Traders flee stocks feared to be under threat from AI

Straits Times

2 days ago

The souring sentiment among investors comes as AI is changing everything from the way people get information from the internet to how colleges function.
NEW YORK – Artificial intelligence's imprint on US financial markets is unmistakable. Nvidia is the most valuable company in the world at nearly US$4.5 trillion. Startups from OpenAI to Anthropic have raised tens of billions of dollars.
But there's a downside to the new technology that investors are increasingly taking note of: It threatens to upend industries much like the internet did before it. And investors have started placing bets on just where that disruption will occur next, ditching shares in companies some strategists expect will see falloffs in demand as AI applications become more widely adopted.
Among them are web-development firms like Wix.com, digital-image company Shutterstock and software maker Adobe. The trio are part of a basket of 26 companies Bank of America strategists identified as most at risk from AI. The group has underperformed the S&P 500 Index by about 22 percentage points since mid-May after more or less keeping pace with the market since ChatGPT's debut in late 2022.
'The disruption is real,' said Mr Daniel Newman, chief executive officer of the Futurum Group. 'We thought it would happen over five years. It seems like it is going to happen over two. Service-based businesses with a high headcount, those are going to be really vulnerable, even if they have robust businesses from the last era of tech.'
So far, few companies have failed as a result of the proliferation of chatbots and so-called agents that can write software code, answer complex questions and produce photos and videos. But with tech giants like Microsoft and Meta Platforms pouring hundreds of billions into AI, investors have started to get more defensive.
The souring sentiment among investors comes as AI is changing everything from the way people get information from the internet to how colleges function. Even companies at the vanguard of the technology's development like Microsoft have been slashing jobs as productivity improves and to make way for more AI investments. To many tech-industry watchers, the time is nearing when AI becomes so pervasive that companies start going out of business.
Anxiety about AI's impact on existing companies was on display last week when Gartner shares were routed after the market-research company cut its revenue forecast for the year. The stock fell 30 per cent in the five days, its biggest one-week drop on record.
While the company blamed US government policies including spending cuts and tariffs, analysts were quick to point the finger at AI, which investors fear could provide cheaper alternatives to Gartner's research and analysis even though the company is deploying its own AI-powered tools.
Historical precedents abound for new technology wiping out industries. The telegraph gave way to telephones, horsewhips and buggies were toppled by the automobile, and Blockbuster's eradication by Netflix exemplified the internet's disruption.
'There are a lot of pockets of the market that could be basically annihilated by AI, or at least the industry will see extreme disruption, and companies will be rendered irrelevant,' said Mr Adam Sarhan, chief executive officer at 50 Park Investments. 'Any company where you're paying someone to do something that AI can do faster and cheaper will be wiped out. Think graphic design, administrative work, data-analysis.'
Of course, plenty of companies that were expected to be hammered by AI are thriving. Even though many AI companies offer instant translation services, Duolingo, the owner of a language-learning app, soared after raising its outlook for 2025 sales, in part because of how it has implemented AI into its own strategy. The stock has roughly doubled over the past year – but concerns linger that the next generation of AI will be a threat.
The defensive moves from investors come as AI has re-emerged as the dominant theme between winners and losers in the stock market this year. It's been a stark reversal from earlier in 2025 when AI models developed on the cheap in China called into question US dominance in the field and raised concerns that spending on computing gear was set to slow.
Instead, Microsoft, Meta, Alphabet and Amazon.com have doubled down on spending. The four companies are expected to pour roughly US$350 billion into combined capital expenditures in their current fiscal years, up nearly 50 per cent from the previous year, according to analyst estimates compiled by Bloomberg. Much of that is funding the build out of AI infrastructure, which is benefiting companies like Nvidia, whose chips dominate the market for AI computing.
Figuring out which companies are vulnerable to the technology takes a bit more nuance. Alphabet is widely seen as one of the best-positioned companies, with cutting edge features and top-tier talent and data. However, it is a component of Bank of America's AI risk basket, and the sense that it is playing defense – protecting its huge share of the lucrative internet search market – has long dogged the stock.
For other companies, the risk seems more clear. Advertising agency Omnicom Group has dropped 15 per cent this year, as it faces a future where Meta is reportedly looking to fully automate ad creation through AI. Peer WPP is down more than 50 per cent.
With so many companies facing AI risks, it's an investment theme that is poised to intensify, according to Mr Phil Fersht, chief executive officer of HFS Research.
'Wall Street clearly has the jitters,' Mr Fersht said. 'This is going to be a tough, unforgiving market.' -BLOOMBERG