A washout in the stocks of software companies has been flowing through Wall Street this week, as investors realized that the threat of artificial intelligence displacing businesses had arrived.
While the prospect of A.I. disruptions has hung over the economy for years, a new set of tools released this week by a San Francisco start-up forced a sudden reckoning on Wall Street.
Software companies most at risk from the new tools were the hardest hit, as well as the investment funds that lend to these companies. But the sell-off helped push down the broader market. By Thursday, the S&P 500 turned negative for the year after falling on six of the past seven days.
A.I. has been like rocket fuel for stocks, driving prices to record highs in recent years. But since October that exuberance has been fading, as some realities of this transformative technology have begun to sink in.
Not only are investors growing worried that A.I. could render certain businesses obsolete, they are also questioning the growing piles of money that companies are spending on A.I. On Thursday, investors were spooked by Amazon’s revelation that it planned to spend $200 billion on A.I. and other large investments this year, exceeding analysts’ predictions by $50 billion; shares fell more than 11 percent in after-hours trading.
This week, Google’s parent, Alphabet, said it would spend as much as $185 billion this year, and last week Meta said its capital expenses, in large part to support A.I., could reach $135 billion.
In the software sector, the catalyst for this week’s sell-off was the release Tuesday by Anthropic, the San Francisco-based artificial intelligence firm, of free plug-in software tools that allow companies to automate functions like customer support and legal services.
Because they were created as “open source” software, any company can download the tools without paying for them. These plug-ins could replace the tools that companies currently sell to businesses.
Another area vulnerable to A.I. are providers of “software-as-a-service,” or SaaS, a mode of delivering subscription-based computer programs over the internet instead of buying and installing them locally on one’s computer. New, free software models from A.I. companies have the potential to replace not only the SaaS business model but also much of the work force behind it.
“There have been a number of these big sell-offs of these SaaS stocks over the past few years as these software models have rolled out,” Sam Altman, chief executive of OpenAI, said in an interview with “TBPN,” a tech-focused streaming show, on Thursday afternoon. “I expect there will be more.”
Analysts have taken to calling the broad sell-off the “SaaSpocalypse.”
Shares of companies like LegalZoom, LexisNexis and Thomson Reuters, which offer legal services and research, dropped as much as 20 percent over the past week.
Shares of Salesforce, which produces SaaS software for sales workers, have fallen 25 percent over the past month.
Even companies catering to the arts have been hit. Shares in Adobe and Figma, which produce tools for artists, fell 7 percent and 20 percent over the past week, driven by fears that many of the bread-and-butter design tools they provide to creative workers could eventually be automated.
The fervor for A.I. is not just affecting the software industry. The surge in A.I. spending has generated enormous demand for random-access memory, or RAM, a kind of chip required to produce the A.I. hardware built by these companies.
On Wednesday, Qualcomm, which makes microprocessors for smartphones and computers that require RAM, said it faced uncertainty around how much demand it would have for its chips over the next two years. That is, in part, because the skyrocketing cost of memory could dampen consumer demand for new devices. Shares of Qualcomm are down more than 21 percent this year.
Software companies have also been a favorite target of private-credit lenders, because the companies’ subscription-based business model provides a stable stream of income to support taking on more debt.
Private credit deals, as the name suggests, are not public, but the loans held by related business development companies, or B.D.C.s, are seen as a proxy for the industry.
Roughly half of the software debt held by B.D.C.s, equal to about $45 billion, comes due in 2030 or later, according to analysts at Barclays, raising worries about the length of time until these loans are repaid. The more time a borrower has to repay a loan, the more time there is for the borrower to default — or, in this case, the more time for a business to be displaced by A.I.
An exchange-traded fund run by VanEck that contains holdings in many of the major B.D.C.s is down roughly 6 percent this year and more than 20 percent over the past 12 months.
Even as Ares Management and Blue Owl Capital — two of the largest private-credit firms — reported results this week that Wall Street analysts largely applauded, the two companies couldn’t escape investors’ worries about A.I. disruption. Shares of Ares fell more than 10 percent Thursday, while Blue Owl’s fell 4 percent.
On an analyst call on Thursday, Marc Lipschultz, co-chief executive of Blue Owl, vehemently denied that artificial intelligence posed a threat to its lending business.
“We don’t have red flags and, point of fact, we don’t have yellow flags. We actually have largely green flags,” Mr. Lipschultz said.
Blue Owl’s chief financial officer, Alan Kirshenbaum, attributed the company’s challenges to “headwinds in private credit, A.I., software,” as well as investors who want some of their money back.
Analysts could find little to worry about in the firm’s results.
“If you took the name off the top of the release and ripped through the details, you’d think that’s a pretty darn good quarter,” Glenn Schorr, an analyst at Evercore ISI, wrote in a note Thursday morning.
Bitcoin, a retail-dominated market that tends to swing with some of the popular stock trades, also fell this week, sliding to around $63,000, its lowest level since October 2024.
On Wednesday, Treasury Secretary Scott Bessent said during a congressional hearing that the government had no power to order banks to buy Bitcoin in order to stem the price decline.
As investors dial down their exposure to the more speculative bets like Bitcoin and A.I. related stocks, they are shifting toward previously unloved sectors that are seen as better insulated through periods of volatility.
So far this year, energy stocks, consumer staples and the materials sector have all gained over 10 percent while tech has languished.
“After years of tech-driven market leadership, the balance of power is shifting as investors rotate toward traditional ‘old economy’ sectors,” said Angelo Kourkafas, a strategist at the fund manager Edward Jones.
Mike Isaac is The Times’s Silicon Valley correspondent, based in San Francisco. He covers the world’s most consequential tech companies, and how they shape culture both online and offline.
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