Investors have taken to trading "on fears of AI". Are these fears justified?

In February, one market crash after another occurred in several sectors whose business model threatens to be undermined by AI, from software makers to wealth managers. "It's certainly a case of shoot first and ask questions later," Kerry Craig, global market strategist at JPMorgan Asset Management, told Bloomberg TV. Are the market's fears fair?

What was the reason for the massive sellout? Startup Anthropic posted on its website in early February about a new AI tool for corporate lawyers. The company then unveiled its new artificial intelligence model ClaudeOpus 4.6 - with tools to automate tasks in areas ranging from legal services to financial analytics.

This has caused market participants to question the business prospects of software companies, the Financial Times writes.

As a result, the shares of software developers, which started falling as early as the end of 2025 on expectations of losses from the proliferation of AI tools, went into a collapse in early February. A wave of selling swept across the globe. The iShares Expanded Tech-Software Sector ETF, a U.S.-based exchange-traded fund of software makers, lost 11% in three days in early February after the Anthropic presentation. It is down nearly 22% since the beginning of the year.

Shares of leading specialized software developers - Salesforce and ServiceNow, Europe's SAP and Dassault Systèmes, India's Tata Consultancy Services and Infosys - fell sharply. Data providers, from credit bureau Experian to London Stock Exchange Group and Thomson Reuters, also suffered.

The domino effect has spread to private equity funds whose shares are traded on stock exchanges, such as Blackstone, KKR and Blue Owl. The reason is that they have been actively buying and lending to software manufacturers since the 2010s.

"Software has been the biggest area of private equity fund activity over the last decade," a top financial industry executive told the FT. - And they are the main borrowers in each of the biggest private credit funds."

Software stocks are now trading like bank stocks in 2008 when the global financial crisis hit, summed up what's happening in the market on Friday, Feb. 13, Nick Ferres, chief investment officer at Vantage Point Asset Management in Singapore.

New waves of selloffs swept through the past week. Online marketplace Insurify launched an app that uses ChatGPT to compare premiums on auto insurance policies, triggering a drop in the shares of US insurance brokers.

And startup Altruist introduced Hazel, a tax and financial planning tool. This hit companies involved in wealth management and financial services for wealthy clients. Shares of Charles Schwab, Raymond James Financial, and LPL Financial Holdings fell 7-9%.

Wall Street was apparently caught off guard by this development. Of these three companies, only Charles Schwab shares had a "sell" recommendation, and that was given by only one of 24 analysts, Bloomberg noted.

According to the data collected by The Wall Street Journal, now shares of Charles Schwab 18 out of 22 analysts give recommendations "buy" or "above the market", three advise "hold" these securities, another one has a recommendation "below the market". At Raymond James Financial the majority of recommendations - 11 out of 16 - "hold", at LPL Financial Holdings out of 17 estimates 12 correspond to the recommendation "buy", five more analysts recommend "hold" the company's securities.

It comes down to curiosities. On Thursday, former karaoke system maker Singing Machine, now called Algorhythm Holdings, issued a press release before trading began about AI technology that could improve freight transportation logistics. Algorhythm, which has a $3 million capitalization, has no customers for its practical application. But shares of U.S. logistics companies were falling by 20% by mid-day, The Wall Street Journal reported.

On Wednesday, quotes of real estate companies collapsed: CBRE Group and Jones Lang LaSalle - by 12%, Cushman & Wakefield - by 14%. For the latter, it was the strongest daily drop since 2020, when the sector was hit hard by the pandemic of covida.

"We believe investors are exiting companies with business models with high fees and labor costs, seeing them as potentially vulnerable to AI-induced change," Bloomberg quoted Jade Rahmani, an analyst at Keefe, Bruyette & Woods, as saying in a report.

He called such actions "trading on fears of AI."

Barclays analyst Brendan Lynch believes these fears and the scale of the fall are overblown. Risks that AI will change the labor market, undermining demand for commercial real estate, are relevant, but these are long-term risks, and "nothing has changed since yesterday," he said.

Investor fears were fueled by Robert Sulentic, CEO of CBRE, who said on a call with analysts on the company's quarterly results that if the number of office workers declines because of AI, so will the demand for office space.

Indeed, CBRE shares fell another 8.8% on Thursday to close at $136.28. From Monday through Friday, they lost more than 16%.

Despite this, Barclays reiterated an "outperform" recommendation and $192 target price on the company's shares. Morgan Stanley (with an "above market" recommendation and $180 target price) noted that CBRE views AI not so much as a threat to its business model, but as a factor that can contribute to profit growth.

Indeed, notes Treacy, Sulentic further noted in his speech, "We're likely to see many more AI-related workers taking the place of those who may leave because of it."

But the market didn't hear that and panicked over concerns about how quickly AI could undermine the business of entire industries, Tricey points out.

Until recently, investors thought that wouldn't happen for several years. But now they are bringing forward their predictions of when companies in traditional sectors will start to lose seemingly reliable earnings, says Treacy.

For software vendors whose code bases are easy to copy, the threat is real, he believes. For real estate agents, who make one-off deals during complex negotiations, the threat is not so obvious.

The COVID-19 pandemic with the shift of employees to homeworking was a much bigger destabilizing factor, says Treacy, noting that CBRE's stock, which collapsed 54% at the time, had fully recovered by the end of 2020.

Fears about a number of other sectors are also exaggerated, experts believe. For example, Wilma Berdis, an analyst at Raymond James Financial, characterized the sell-off in shares of financial companies as "totally excessive." "Ultimately, people want to trust their money to...a live person," she added.

For Tricy, the most interesting thing about last weeks story is how estimates of AI's impact have changed.

Just a few months ago, the main problems were seen as AI's inaccuracies and errors that prevented it from being used as an adequate substitute in business processes, and the gigantic investments that raised doubts about the wisdom of such investments, describes Treacy.

Today, however, the main problem is that large-scale adoption of AI tools "will lead to mass unemployment and undermine revenues for all types of businesses."

"Those are two pretty extreme options, and the reality is likely to be somewhere in the middle," he believes. - AI capabilities will improve, the cost of implementing it will go down, and some people will lose their jobs. The economy, on the other hand, will benefit from increased productivity, and the vast majority of people will still be in work."

This article was AI-translated and verified by a human editor