AI news spurs market movements
Equity markets had a volatile week, and some stocks fell sharply as fresh fears about the disruptive potential of artificial intelligence (AI) rippled across the software, analytics, cybersecurity and information services industries.
While stocks plunged, the volatility index (VIX) hardly moved. Is this the quiet before the storm or did the market overreact? We will know more in the coming weeks as more companies publish their financial results.
The selloff began after Anthropic, one of the leading AI-developers, unveiled new AI powered productivity tools for its Claude platform, including a legal workflow automation tool that can review contracts, manage compliance and generate legal briefings. Investors interpreted this as a sign that advanced AI systems could directly challenge established players that rely heavily on proprietary research, manual workflows or traditional subscription based analytics offerings. The immediate reaction resulted in steep declines across key software and analytics companies. In Europe, Wolters Kluwer, RELX, Publicis and WPP were hammered, while in the US, companies such as S&P Global, IQVIA, HubSpot and Expedia saw their share prices drop significantly.
Next to the Anthropic releases, the weaker-than-expected guidance of global research and advisory concern Gartner amplified the selloff. This reinforced fears that generative AI could erode demand for traditional insights based services. And this comes when sentiment toward information services companies had already been fragile after last year’s AI driven selloffs.
The broader concern is if AI can meaningfully automate high value professional tasks, such as legal services, consulting, research and financial analysis, then it could compress margins, threaten longstanding data subscription models and weaken the competitive buffers of firms built on proprietary information. To reassure markets against this threat, companies will need to provide clearer evidence that AI will enhance, rather than cannibalise, their business models.
Due to these developments, growth-oriented stocks underperformed, while the consumer staples, financials and energy sectors performed significantly better than the market. Disappointing earnings and news from AMD, Uber Technologies and Novo Nordisk contributed to the negative sentiment. More positive news was AI bellwether Alphabet announcing a significant increase in capital expenditures. It also delivered stronger than expected earnings and revenues last quarter, exceeding analyst estimates.
Market reaction to company results in the current earnings season has been very strong, with large share-price swings. Yet despite significant market movements, the volatility index itself, often seen as a “fear gauge,” hasn’t moved very much at all -- so far.