What is Anthropic’s new legal AI tool and why investors are dumping software stocks

Core Insights - Anthropic has launched a new AI automation tool aimed at the legal industry, designed to handle routine legal tasks such as contract reviews and legal briefings, although outputs must still be reviewed by licensed attorneys [2][3][16] - The announcement of this tool has caused significant market reactions, leading to a sharp decline in shares of companies involved in legal software and data services, with some companies experiencing drops of over 10% [3][4][16] Market Reaction - Following the launch, shares of RELX Plc and Wolters Kluwer NV fell more than 10%, while Experian Plc dropped 9%, and other companies like Thomson Reuters Corp. and FactSet Research Systems Inc. also saw declines of around 10% or more [4][16] - The iShares Expanded Tech-Software Sector ETF fell by as much as 4.4%, and a UBS Group AG basket of European stocks vulnerable to AI disruption sank nearly 7% [5][16] Competitive Landscape - Analysts express concerns about rising competition in the legal AI space, with Morgan Stanley noting that Anthropic's new capabilities heighten competition, which could be a negative sign for existing players [7][16] - Anthropic is entering a crowded market, competing with startups like Harvey AI and Legora, which have already attracted significant investment, with Harvey AI valued at $5 billion and Legora at $1.8 billion [8][9][10] Industry Trends - There is a growing fear of AI disrupting software businesses, with the release of Anthropic's tool intensifying these concerns, particularly in the legal sector [11][16] - During the current earnings season, only 71% of software companies in the S&P 500 have met revenue expectations, compared to 85% across the broader tech sector, contributing to investor unease [12][16] Future Outlook - Experts suggest that 2023 will be a defining year for companies in the AI space, determining which will emerge as winners or victims, emphasizing the importance of avoiding potential losers in the market [13][16]