Why AI Fears Are Suddenly Hitting Tech Stocks

Jessica Mendoza (0:00)

Hey, this is Jessica Mendoza, host of The Journal Podcast, our show about money, business, and power. If you're looking for more deeply reported stories like we share every day, consider becoming a subscriber to The Wall Street Journal. Visit subscribe.wsj.com/thejournal, all lowercase, to subscribe now.

Luke Vargas (0:22)

Software stocks keep on sliding as AI's rapidly evolving capabilities rattle investors. Plus, shares of Novo Nordisk plummet as price competition reshapes the market for weight loss drugs. And China flexes its regulatory muscle, banning retractable door handles on electric vehicles.

Yoko Kubota (0:41)

It really shows how China has become not only a leader in EVs, but also a laboratory of experimentation when it comes to dealing with associated technologies.

Luke Vargas (0:52)

It's Wednesday, February 4th. I'm Luke Vargas for The Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

Software stocks in Asia and Europe are sliding today, following a rough day on Wall Street that saw the rise of new AI tools shave more than $300 billion off of companies that sell or invest in software. Yesterday's big losers included Adobe, Salesforce, legalzoom.com, Paypal, Expedia and Equifax, as traders called into question the competitive motes those businesses had built up. And with more on this software sell-off, I'm joined by reporter Hannah Miao. Hannah, what triggered this? I kind of thought AI was a potential benefit for some of these companies, enabling them to kind of power up their professional offerings. And yet the thinking seems to be they could just get bypassed completely. Is that right?

Hannah Miao (1:48)

Yeah, we've seen Anthropic and OpenAI release new models and updates recently that have shown a pretty big advancement in just how much these AI tools can do. Anthropics Cloud Code has really taken off. People have been vibe coding, which means people who are not technical software engineers being able to code their own tools using Cloud. And that has enabled people to play around with tools that help with a wide variety of tasks, from analyzing health data to compiling expense reports. So it's really kind of called into question the business models of these software companies. And more recently, Anthropic announced it was adding legal tools to its co-work assistant and that it could help automate a number of legal drafting and research tasks. So that in particular has hit a number of companies that provide legal tools or research databases. And that kind of lit the spark for the broader sell off in the software market yesterday.

Luke Vargas (2:52)

And Hannah, the damage isn't limited there. I mean, not that that's anything to write off, but it goes further. This is spreading to investors in software.

Hannah Miao (3:00)

That's right. We've seen alternative investment firms in recent years really invest heavily in software equity and debt. So those firms such as KKR, Blue Owl Capital or Blackstone, they all saw their shares punished yesterday in the selloff as well. So software has become a major slice of their investment portfolio. And investors in those companies are wondering if that will impact their overall business.

Luke Vargas (3:28)

A lot of disruption in the air, Hannah. A bunch of analysts using this moment to be quite vocal about how they feel about AI, a threat to many of the big names in software. But I'm curious if that's the only view. Are we hearing cases for why some of these companies will be able to defend their emotes?

Hannah Miao (3:45)

Yeah, it's hard to say exactly how this will play out. But we're hearing from software companies that, you know, it's not just the ability to write code. That's the big part of their business. They also do a lot of data management. They have this trust with their clients. And if people are vibe coding things that are handling sensitive customer information, that might not be totally secure. So we're seeing software companies trying to defend really their value add in this environment. And we'll see how it plays out.

Luke Vargas (4:15)

That was The Journal's Hannah Miao. Hannah, thank you as always for the update.

Hannah Miao (4:18)

Thanks for having me.

Luke Vargas (4:19)

Well, if you thought that the hyperscalers behind leading AI products are immune from that trend we just discussed, think again. Microsoft dipped almost 3% yesterday on concerns that AI tools could make enterprise subscriptions less necessary. The company's co-pilot assistant is a key part of its growth plans, but new data from Recon Analytics shows that subscribers who use Microsoft's co-pilot as their primary option almost have in the last six months, while Google's Gemini gained in popularity. According to Citi Research, some companies are using just 10% of the co-pilot subscription seats they've paid for. Well, it's also a bad week for crypto, with Bitcoin now down nearly 40% since hitting a record in October. The ongoing slump is also starting to hurt trading platforms like Coinbase and Robinhood, as well as companies previously rewarded for hoarding cryptocurrencies like Michael Saylor's Strategy. And as Markets reporter Alex Osipovich explains, that could hurt crypto prices even more.