"AI Could Upend Existing Software": Fear Wipes Out 300 Billion Dollars in Market Value

Anthropic unveils new AI tool...SW investors grow increasingly anxious

The fear that "artificial intelligence (AI) can replace existing software (SW)" rattled the New York stock market on the 3rd (local time). In just one day, the market capitalization of SW stocks plunged by as much as 300 billion dollars (about 435.3 trillion won), showing a sharp downward trend.

On this day, after AI developer Anthropic released a new AI automation tool, the share prices of Thomson Reuters, Legalzoom, and London Stock Exchange Group (LSEG), which provide legal tools and research databases, all plummeted by more than 12%.

There was little movement in the morning, but in the afternoon the entire SW market collapsed. PayPal, Expedia, EPAM Systems, Equifax, and Intuit were hit the hardest, falling more than 10%. According to the New York Times (NYT), about 300 billion dollars in market capitalization evaporated from just two S&P indexes that track software and financial data stocks. The SW sector is one of the worst-performing sectors in the S&P Dow Jones indexes this year.

The plunge came amid weeks of praise among Silicon Valley software engineers for Anthropic's AI model "Claude." Claude can directly control a computer and independently complete coding projects, delivering a major shock to the industry.

Art Hogan, chief market strategist at B. Riley Wealth Management, said, "If technology advances as rapidly as what we are hearing from OpenAI and Anthropic, it will be a problem," adding, "Investors have started attacking every company that could be disrupted by AI, including all kinds of software application (app) companies." On the day, the tech-heavy Nasdaq index fell 1.4%, and the S&P 500 fell 0.8%. In contrast, the Dow Jones Industrial Average, which has relatively low exposure to software, fell only 0.3%.

Private equity firms that have heavily invested in SW equity and debt in recent years were also swept up in the sell-off. The share prices of Ares Management, KKR, and Blue Owl Capital fell by more than 9%. Apollo Global Management and Blackstone dropped more than 4.5%. Among them, Blue Owl had been increasing its investments on the view that corporate clients are unlikely to cancel SW contracts because changing their technology systems is cumbersome. Blue Owl's share price has fallen for three consecutive days. On this day, it plunged as much as 13% during intraday trading and closed at its lowest level since September 2023.

Analysts at UBS Group, Switzerland's largest bank, forecast that "if AI's disruptive impact emerges aggressively, the default rate in private credit could soar to as high as 13%."

Jon Gray, president and chief operating officer (COO) of Blackstone, said, "I do not see this as a private credit or liquidity problem," adding, "It is an issue of changes taking place in the economy. Existing software companies that serve as systems of record could also face risks from AI disruptors."