AI Concerns Trigger Wall Street Anxiety Amid Evolving Stock Market Landscape
Concerns surrounding artificial intelligence (AI) have recently escalated, impacting investor sentiment in the stock market. Last week, these anxieties reached a tipping point following the announcement from AI startup Anthropic. The company revealed new tools intended to automate tasks across various sectors, creating fears about significant disruptions to numerous businesses.
Market Reactions to AI Innovations
In response to these developments, investors reacted by selling off a broad array of stocks. Notable companies affected included Expedia Group Inc., Salesforce Inc., and London Stock Exchange Group Plc. The situation was dire enough to contribute to a significant market decline.
However, by the end of the week, there was some recovery. Dip buyers helped the iShares Expanded Tech-Software Sector ETF, known as IGV, regain some ground after a steep 12% drop over several sessions. Despite this rebound, the volatility has left many Wall Street professionals uneasy.
Severe Stock Declines
- Thomson Reuters Corp. saw its shares fall by 20%, marking a historic low for the company.
- Financial research firm Morningstar Inc. experienced its worst week since 2009.
- Software firms HubSpot Inc., Atlassian Corp., and Zscaler Inc. each plummeted over 16%.
- Overall, 164 stocks in key sectors lost a combined $611 billion in market value last week.
The implications of AI’s rapid growth have been discussed since the launch of OpenAI’s ChatGPT in late 2022. Initially, investors focused on the potential beneficiaries, including chipmakers and networking companies, resulting in substantial gains for these sectors. Semiconductor-related stocks have tripled since late 2022, outperforming other indices.
The Disruption Intensifies
The pace at which new AI tools are being developed has heightened fears of immediate disruption. For example, Google recently introduced a tool that allows users to create immersive digital environments simply by using text prompts. Additionally, Anthropic launched a work assistant based on its Claude coding system, further unsettling the stock market.
This turmoil was compounded by disappointing earnings reports from major software companies, including Microsoft Corp. The tech giant lost $357 billion in market value after announcing slower revenue growth in its cloud-computing segment. Similarly, ServiceNow Inc. and SAP SE saw sharp declines post-earnings.
The Future of Software Companies
The fate of traditional software companies appears uncertain. Salesforce, for instance, has plummeted 48% since its peak in December 2024. ServiceNow is down 57% since January 2025. Industry experts predict that while some organizations will adapt and succeed in leveraging AI, others will struggle significantly.
Despite this market turmoil, there is minimal evidence of fundamental deterioration. Analysts forecast a 19% growth in earnings for software companies in the S&P 500 by 2026, an increase from earlier projections of 16%. Optimism remains among some investors, viewing the current market as a buying opportunity.
Current Market Status
The ongoing selloff has left software stocks in oversold territory, prompting technical traders to anticipate a rebound. The iShares ETF’s relative strength index recently reached 15, the lowest level in almost 15 years. This indicates that many stocks are undervalued.
Valuation metrics for software stocks are also becoming more appealing. Data from Goldman Sachs indicates that prices relative to earnings are at a record low of 21 times expected profits, down significantly from previous highs. Observers note that while stocks may seem cheap based on historical metrics, fear and uncertainty dominate investor behavior at present.
The landscape of the stock market continues to shift, driven by the evolving role of AI and its potential to disrupt established business models.
