US software stocks slump on renewed AI disruption jitters
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April 9 : U.S. software shares tumbled on Thursday as fears over disruptions from advances in AI returned to the forefront following a recent update from Anthropic.
Investors have dumped the sector's stocks this year on worries that AI tools that are capable of automating human tasks could pose an existential threat to the industry. The broader S&P 500 Software and Services Index is down 25.5 per cent this year, including Thursday's decline of 2.6 per cent.
Optimism around a U.S.-Iran ceasefire that lifted broader risk appetite kept the concerns on the sidelines on Wednesday. But with the truce looking fragile, the worries are quickly reasserting themselves.
"We're getting back to being concerned about the prior software-specific concerns stemming from AI and private credit that are coming back to the fore," said Steve Sosnick, chief market analyst at Interactive Brokers.
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Earlier this week, Anthropic launched a powerful AI model but held off on releasing it widely over concerns that it could expose hidden cybersecurity vulnerabilities.
Only a group of around 40 tech heavyweights, including Microsoft and Google, would have access to Anthropic's "Claude Mythos" model.
"If Mythos is that strong and that powerful and it's exposing these vulnerabilities that have been around for years, it just shows one, the weakness of the current software that's out there and two, that AI is still making incredible progress versus legacy software companies," said Michael O'Rourke, chief market strategist at JonesTrading.
GROWTH UNDER SIEGE
The moves underscore how one of Wall Street's favorite trades has turned into a headache as AI upends the software industry.
"Whether AI spells the end of the software business is an open question. Given the unprecedented dynamism and speed of AI, we do not pretend to have the answers," said Michael Clarfeld, portfolio manager at ClearBridge Investments.
Cybersecurity firms Cloudflare, Okta, CrowdStrike and SentinelOne dropped between 4.9 per cent and 6.5 per cent.
Zscaler was among the biggest decliners on the S&P 500 on Thursday, down 8.8 per cent after brokerage BTIG downgraded the stock to "neutral" from "buy", citing concerns over demand and potential competition.
The company is trading at 31.4 times expected earnings over the next 12 months - near the bottom of its historical range - compared to a multiple of 55.4 at the beginning of the year, according to LSEG data.
Enterprise software developer Atlassian, human resources software provider Workday, Photoshop maker Adobe, enterprise cloud firm Salesforce and TurboTax-parent Intuit dropped between 3.7 per cent and 6.8 per cent.
The anxiety is also creeping into private credit as investors scrutinize lending to technology companies amid doubts over future growth.
Carlyle Group shares dipped 1.5 per cent as the company's flagship private-credit interval fund became the latest to be hit by a wave of redemptions.
In Europe, SAP Global, Capgemini and Temenos fell between 3 per cent and 7 per cent.
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