Since ChatGPT burst onto the scene three years ago, there have been numerous sell-offs triggered by artificial intelligence. However, none can be compared to the current plunge that has swept through the stock and credit markets this week.
First of all, the speed and scale of the event are astonishing. Within just two days, the value of stocks, bonds and loans of companies, big and small, in Silicon Valley has evaporated by hundreds of billions of dollars. Software stocks have been hit hardest, with such a sharp decline that the value of software stocks tracked by iShares ETF has shrunk by nearly one trillion dollars in the past seven days.
Moreover, unlike many previous crashes, this one was not triggered by concerns over a bubble, but by fears that artificial intelligence is about to disrupt the business models of many companies, which doomsayers have long predicted are in peril.
Michael O’Rourke, chief market strategist at JonesTrading, said, “I don’t think this is an overreaction. For two years, we’ve been discussing how artificial intelligence will change the world and that it’s a generational technology. In the past few weeks, we’ve already seen it in practice.”
On the surface, this seems like an unremarkable side note: AI startup Anthropic PBC has released a new tool for legal work, such as contract review. The product itself is not yet a disruptive innovation. But given that Anthropic’s coding tools have helped transform software development over the past year – part of a broader wave of AI innovation – this four-paragraph announcement has received significant attention.
Jackson Ader, an analyst at KeyBanc, wrote: “While it is legal tech today, it could be sales, marketing or finance tomorrow.”
What has further unsettled investors is that even companies long regarded as major beneficiaries of the artificial intelligence boom are showing signs of fatigue. Alphabet Inc. said in its earnings report that its capital expenditure in the field of artificial intelligence would be higher than expected, while Arm Holdings Plc’s revenue forecast was also lower than expected. The share prices of both companies fell in after-hours trading.
“We started out selling just software, and now we sell everything,” said Gil Luria, managing director of DA Davidson. “This creates a self-reinforcing cycle. When the stock price drops to a certain point, it generates negative momentum, and then others will also sell.”
This round of sharp decline is not limited to US-listed companies. The London Stock Exchange Group, Tata Consultancy Services Limited and Infosys Limited all saw their share prices fall this week due to the possibility that artificial intelligence could replace existing jobs.
Furthermore, the scope has also expanded to include Wall Street’s tech industry backers, from lenders to private equity owners. Software companies have been a popular acquisition target for these institutions. Bloomberg indexes show that over the past four weeks, more than $17.7 billion in loans to US technology companies have fallen into distressed trading levels.
In many respects, this anxiety remains at the hypothetical stage. For instance, leading software companies ServiceNow and Salesforce have not experienced a decline in profits, nor have they disclosed to Wall Street that artificial intelligence has led to customer attrition.
Over the past few years, software companies have been developing their own artificial intelligence tools, often promising to use AI safely and leverage the customer data already stored in their systems. However, many suppliers’ achievements so far have been disappointing. Microsoft said last week that its Copilot tool has 15 million paying users – a drop in the ocean compared to the company’s hundreds of millions of users.
The latest developments have raised concerns that leaders in the field of artificial intelligence will outpace established industry players in terms of innovation, and there is worry that this reckoning will come soon.
Dirk Murakami, the general manager of SLC Management, said, “This will be a year full of uncertainties. What we are seeing now is just the early stage of this market reshaping, which will determine who will be the winners, who will be the losers, and who will be most vulnerable in the process.”
