Global technology stocks came under heavy pressure as investors struggled to assess the growing impact of artificial intelligence on traditional software businesses. The selloff in software and services stocks extended into Wednesday, Feb 4, fuelling fresh debate over whether the sector is witnessing a short term correction or the early signs of a deeper structural shift driven by AI.
The S&P 500 software and services index fell nearly 4% on Tuesday and slid another 0.73% on Wednesday. This marked the sixth straight session of losses and wiped out about US$830 billion, close to S$1 trillion, in market value since Jan 28. The index is now down nearly 13% over 6 sessions and has fallen 26% from its October peak. The selling pressure intensified after a new legal focused tool was launched by Anthropic’s Claude model, highlighting how large language models are pushing into enterprise applications such as legal, sales, marketing and data analysis.
Investors fear this expansion could disrupt established revenue streams that software firms rely on to fund large investments. Some analysts compared the strategy to how Amazon used an early niche to expand into multiple industries. However, others cautioned that success is not guaranteed due to the lack of specialised industry data. “The selloff, which arguably started last quarter, is a manifestation of an awakening to the disruptive power of AI,” said James St. Aubin. “The seemingly wide moats of these companies feel a lot more narrow today as competition from AI created products intensifies. Perhaps this is an overreaction, but the threat is real and valuations must account for that. My biggest fear is that this is a canary in the coal mine for the labour market.”
Individual stocks reflected the anxiety. Thomson Reuters dropped nearly 16% on Tuesday before gaining almost 2% on Wednesday. MSCI fell 1.8% after losing about 7% previously. Britain’s Relx closed down 1.3% after a 14% fall, while the London Stock Exchange slipped 0.1% following a nearly 13% decline. The rout spilled into broader markets, with the S and P 500 down 0.51% and the Nasdaq Composite lower by 1.51%. Nvidia fell 3.4%, Meta lost 3.2%, Alphabet dropped 2% and Oracle slid 5.1%. Still, Nvidia CEO Jensen Huang said fears that AI would replace software were “illogical” and “time will prove itself,” while some strategists argued the selloff may be overdone.
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