AI fear spreads across the market

Over the past few weeks, investors’ anxiety about AI disruption hit the software sector like a tidal wave—but now, the tsunami is overtaking the rest of the market.

For years, investors have been wooed by AI’s potential to boost productivity, sending the “picks and shovels” stocks of the AI boom to crazy high valuations. But now many are seeing the flip side of that coin: The prospect that AI could spur mass job displacement and completely disrupt entire industries, scaring traders into a mass selloff.

• It all started with the SaaS apocalypse: Earlier this month, software names began to fall after Anthropic released a new AI tool that easily completed many of the functions software providers sell. The S&P 500’s software sector index is down roughly 17.35% over the past month. Names like Snowflake, ServiceNow, Salesforce, and Microsoft got hit particularly hard.
• The next sector to get swept up in fear was financials. Charles Schwab sank 13% from Monday’s close to yesterday after a new AI-driven wealth management tool made waves. The S&P 500 Financials sector fell about 4% yesterday alone.
• Fears that AI would take jobs also hit commercial real estate stocks, for the simple reason that companies would no longer need office space if their workers became bots. CBRE fell 9% on Thursday, while Jones Lang Salle fell 7.6% and Hudson Pacific Properties dropped 4% yesterday.
• It wasn’t just white collar jobs, either: The trucking industry was hit after a company that previously made karaoke machines (yes, seriously) released a new AI tool that could scale freight volumes without increasing headcount. Shares of C.H. Robinson fell 14.5%, while RXO dropped 20.5% yesterday.

Is the fear overblown?

An essay that went viral on X this week argued that soon AI will be able to do pretty much every white collar profession you can think of. But to be clear, not everyone thinks an army of bots is going to be running the entire economy anytime soon. In fact, many analysts think this week’s downturn is a buying opportunity.

“We believe the market is baking in a doomsday scenario for software companies in the near-term, which we believe is extremely overblown, as many customers won’t be willing to put their data at risk to capitalize on AI implementation strategies until there is less risk with these migration projects,” wrote Wedbush analyst Dan Ives in a note yesterday.

Many traders seem to agree: Many of the trucking, financial, and software names that sold off yesterday ended today in the green.

The big picture: We’re still in the early innings of how everything will shake out when it comes to AI. But that isn’t stopping anyone from rushing to conclusions.—LB