US software stocks stabilize after bruising selloff on AI disruption fears
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Feb 5 : 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 per cent, Salesforce added 0.1 per cent, while Microsoft dipped 0.8 per cent 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 per cent, while data analytics firms RELX rose 2.4 per cent and the Netherlands-based Wolters Kluwer gained 1.5 per cent.
In contrast, India's software exporters index , which houses HCL Technologies and Wipro, slipped 0.7 per cent, a day after plunging 6 per cent in their worst session for nearly six years.
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Thomson Reuters, which owns the Westlaw legal database and the Reuters news agency, gained 3.1 per cent 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 per cent 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."
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