The tech sector took a sharp hit yesterday as investors grappled with a familiar fear in a new costume: AI is beginning to undercut core software businesses.

Anthropic’s release of new tools designed to automate legal work spooked markets and sparked a selloff, but panic quickly spread beyond legal tech. Financial and data software names also slid as investors questioned how defensible “must-have” platforms really are in an AI-first world.

But AI anxiety isn’t contained to software stocks—it’s spilling into private markets, where exposure is deeper, exits are slower, and the pain of a tech downturn could be much worse.

Private markets feel the shock

Alternative managers sold off yesterday: Blackstone and Apollo Global Management each fell about 5%, while KKR and Blue Owl Capital both dropped around 10%, reflecting investor concerns over their software-heavy portfolios.

For private equity, the risk is structural. Over the past decade, buyers poured more than $440 billion into deals, betting products would stay relevant long enough for leverage and margin expansion to pay off. But AI compresses that timeline, raising the odds that disruption arrives before returns are fully realized.

For private credit, the pressure is more immediate. Software is the single largest sector exposure for business development companies, or BDCs, accounting for roughly 20% of portfolios. If AI begins to erode cash flows faster than borrowers can adapt, defaults could rise quickly. In fact, UBS estimates US private credit default rates could climb as high as 13% under an “aggressive” disruption scenario, Bloomberg reports.

Investors are already pulling back: Blue Owl’s BDC recently lifted withdrawal limits well above normal levels to 17%, and disclosed that investors redeemed more than 15% of assets—an early sign that concerns over AI risk are translating into real capital flight.

Time for an AI reset

AI-driven disruption in software is starting to look less like a sector wobble and more like a market-wide reset, as investors flee growth and turn to the safety of good ol’-fashioned value investments.

Since early November, the Russell 1000 Value Index has gained 8.6%, beating the Russell 1000 Growth Index by 14 percentage points, a divergence last seen during the 2022 bear market and the early phase of the dot-com unwind.

Private capital has been happy to fund tech’s multi-year rally, reaping rewards from nonstop growth. But as it becomes clearer that AI isn’t going to lift all tech stocks equally, investors are rotating out of growth and into value—which means that, for once, private equity may be left holding the bag.—SY

🟢 What’s up

• Eli Lilly climbed 10.33% on a strong Q4, driven by surging demand for Zepbound and Mounjaro.
• MGM Resorts International rose 8.12% after BetMGM reached profitability and reported 2025 net revenue of $2.8 billion, up 33% year over year.
• Silicon Laboratories surged 48.89% after Texas Instruments agreed to acquire the chip designer for $7.5 billion.
• Amgen climbed 8.15% following strong Q4 results, with total revenue up 9% from a year earlier.
• Enphase Energy advanced 38.6% after quarterly earnings and guidance topped expectations, supported by solid microinverter and battery demand through 2026.
• Match Group rose 5.92% after beating estimates, even as the dating app company issued soft guidance while ramping up spending on AI to reaccelerate Tinder growth.

What’s down

• Palantir Technologies dropped 11.62%, erasing the prior session’s gains, with multiple price target cuts from Mizuho, UBS, and D.A. Davidson weighing on valuation concerns.
• Uber Technologies fell 5.15% despite delivering 20% revenue growth, as investors focused on a soft profit guidance.
• Take-Two Interactive Software slid 5.38% despite raising full-year guidance, caught up in the broader tech selloff.
• Boston Scientific sank 17.59% after Q4 sales and adjusted EPS growth topped expectations, but forward guidance disappointed investors.
• Strategy sank 3.13%, MARA Holdings fell 8.51%, and Riot Platforms dropped 7.82% as bitcoin prices continued to slide.
• Novo Nordisk sank 6.18% after warning of a sharp sales slowdown, underscoring a deepening price war in obesity treatments.

Grab your cash and gird your loins: eight initial public offers are slated for this week, angling to collectively raise $3.9 billion, making it the busiest five-day stretch in the US IPO market in over four years.

The biggest belle of the ball is Forgent Power Solutions, which manufactures transfers and switches for AI data centers and is hoping to raise more than $1.6 billion, with a market value of $8.8 billion. Other newcomers include mobile app marketing platform Liftoff Mobile (controlled by Blackstone), retailer Bob’s Discount Furniture, kids’ food firm Once Upon a Farm, and four small biotech companies: SpyGlass Pharma, Agomab Therapeutics, Veradermics, and Eikon Therapeutics.

Wall Street says this IPO gold rush is just the start, with anticipation already bubbling for a trio of “mega-IPOs” in the pipeline: OpenAI, Anthropic, and SpaceX. There are also a handful of other hotly anticipated contenders, including group chat service Discord, crypto firm Kraken, and fitness app Strava, prepping for their public debuts.

Why now? The stage was set for this burst in IPO activity after three years of patchy issuance windows, which built up a backlog of promising private companies waiting in the wings for the right time. That window has finally opened thanks to easing inflation and optimism over more interest rate cuts ahead.

Still, not all IPOs this year have been greeted with open arms. A handful have already slid below their initial IPO prices, including crypto firm BitGo, satellite maker York Space Systems, Brazilian fintech company PicPay, and insurer Ethos Technologies. Only a few have taken off, like construction equipment rental company EquipmentShare, now 30% above its initial offer price.

Bottom line: Seeing a stable of fresh-faced new firms off to the races can be thrilling, but it still pays to peek inside even the biggest unicorns’ mouths to see if that sparkle could stand for a dental checkup.—JD

Wall Street’s Super Bowl is here. And no, we aren’t talking about some silly football game: we’re talking tech earnings.

As both the hype and fear surrounding Silicon Valley’s AI spending ratchets up to new heights, investor scrutiny has only intensified. They turned the magnifying glass toward two AI powerhouses that reported earnings after the bell yesterday: Super Micro, and AMD (Advanced Micro Devices).

• Super Micro smashed its earnings report out of the park, revealing that sales climbed 123% year over year to $12.68 billion. Beyond that, the company raised its quarterly and full year guidance.
• AMD reported more of a mixed bag. While its current quarter revenue forecast of $9.8 billion was a 32% year over year jump and beat the Street’s expectations, investors were concerned about how much of AMD’s Q4 revenue came from sales in China, given the company will have a hard time relying on that market with new export restrictions.

Super Micro rose 13.78% today, while AMD plunged 17.31%, making this the stock’s worst day in years.

Two micros, one challenge

Fundamentally, both earnings reports gave investors reason to believe that selling the picks and shovels of the AI buildout is still a booming business.

For Super Micro, triple-digit year over year growth and higher full year guidance doesn’t happen unless customers are still placing huge infrastructure orders. Those numbers make sense, given what we know about Silicon Valley racing to build data centers faster than Marvel can come up with new franchises.

And despite its stock free-falling today, AMD’s earnings still painted a pretty rosy picture of AI demand, given its revenue beat estimates handily.

So if the news wasn’t actually all that bad, why did AMD’s stock plunge? That’s a question analysts asked themselves, too: “We were surprised at aftermarket weakness, as the numbers were quite good and AMD said the right stuff about the new products,” wrote Morgan Stanley equity analyst Joseph Moore in a note today.

Part of the reason that AMD fell was because expectations were just too high for the company, which has risen 67.52% over the past year as investors rallied around it as a top AI pick. Another shadow overhanging AMD was its multi-billion dollar deal with OpenAI that it announced in October. While that news powered the stock higher at the time, investors are now scrutinizing OpenAI’s circular, complex web of financing more closely.

TLDR: If there’s one thing we know about the AI trade, it’s that investors’ bar for success is just getting higher. And with each quarter that passes without a massive bubble burst, investors only want to hear pure, unbridled optimism from executives about the path forward.—LB

• Sen. Thom Tillis doubled down on his commitment to block Fed chair nominee Kevin Warsh until the DOJ ends its investigation into Fed chief Jerome Powell.
• Adobe spent a staggering $1.4 billion on advertising last year, a 30% jump from 2024.
• France is quitting Zoom and Teams as it moves to rely less on American big tech.
• Raytheon has secured a seven-year agreement to build missiles for the US military.
• OpenAI models could soon be powering Amazon’s Alexa.
• Senate Banking Chair Tim Scott said he doesn’t believe Jerome Powell committed a crime, in a blow to the White House’s case against the Fed chair.
• Regulators are probing Nike over allegations of discrimination against white employees.

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Economic announcements: The initial jobless claims reading continues the week of labor market data, and we’ll hear from Atlanta Fed President Raphael Bostic

Earnings reports: Amazon, Shell, Sony, ConocoPhillips, BNP Paribas, Bristol-Myers Squibb, KKR, Intercontinental Exchange, Barrick Mining, Cigna, Fortinet, Roblox, Ares, Rockwell Automation, ArcelorMittal, Estée Lauder, Reddit, Atlassian, Blue Owl, Illumina, Affirm, and Peloton

Everything else: Both the European Central Bank and the Bank of England set interest rates