US software stocks mixed after bruising selloff on AI disruption fears
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Feb 5 : Shares of U.S. software and data services companies were mixed on Thursday after a bruising selloff earlier this week that was triggered by fears that fast-advancing artificial intelligence tools could upend the sector.
Intuit edged up 0.6 per cent, while ServiceNow, Salesforce and Microsoft dropped about 2.6 per cent each, in contrast with the sharp falls earlier this week.
The S&P 500 software and services index dipped 1.8 per cent, having shed more than $800 billion in market value over the past six sessions.
The performance of overseas tech stocks was mixed. Shares of London Stock Exchange Group added 6.1 per cent, while data analytics firms RELX rose 2.8 per cent and the Netherlands-based Wolters Kluwer gained 2 per cent.
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In contrast, India's software exporters index, which houses names such as HCL Technologies and Wipro, slipped 0.7 per cent, a day after plunging 6 per cent in its worst session in nearly six years.
Canada-based Thomson Reuters, which 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, was down 2.5 per cent after its fourth-quarter results were largely in line with estimates.
The company, which owns the Westlaw legal database and the Reuters news agency, said it was seeing tangible benefits from AI investments.
The market is questioning if the earnings-compounding nature of software companies would get 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.
Reflecting the bearish mood, short interest on mid-to-large cap software companies has been rising over the past three months, according to data analytics company Ortex, with cybersecurity and SaaS (Software as a Service) firms seeing the biggest jump in such interest.
Alphabet dropped 2.8 per cent after the Google parent said its capital expenditure could nearly 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, and bitcoin slipped below $70,000 for the first time.
"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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