US software stocks hit by Anthropic wake-up call on AI disruption
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Feb 4 : U.S. software stocks extended their slide on Wednesday, driven by fears of disruption caused by artificial intelligence, with some analysts warning of more volatility as investors assess whether the challenge is existential for the sector.
The selloff was triggered by a new legal tool from Anthropic, which showed the AI industry's growing push into industries that can unlock lucrative enterprise revenue needed to fund massive investments in the technology.
That push has sparked fears of disruption in industries ranging from finance to law and coding.
Grappling with slower progress in the development of the AI models that power their technology, startups such as OpenAI and Anthropic are under pressure to justify their steep valuations.
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Their strategy is reminiscent of how Amazon disrupted several industries by first winning a niche online book market and then using that foothold to build a business that now spans retail, cloud and logistics.
Some analysts said the success of AI startups was, however, far from guaranteed, given that they lack the specialized data that is crucial to businesses in the industries.
"It feels like an illogical leap to extrapolate Claude Cowork Plugins, or any similar personal productivity tools, to an expectation that every company will hereby write and maintain a bespoke product to replace every layer of mission-critical enterprise software they have ever deployed," said Mark Murphy, Head of U.S. Enterprise Software Research at J.P. Morgan.
The S&P 500 software and services index slid nearly 13 per cent over five straight sessions and is down 26 per cent from its October peak, whereas the S&P 500 scaled an all-time high just this week.
"We are not yet at the point where AI agents will destroy software companies, especially given concerns around security, data ownership and use," said Ben Barringer, head of technology research at Quilter Cheviot.
"During times of volatility, people often shoot first and ask questions later. As a result, this is not necessarily an isolated incident and further volatility is likely to come."
The impact was felt not just across technology companies but also private credit firms that lend heavily to software firms. Blue Owl Capital tumbled 9.8 per cent on Tuesday, while Ares Management dropped 10.2 per cent and KKR fell 9.7 per cent.
Nasdaq-listed Thomson Reuters, the parent company of Reuters News, was down about 2 per cent after Tuesday's record 16 per cent slump on fears that AI could threaten its core legal division.
Salesforce, CrowdStrike, Adobe and Intuit eased between 2 per cent and 6.6 per cent.
European data analytics, professional services and software stocks fell for a second day in volatile trade, while Britain's RELX and the Netherlands' Wolters Kluwer - major providers of analytics to the legal industry - dropped about 4 per cent and 1.8 per cent, respectively.
London Stock Exchange Group slid as much as 6.9 per cent, extending Tuesday's near 13 per cent drop.
Indian IT exporters also fell sharply, while Japanese software and systems developers NEC, Nomura Research and Fujitsu sank between 8 per cent and 11 per cent, dragging the Nikkei benchmark index lower overnight.
TIME WILL PROVE ITSELF
The declines came even as Nvidia CEO Jensen Huang played down fears AI would replace software and related tools, calling the idea "illogical" and saying "time will prove itself."
Some analysts said the sell-off reflected a scramble to shield portfolios from AI disruption as the rapid advances in the technology muddy valuations and cloud business prospects beyond the standard three-to-five year forecasts of companies.
Software is seen as especially vulnerable to disruption as tools such as Claude increasingly automate the routine tasks that have long underpinned the industry's pricing power.
"We are now in an environment where the sector isn't just guilty until proven innocent but is now being sentenced before trial," J.P. Morgan analyst Toby Ogg said.
"Our sense from investor discussions is that general appetite to step in remains generally low," he added, citing risks including competition from AI-native firms and clients building their own solutions in-house.
ANTHROPIC THE SPARK BEHIND THE SELLOFF
One trigger for Tuesday's selloff was Anthropic's launch of plug-ins for its Claude Cowork agent on Friday, enabling automated tasks across legal, sales, marketing and data analysis.
Advertising stocks - viewed as among the most exposed in European media to AI - also stayed under pressure. France's Publicis was last down 4.1 per cent and Britain's WPP lost 3.3 per cent, both hitting new lows.
Shares in SAP, Europe's largest software company, dropped nearly 4 per cent.
With stellar gains in chipmaker Nvidia and so-called AI hyperscalers like Microsoft pushing U.S. stocks to record highs, regulators and policymakers - including the International Monetary Fund and the Bank of England - have warned of the risks of a potential bubble.
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