AI fear grips Wall Street as a new stock market reality sets in

Core Viewpoint - Investors are increasingly anxious about the transformative impact of artificial intelligence (AI) on the economy, leading to significant stock market volatility [1][2]. Group 1: Market Reactions - AI startup Anthropic's release of new automation tools triggered fears of widespread business disruption, resulting in a sell-off across various stocks, including Expedia Group Inc. and Salesforce Inc. [2] - A total of 164 stocks in the software, financial services, and asset management sectors lost $611 billion in market value last week [5]. - Despite a rebound in the iShares Expanded Tech-Software Sector ETF (IGV) after a 12% decline, the overall market sentiment reflects a new reality of heightened volatility [3][4]. Group 2: Company Performance - Thomson Reuters Corp. experienced a 20% drop in its Canada-listed shares, marking its steepest decline ever, while Morningstar Inc. faced its worst week since 2009 [4]. - Major software companies like HubSpot Inc., Atlassian Corp., and Zscaler Inc. saw declines exceeding 16% [4]. - Microsoft Corp. lost $357 billion in market value in a single day due to disappointing earnings, which heightened concerns about AI-related spending [8]. Group 3: Investor Sentiment - Hedge funds' net exposure to software stocks fell to a record low of less than 3%, down from a peak of 18% in 2023, indicating a significant retreat from the sector [10]. - Analysts express skepticism about the assumption that operating metrics will deteriorate, with projected earnings for software and services companies in the S&P 500 expected to rise 19% in 2026 [11][12]. Group 4: Valuation Trends - Software stocks are trading at historically low valuations, with a basket tracked by Goldman Sachs dropping to 21 times estimated profits, down from over 100 in late 2021 [13]. - Salesforce is currently trading at 14 times expected profits over the next 12 months, compared to an average of 46 over the past decade [13].