A washout in the stocks of software companies has been flowing through Wall Street this week, as investors realized the threat that artificial intelligence will displace businesses had arrived.
While the prospect of AI disruptions has hung over the economy for years, a new set of tools released this week by a San Francisco startup 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. On Thursday, the S&P 500 turned negative for the year after falling on six of the past seven days. But it rebounded the next day, rising 1.5%.
AI has been like rocket fuel for stocks, driving prices to record highs in recent years. Since October, though, that exuberance has been fading, as some realities of this transformative technology have begun to sink in.
Not only are investors growing worried that AI could render certain businesses obsolete, they are also questioning the growing piles of money that companies are spending on AI. On Thursday, investors were spooked by Amazon's revelation that it planned to spend $200 billion on AI and other large investments this year, exceeding analysts' predictions by $50 billion; shares fell 7% Friday.
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 AI, 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 AI 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 AI companies have the potential to replace not only the SaaS business model but also much of the workforce behind it.
While the prospect of AI disruptions has hung over the economy for years, a new set of tools released this week by a San Francisco startup 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. On Thursday, the S&P 500 turned negative for the year after falling on six of the past seven days. But it rebounded the next day, rising 1.5%.
AI has been like rocket fuel for stocks, driving prices to record highs in recent years. Since October, though, that exuberance has been fading, as some realities of this transformative technology have begun to sink in.
Not only are investors growing worried that AI could render certain businesses obsolete, they are also questioning the growing piles of money that companies are spending on AI. On Thursday, investors were spooked by Amazon's revelation that it planned to spend $200 billion on AI and other large investments this year, exceeding analysts' predictions by $50 billion; shares fell 7% Friday.
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 AI, 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 AI 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 AI companies have the potential to replace not only the SaaS business model but also much of the workforce behind it.
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