US software stocks tumble sparks concerns that AI trade is reshaping markets

By Saqib Iqbal Ahmed and Lewis Krauskopf

NEW YORK, Feb 9 (Reuters) - The bundle and services industry's caller plunge has ignited fears that the artificial quality roar whitethorn beryllium reshaping markets successful unexpected ways, raising questions astir whether a rotation retired of exertion stocks signals occupation up for ​the AI trade.

Financial markets, juiced for months with capitalist enthusiasm astir the artificial quality trade, got a rude awakening past week arsenic bundle stocks astir ‌the globe sank connected worries that fast-advancing AI tools could upend the industry.

While a rebound successful the broader marketplace helped soothe nerves connected Friday, the outlook for U.S. bundle stocks, astatine the epicenter of the ‌selloff, remained murky. Despite a 2% rebound connected Friday, options marketplace participants remained connected precocious alert for further pain.

The selloff, which crossed continents knocking stocks from Europe to Asia, was triggered by a caller ineligible instrumentality from Anthropic's Claude ample connection exemplary that raised existential questions astir accepted bundle concern models.

Investors are questioning whether the earnings-compounding quality of bundle companies would get disrupted, with strategists noting a broader rotation into worth and cyclical-oriented sectors specified arsenic user staples, vigor and industrials.

SOFTWARE SLUMP

Software and services stocks' underperformance against the S&P 500 has ⁠reached near-record proportions, with the assemblage lagging the benchmark ‌by astir 24 percent points implicit the past 3 months, astir the worst specified spread successful information going backmost 3 decades.

The downturn marks a stark reversal for the manufacture radical that wide enactment up outsized gains for overmuch of the post-pandemic era, erstwhile investors stake ‍on integer translation and unreality computing.

The existent selloff rivals lone a fistful of periods since 1995, including the dot-com clang of 2000-2001, erstwhile the dispersed plunged beneath antagonistic 25.

To beryllium sure, historically, specified utmost readings person sometimes preceded either capitulation selling oregon marked charismatic introduction points for contrarian investors, though the 2000-2001 play showed underperformance could persist for extended stretches.

SOFTWARE GLITCH

For now, the selloff ​has near galore U.S. bundle stocks smarting from eye-watering losses since the S&P exertion assemblage peaked successful precocious October. Oracle is the nonaccomplishment leader, having shed astir 50%, ‌from October 29 to February 5, portion ServiceNow and AppLovin each tumbled much than 40%. Gartner, Palantir, Intuit, Datadog, and Workday were besides swept distant successful the selloff.