolled over because AI demand now looks front-loaded rather than infinite. Taiwan declined because hardware leadership does not immunize it from upstream software margin compression. Japan absorbed the hit through SoftBank because Arm sits at the junction of optimism and capex reality. When Arm guided lower, the message was not a weak demand today, but tougher economics tomorrow. While yesterday's drawdown was driven by capitulation of Software stocks amid fears of AI-disruption, today's weakness was far more concentrated in factors and positioning, leaving headline index moves looking deceptively cordial relative to the magnitude of what unfolded underneath. Goldman Sachs Even the supposed beneficiaries showed fatigue. Rising capital expenditure with unclear monetization paths is no longer being waved through. The market is beginning to question whether AI returns are asymmetrically accruing to a narrow group, while the rest bear the costs. That is a dangerous question because it collapses the halo effect around the entire ecosystem. This is why Asia's weakness matters. It is not sympathy. It is recognition. Recognition that the AI trade has moved from the narrative phase into the selection phase. Winners and losers are being reassessed in real time, and the market is doing it with a blunt instrument. This was not a garden-variety drawdown. This was the market asking who would still earn a seat when AI stops being an add-on and becomes the labour. When that question is asked, repricing is never smooth, and it is never completed in one week.

Software selloff continues as investors debate AI's existential threat

The recent downturn in global software stocks has investors on edge, pondering whether the fears surrounding artificial intelligence have been blown out of proportion. As new AI applications begin to reshape the industry, legacy software businesses are bracing for potential upheaval. Investors were assessing on Wednesday whether a selloff in global software stocks ⁠this week had gone too far, as they weighed if businesses could survive an existential threat posed by artificial intelligence. The answer: It's unclear, but AI's development will involve volatility. After a broad selloff on Tuesday that saw the S&P 500 software and services index fall nearly 4%, the sector slipped another 0.73% on Wednesday, notching the sixth straight session of losses and wiping out about $830 billion in market value since January 28. Software stocks have been under pressure in recent months as AI has gone from a tailwind for many of these companies to a possible disruption. The latest selloff was triggered by a new legal tool from Anthropic's Claude large language model. The tool - a plug-in for Claude's agent for tasks across legal, sales, marketing and data analysis - underscored the push by LLMs into the "application layer," where these firms are increasingly muscling into lucrative enterprise businesses for revenue they need to fund massive investments. If successful, investors worry, it could wreak havoc across industries from finance to law and coding. STRATEGY EVOKES AMAZON.COM The LLMs strategy - and its potential to hurt established businesses - is reminiscent of how Amazon.com disrupted several industries by using its foothold in a niche online book market to build a business that now spans retail, cloud and logistics. Some analysts said the success of these AI LLMs was, however, far from guaranteed, given that they lack the specialized data crucial to businesses in the industries. The selloff reflected a scramble to shield portfolios as the rapid advances in the technology muddy valuations and business prospects beyond the standard three-to-five-year forecasts of companies, they said. "The selloff, which arguably started last quarter, is a manifestation of an awakening to the disruptive power of AI," said James St. Aubin, chief investment officer at Ocean Park Asset Management in Santa Monica, California. "The seemingly wide moats of these companies feel a lot more narrow today as competition from AI-created products intensifies. Perhaps this is an overreaction, but the threat is real and valuations must account for that. My biggest fear is that this is a canary in the coal mine for the labor market." That was on full display in recent days. Thomson Reuters , which owns the Westlaw database, fell nearly 16% on Tuesday after racking up seven straight losing sessions. It gained nearly 2% on Wednesday. MSCI lost 1.8% after losing about 7% in the prior session. Britain's Relx finished down 1.3% after shedding 14% on Tuesday. The London Stock Exchange eased 0.1% after losing nearly 13% in the previous trading day. The S&P 500 software and services index has fallen nearly 13% over six straight sessions and is down 26% from its October peak. The software sector's deepening selloff on Wednesday failed to lure bargain hunters, with the dip-buying reflex that has rescued countless tech routs conspicuously absent. The rout had broader ripple effects. On Tuesday, a group of asset managers, including Apollo , Ares, Blackstone, Blue Owl, Carlyle and KKR, fell between 3% and 11%. This was driven by worries that "weakness in the software sector will cause credit problems" for alternative asset managers, Oppenheimer analysts wrote in a note. Shares of the asset managers recovered between 0.2% and 5% on Wednesday. Apollo, Carlyle and Blackstone declined to comment. Blue Owl and KKR did not immediately respond to requests for comment. Ares executive Kort Schnabel said on a conference call on Wednesday that its business development company, Ares Capital Corporation, had "a very small amount of portfolio companies that could be disrupted, and that's where we're spending a lot of our time and focus." He added the risk was not in the core enterprise software business. The rout hit the broader market. The S&P ⁠500 lost 0.51% while the Nasdaq Composite lost 1.51%. Several technology companies ⁠ended lower, dragged down by AI worries. Nvidia fell 3.4%, Meta Platforms shed 3.2%, Alphabet lost 2% and Oracle dropped 5.1%. "I think there's probably more room to go in this selloff, but the broader market is beginning to top out and there's a lot more potential downside than upside," said Bill Strazzullo, chief market strategist at Bellcurve Trading in Boston. AI IS NOT REPLACING SOFTWARE: NVIDIA Some analysts and experts said it is too early to call an end to global software and data companies. Nvidia CEO Jensen Huang said on Tuesday that fears AI would replace software and related tools were "illogical" and "time will prove itself." Mark Murphy, head of U.S. enterprise software research at JPMorgan, said it "feels like an illogical leap" to say a new plug-in from an LLM would "replace every layer of mission-critical enterprise software." Software is seen as especially vulnerable to disruption as tools such as Claude increasingly automate the routine tasks that have long underpinned the industry's pricing power. "I think the software selloff is getting overdone and the logic seems flawed," said Talley Leger, chief market strategist at The Wealth Consulting Group. "Shouldn't improving AI tools make it easier to create new and better software applications at lower prices, therefore improving software company margins?"

The AI Mirror Just Turned on Tech and Nobody Likes the Reflection | Investing.com UK

Tech just got hit with a different kind of selloff. Not the usual rates tantrum, not a recession whisper, not even an earnings miss in the classic sense. This was the market staring into an AI mirror and recoiling at its reflection. The Nasdaq did what it does when confidence cracks. It did not "rotate." It dropped the trapdoor. And the S&P 500 followed like a responsible chaperone, pretending it is diversified while tech still drives the bus. The spark was Advanced Micro Devices (NASDAQ:AMD), and the lesson was simple. In bull markets, "good" numbers are not good if the crowd has already prepaid for the celebration. When expectations become a towering skyscraper, even a strong quarter feels like a low ceiling. The market did not punish AMD for being weak. It punished it for not being magical enough to justify the premium oxygen it was breathing. This is the part most people miss. A lot of this selling is not valuation work. It is positioning work. It is the market unwinding a story that got too clean, too crowded, too smug. When everyone is leaning the same way, the smallest wobble becomes a shove. And the shove spread fast. The tape did what it always does when narrative control breaks. It went indiscriminately. Yesterday's heroes got treated like yesterday's news. The former AI high flyers bled alongside the hardware names, the "picks and shovels" got dragged into the mud with the miners, and the whole complex traded like one giant risk bucket being emptied by a nervous bartender at last call. This is not just a chip story. The real tremor is in software, and it is psychological. The market is now entertaining a new fear. Not that AI will lift all boats, but that it will drill holes in the boats that thought they were unsinkable. Software cracked first because that is where the dream slept deepest. This was the cleanest story in the market, the place where faith compounded quietly, and doubt was never invited to the table. AI was meant to arrive like a tailwind at the back of the income statement, lifting margins without disturbing the machinery beneath. That belief is now being pulled apart in real time. The market is staring at an uncomfortable inversion. The firms that digitized the fastest may also be the ones most at risk of displacement. AI is not knocking politely as a consultant with a slide deck. It is moving in like a shadow workforce that never tires, never negotiates, and learns faster than hierarchies can adapt. The host is also discovering that the AI parasite writes code too. That is why this moment feels like an ending rather than a revision. Once confidence in the destination collapses, precision disappears. Investors do not rebalance narratives. They abandon them. Software was meant to be the toll bridge of the digital economy. Recurring revenue is the good kind of gravity. Customers are locked in by habit and integration. Margins treated as permanent architecture. It became the cathedral trade, the place where modern equity doctrine was preached with conviction. Now the sermon has turned uncomfortable. What if AI does not widen the road? What if it removes the bridge entirely and walks across the river on its own? That is why the selling carries an existential weight. This is not a model tweak or a target cut. It is a moment of doubt. And when markets stop debating how much something earns and start questioning why it exists, prices do not fade. They fracture. You can see it in the way the selloff is trading. It is less like a measured haircut and more like the crowd rushing the exits because somebody yelled, " Software fire sale!!" One day, you are arguing about gross margin. The next day, you are arguing about whether the product is a feature that gets swallowed by a larger model. And once that fear is in the room, it does not stay in one corner. It spreads across anything that smells like "knowledge work monetized." Data platforms, marketing stacks, legal workflow tools, analytics, even advertising agencies and media adjacencies. If AI can do the work, who gets paid for the work? That is the question the market is stress testing in real time. For years, software got paid because it controlled the workflow. It owned the screen, the process, the data handoff, and the friction. Humans did the thinking, software rented them the tools, and the vendor charged a monthly toll. Clean. Predictable. High margin. Bitcoin and gold sliding alongside the tech drawdown is the tell. When the market gets uneasy, the speculative layer is the first layer to lose sponsorship. It is not a moral judgement. It is a plumbing event. When risk managers reach for the lever, the froth gets skimmed first. The interesting thing is that this is not necessarily a death sentence for tech. It is a maturity test. Markets do this every cycle. They fall in love with an innovation, price it as destiny, then get angry when destiny arrives with invoices and disruption. AI is no longer just a growth narrative. It is a competitive weapon. That means winners and losers, not a rising tide. The trade is shifting from "own the theme" to "own the survivors." This is what a regime change looks like inside a sector. Euphoria gives way to discrimination. Momentum gives way to forensic accounting. The market stops paying for possibility and starts paying for proof. The irony is that the most "tech savvy" firms can feel the shock first, because they sit closest to the blast radius. If your product is built on automating knowledge work, and then a universal automation engine shows up, you do not get to pretend nothing changed. Still, panic is rarely precise. The market loves to swing the hammer before it knows which nail it is hitting. That is why these episodes often overshoot. The first reaction is always apocalyptic because fear is a blunt instrument and price is the fastest language on the desk. My take is that we are watching a narrative reality check, not the end of the AI trade. The market is repricing who captures the value, who loses the toll booth, and who gets put out to pasture. AI is not killing tech. It is forcing tech to prove it has a moat, not just a story. When the market stops buying dreams, it starts auditing business models.

As software stocks slump, investors debate AI's existential threat

Investors were assessing on Wednesday whether a selloff in global software ⁠stocks this week had gone too far, as they weighed if businesses could survive an existential threat posed by artificial intelligence. The answer: It's unclear and will lead to volatility. After a broad selloff on Tuesday that saw the S&P 500 software and services index fall nearly 4%, the sector slipped another 1% on Wednesday. While software stocks have been under pressure in recent months as AI has gone from being a tailwind for many of these companies to investors worrying about the disruption it will cause to some sectors, the latest selloff was triggered by a new legal tool from Anthropic's Claude large language model (LLM). The tool - a plug-in for Claude's agent for tasks across legal, sales, marketing and data analysis - underscored the push by LLMs into the so-called "application layer," where these firms are increasingly muscling into lucrative enterprise businesses for revenue they need to fund massive investments. If successful, investors worry, it could wreak havoc across a range of industries, from finance to law and coding. The LLMs strategy - and its potential to hurt established businesses - is reminiscent of how Amazon.com disrupted several industries by using its foothold in a niche online book market to build a business that now spans retail, cloud and logistics. Some analysts said the success of these AI LLMs was, however, far from guaranteed, given that they lack the specialized data that is crucial to businesses in the industries. The selloff reflected a scramble to shield portfolios as the rapid advances in the technology muddy valuations and business prospects beyond the standard three-to-five-year forecasts of companies, they said. "We are not yet at the point where AI agents will destroy software companies, especially given concerns around security, data ownership and use," said Ben Barringer, head of technology research at Quilter Cheviot. Barringer said more volatility is likely to come. "During times of volatility, people often shoot first and ask questions later," he said. That was on full display in recent days. The S&P 500 software and services index has fallen nearly 13% over five straight sessions and is down 26% from its October peak, whereas the S&P 500 scaled an all-time high just this week. The MSCI world software and services index has dropped 13% over five days. Taking cues from Wall Street, Asia suffered sharp declines on Wednesday. India's IT exporters shed nearly 6% and Japanese software and systems developers NEC, Nomura Research and Fujitsu sank between 8% and 11%. Selling pressure, however, started to ease in Europe, with the region's largest software firm SAP down only 0.1%. 'Time will prove itself' Some analysts and ⁠experts said it is too early ⁠to call an end to global software and data companies. Nvidia CEO Jensen Huang said on Tuesday that fears AI would replace software and related tools was "illogical" and "time will prove itself." Mark Murphy, Head of US Enterprise Software Research at JPMorgan, said it "feels like an illogical leap" to say a new plug-in from an LLM would "replace every layer of mission-critical enterprise software." Software is seen as especially vulnerable to disruption as tools such as Claude increasingly automate the routine tasks that have long underpinned the industry's pricing power. "We are now in an environment where the sector isn't just guilty until proven innocent but is now being sentenced before trial," said Toby Ogg, an analyst at JPMorgan. "Our sense from investor discussions is that general appetite to step in remains generally low," he added, citing risks including competition from AI-native firms and clients building their own solutions in-house.

US software stocks stabilize after bruising selloff on AI disruption fears

Feb 5 (Reuters) - Software and data services stocks stabilized on Thursday after a bruising selloff, as investors looked for clues on whether fast-advancing artificial intelligence tools are starting to dent demand for traditional software and subscription businesses. ServiceNow gained 0.7%, Salesforce added 0.1%, while Microsoft dipped 0.8% in premarket trading after sharp falls earlier this week. The S&P 500 software and services index has shed more than $800 billion in market value over the past six sessions. Price performance of overseas tech stocks was also mixed. Shares in London Stock Exchange Group added 6.4%, while data analytics firms RELX rose 2.4% and the Netherlands-based Wolters Kluwer gained 1.5%. In contrast, India's software exporters index , which houses HCL Technologies and Wipro, slipped 0.7%, a day after plunging 6% in their worst session for nearly six years. Thomson Reuters, which owns the Westlaw legal database and the Reuters news agency, gained 3.1% in thin volumes after fourth-quarter results were largely in line with estimates. The company said it was seeing tangible benefits from AI investments. The stock suffered a record one-day plunge earlier this week after investors raised concerns that a new plug-in from Anthropic's Claude could disrupt its legal business. "The market is putting a question on the earnings compounding nature of software companies, whether that gets disrupted," said Manish Kabra, London-based lead U.S. equities and multi-asset strategist at Societe Generale. "At the moment, we have not suggested people to buy software for that reason. I think a lot of cyclical sectors will do better." The software selloff has come alongside a broader rotation out of technology and into value-oriented sectors such as consumer staples, energy and industrials, which were laggards in the bull market that began in October 2022. Alphabet dropped 2.6% after the Google parent said its capital expenditure could as much as double this year, stoking concerns over payoff from the massive AI investments. Market volatility has spiked across equities, commodities and digital assets in recent weeks, which market participants attribute to leveraged investors rapidly unwinding positions. Precious metals gold and silver resumed their slide on Thursday after a historic rout earlier this week. "This is a lot of relative bets out there going wrong, and then there's some kind of reset going on in the market internals, but time will tell," John Hardy, Saxo's global head of macro strategy, said on a podcast. "There's a lot of leverage in this market. We've reached record leverage in terms of margin lending, etc., so forewarned is forearmed." (Reporting by Medha Singh in Bengaluru; additional reporting by Vidya Ranganathan in London; Editing by Tasim Zahid and Anil D'Silva)

Software Stocks Hit as AI Jolts Pricing Power | Investing.com UK

The software selloff this week should not be a mystery. It is markets doing what they always do when a structural shift becomes impossible to ignore: repricing, fast and without sentiment. What investors are reacting to is not fear of AI. It is a reassessment of what software businesses can realistically charge in an AI-first world. The trigger may have been the release of a new AI automation capability from Anthropic, but the response was already building. The market was primed. The spark simply exposed how fragile many software valuations have become. For years, software enjoyed a privileged status. Subscription models were treated as inherently resilient. Recurring revenues were assumed to be sticky. Complexity was mistaken for defensibility. AI dismantles those assumptions. When intelligent agents can perform legal review, data analysis, research and compliance instantly, the justification for high-priced licences weakens. When outputs become faster, cheaper and widely accessible, pricing power erodes. Markets understand this, even if many boardrooms still resist it. The selloff reflects investors questioning whether decades-old assumptions around recurring revenues still hold. It is a margin debate, not an innovation debate. Innovation is abundant. Scarcity is not. Software valuations have long rested on the idea that once a company embedded itself in a workflow, it became indispensable. AI breaks that lock-in. Switching costs fall. Interfaces become optional. Outcomes matter more than platforms. This is why the speed of the repricing matters. Investors are not waiting for earnings downgrades or guidance cuts. They are moving ahead of them. AI accelerates disruption faster than quarterly results can capture. There is also a broader point here about bargaining power. AI shifts leverage away from software vendors and toward users. When a task can be performed by an agent rather than a product suite, buyers gain choice. Choice compresses margins. That dynamic is now being reflected in valuations. Importantly, this is not a blanket rejection of technology stocks. It is differentiation at work. Markets are drawing a clear line between companies that own AI economics and those that merely integrate AI to defend existing models. Owning AI economics means controlling the model, the infrastructure, the monetisation layer. Integrating AI often means passing efficiency gains directly to customers. Investors understand the difference, and they are pricing it in. Another pressure point is revenue durability. Many software firms grew by monetising information asymmetry, process friction or labour intensity. AI strips those away. What remains must justify its price on output alone. That's a far harsher test. The repricing also exposes how incumbency can become a liability. Scale built around legacy platforms, high headcount or complex workflows does not automatically translate into resilience. In some cases, it magnifies exposure. None of this suggests the end of software. It signals the end of complacency. Software can still be highly profitable. It can still scale. But its value will increasingly depend on defensibility, not familiarity. On economics, not narratives. Markets are adjusting to that reality in real time. AI removes the insulation that once protected software margins. What looked stable now looks exposed. Investors are acting accordingly, because waiting carries more risk than moving early. This selloff marks a turning point. Valuation theory is catching up with technological reality. And once that adjustment begins, it rarely reverses.

'Software-mageddon' leaves investors bargain-hunting but wary

NEW YORK, Feb 5 (Reuters) - Wall Street's "Software-mageddon" has been snowballing. Now investors are debating whether it is time to warm up to the beaten-down stocks. The fallout for the software industry, which includes a handful of signature stocks of the recent bull market, reflects growing anxiety over the potential disruption caused by artificial intelligence, as investors increasingly divide the sector into perceived winners and losers. The volatility also comes as investors shed tech holdings for other market areas that have mostly lagged in recent years while investors await quarterly updates during the heart of corporate earnings season that could further shake asset prices. "The selloff, which arguably started last quarter, is a manifestation of an awakening to the disruptive power of AI...," said James St. Aubin, chief investment officer at Ocean Park Asset Management, Santa Monica, California. "Perhaps this is an overreaction, but the threat is real and valuations must account for that." The S&P 500 software and services index has tumbled 13% in just the past week, shedding more than $800 billion in market capitalization in that time, driven by sharp falls in companies including Intuit, ServiceNow and Oracle. Relative to the overall S&P 500, the software group put up its worst three-month performance as of Tuesday since May 2002, during the fallout from the dot-com bubble bursting, according to Evercore ISI equity strategists. Those steep declines have set off technical signals that could indicate at least a temporary bottom for the group, and some portfolio managers have been doing modest buying of the beaten-up names. Investors, however, hesitated to declare an all-clear sign. "There is some long-term value in these names and they are getting to a point where I feel they are looking more attractive," said Jake Seltz, portfolio manager at Allspring Global Investments in Minneapolis, who has been adding "at the margin" to some holdings including ServiceNow and Monday.com in recent months. Seltz said he was waiting for catalysts to buy more aggressively, such as software companies reporting strong AI-related product revenue or more announcements from enterprise customers that they are deploying such software. TURNING AWAY FROM TECH STOCKS Fears about the implications from a new tool from Anthropic's Claude large language model set off the latest bout of volatility, which has been compounded by disappointing earnings reports including from software giant Microsoft. The S&P 500 software index is down about 25% since its recent peak at the end of October -- a period that has seen the S&P 500 little changed. Options traders showed a lack of appetite for scooping up the battered software names. "This has been Software-mageddon," said Art Hogan, chief market strategist at B Riley Wealth. The steep declines for software names also comes during a broader market rotation away from technology names and into value and quality stocks in other sectors, such as consumer staples, energy and industrials, which until recently had been less favored than tech during the bull market that began in October 2022. "The right reason to sell these expensive companies is that there are other opportunities in things that are better valued and have more room to run, not because you're panicking about a crash in software and tech companies," said Jim Masturzo, chief investment officer at Research Affiliates. LOOKING FOR VALUE AFTER THE FALL Whether that value is now found in software is the debate facing investors. Among the biggest decliners so far this year are Intuit, ServiceNow, and Salesforce. Microsoft is the worst performer this year among the "Magnificent Seven" megacap stocks. Other sharp declines this week included technology and content company Thomson Reuters, which owns the Westlaw legal database and Reuters news agency. The software swoon meant the group was looking oversold on a technical basis, suggesting it was close to "at least a near-term bottom," said Walter Todd, chief investment officer at Greenwood Capital in South Carolina. His firm has done some modest buying of shares of ServiceNow and Microsoft in recent days. While not looking to "bet the farm" on software, "I do think it is starting to present value," Todd said. "I don't think this wholesale replacement of the existing software infrastructure for the AI solution in these situations is realistic." Brad Conger, chief investment officer at Hirtle, Callaghan & Co., said he has begun weighing potential purchases of shares including SAP, Adobe and Intuit that have been hit hard in the selloff. "You could argue that they are due a bounce." But he added that he is not yet prepared to become a buyer at present levels as he is not "comfortable that they have reached a level where the worst threat is priced in." To some investors, the fallout was similar to the swift declines precipitated last year by the emergence of the low-cost Deepseek AI model, which led to questions about the AI financial ecosystem. "We are starting to get a better sense of what AI's capabilities are, the market is doing some repricing, signaling less confidence in future software sales growth in an AI-driven world," said Rene Reyna, head of thematic and specialty product strategy at Invesco. "Is it overdone? We can't tell yet. But selling can beget more selling." (Reporting by Lewis Krauskopf and Suzanne McGee, additional reporting by Chibuike Oguh, Chuck Mikolajczak and Saqib Iqbal Ahmed; editing by Megan Davies and Diane Craft)

As software stocks slump, investors debate AI's existential threat

Feb 4 (Reuters) - Investors were assessing on Wednesday whether a selloff in global software stocks this week had gone too far, as they weighed if businesses could survive an existential threat posed by artificial intelligence. The answer: It's unclear and will lead to volatility. After a broad selloff on Tuesday that saw the S&P 500 software and services index fall nearly 4%, the sector slipped another 1% on Wednesday. While software stocks have been under pressure in recent months as AI has gone from being a tailwind for many of these companies to investors worrying about the disruption it will cause to some sectors, the latest selloff was triggered by a new legal tool from Anthropic's Claude large language model (LLM). The tool - a plug-in for Claude's agent for tasks across legal, sales, marketing and data analysis - underscored the push by LLMs into the so-called "application layer," where these firms are increasingly muscling into lucrative enterprise businesses for revenue they need to fund massive investments. If successful, investors worry, it could wreak havoc across a range of industries, from finance to law and coding. The LLMs strategy - and its potential to hurt established businesses - is reminiscent of how Amazon.com disrupted several industries by using its foothold in a niche online book market to build a business that now spans retail, cloud and logistics. Some analysts said the success of these AI LLMs was, however, far from guaranteed, given that they lack the specialized data that is crucial to businesses in the industries. The selloff reflected a scramble to shield portfolios as the rapid advances in the technology muddy valuations and business prospects beyond the standard three-to-five-year forecasts of companies, they said. "We are not yet at the point where AI agents will destroy software companies, especially given concerns around security, data ownership and use," said Ben Barringer, head of technology research at Quilter Cheviot. Barringer said more volatility is likely to come. "During times of volatility, people often shoot first and ask questions later," he said. That was on full display in recent days. The S&P 500 software and services index has fallen nearly 13% over five straight sessions and is down 26% from its October peak, whereas the S&P 500 scaled an all-time high just this week. The MSCI world software and services index has dropped 13% over five days. Taking cues from Wall Street, Asia suffered sharp declines on Wednesday. India's IT exporters shed nearly 6% and Japanese software and systems developers NEC, Nomura Research and Fujitsu sank between 8% and 11%. Selling pressure, however, started to ease in Europe, with the region's largest software firm SAP down only 0.1%. 'TIME WILL PROVE ITSELF' Some analysts and experts said it is too early to call an end to global software and data companies. Nvidia CEO Jensen Huang said on Tuesday that fears AI would replace software and related tools was "illogical" and "time will prove itself." Mark Murphy, Head of U.S. Enterprise Software Research at JPMorgan, said it "feels like an illogical leap" to say a new plug-in from an LLM would "replace every layer of mission-critical enterprise software." Software is seen as especially vulnerable to disruption as tools such as Claude increasingly automate the routine tasks that have long underpinned the industry's pricing power. "We are now in an environment where the sector isn't just guilty until proven innocent but is now being sentenced before trial," said Toby Ogg, an analyst at JPMorgan. "Our sense from investor discussions is that general appetite to step in remains generally low," he added, citing risks including competition from AI-native firms and clients building their own solutions in-house. (Reporting by Danilo Masoni. Additional reporting by Medha Singh and Siddarth S. Editing by Amanda Cooper, Dhara Ranasinghe, Mark Potter, Anil D'Silva and Nick Zieminski)

Wall Street: When AI Stops Being a Buzzword and Starts Being a Threat

On Wednesday morning, anxiety is still the dominant theme. U.S. stock index futures were relatively muted, but the real story is the continued retreat from software and cloud stocks after a bruising slide the previous session: an extended drop that has now become the sector's steepest losing streak since March 2020. That's not a "rotation". That's a moment. A collective realization that something may have changed. The market isn't just repricing earnings, it's repricing certainty. AI is not just a new product, it's a new competitor. There's a basic assumption embedded in how Wall Street has valued enterprise software for the last decade: the customer needs the software company. That assumption is now under negotiation. Artificial intelligence doesn't simply improve software, it threatens to replace parts of it. It can summarize, analyze, draft, explain, classify, and recommend. In other words, it can do many of the things software products have historically charged for. And it can do them inside a chat window, without requiring a monthly subscription and an onboarding process. Investors aren't fleeing because they dislike AI. They're fleeing because they fear AI might upend software business models. AMD has been one of the most obvious AI beneficiaries, a natural candidate for investors looking for an alternative to Nvidia. But the company slid sharply after issuing a dour forecast, including a slight dip in quarterly revenue. Investor nervousness spilled even more into the software sector yesterday following Anthropic's announcement of new AI solutions. It unveiled the launch of a new legal support tool for basic corporate tasks. The messaging sent providers of professional data solutions tumbling, notably Relx and Wolters Kluwer, which are highly exposed to the legal sector. The shockwave spread to companies that bill for analysis and advisory services (Capgemini, Accenture, etc.) and to those that generate profits from data (London Stock Exchange, Experian, etc.). More broadly, the software sector (Salesforce, Adobe, etc.) was taken to the cleaners, along with private equity groups exposed to the space (KKR, Ares Management and Blue Owl all sank by more than 9% as well). With its new tool, Anthropic is clearly telling some of these professionals: hello, I am stepping onto your turf, and I have all kinds of shoes to do it. Software analysts tend to downplay the impact, with lines such as "we already knew this", "they have more moat than people think", "LLMs need these players to make their offerings reliable", "they announce a lot but we do not know the real effectiveness", and so on. There is some common sense in all that, but say what you will, the slice of cake is smaller when too many people turn up at the birthday party. In any case, this episode crystallises investors' latent fears. Adobe is down 22% since 1 January. Salesforce -26%. Capgemini -14%. Constellation Software, the Canadian benchmark for software investment, -31%. Super Micro Computer, on the contrary, jumped after raising its annual revenue forecast on strong demand for AI-optimized servers. Hardware and infrastructure, data centers, servers, the physical picks-and-shovels, still feel tangible. If software is where the business model anxiety lives, infrastructure is where the spending reality lives. That's why the market can punish AI software narratives while rewarding AI capacity expansion. Investors are also drifting toward undervalued small caps and overlooked corners of the market, with the Russell 2000 showing relative strength. On today's agenda: RBA Jones Speech in Australia; Services PMI in Spain and Italy; Yearly and monthly inflation rates, as well as core inflation in the Euro Area; Yearly and monthly inflation rates in Italy; In the United States, the MBA 30-Year Mortgage Rate, ADP Employment Change, ISM Services PMI, and EIA Crude Oil and Gasoline Stocks Change. See the full calendar here.