Shares of U.S. software and data services companies extended their steep slide for a seventh straight session on Thursday as investors worried that fast-advancing artificial intelligence tools could upend the sector.
The S&P 500 software and services index dropped 3.1 per cent, on track to shed about US$1-trillion in market value since January 28.
Some of the big tech names that were hurt the most by the rout included ServiceNow (NOW-N), which fell 6 per cent, Salesforce (CRM-N), down 5 per cent, and Microsoft (MSFT-Q), which shed 3 per cent.
Canada-based Thomson Reuters (TRI-Q, TRI-T), which suffered a record one-day plunge earlier this week after investors raised concerns that a new plug-in from Anthropic’s Claude could disrupt its legal business, erased early gains to fall 9 per cent despite raising its dividend and reporting fourth-quarter results largely in line with estimates.
The company, which owns the Westlaw legal database and the Reuters news agency, said it was seeing tangible benefits from AI investments.
“The uncertainty around the eventual impact of AI means near-term earnings results will be important signals of business resilience, but in many cases insufficient to disprove the long-term downside risk,” said Ben Snider, Goldman Sachs’ chief U.S. equity strategist.
That uncertainty has also kept so-called dip-buyers at bay.
“There’s has not been dip-buying ... but we are reaching a watershed moment,” said Nick Giorgi, chief equity strategist at Alpine Macro.
On Wednesday, the S&P 500 software and services index was trading about 20 per cent below its 200-day moving average, the farthest the index has fallen below that key technical level since June 2022.
“We’re talking about multi-decade washouts right now ... generally, it actually tends to be a pretty good entry point,” he said.
The software selloff has come alongside a broader rotation out of technology and into value-oriented sectors such as consumer staples, energy and industrials, which were laggards in the bull market that began in October 2022.
Reflecting the bearish mood, short interest on mid- to large-cap software companies has been rising over the past three months, according to data analytics company Ortex, with cybersecurity and SaaS (Software as a Service) firms seeing the biggest jump in such bearish bets.
Goldman Sachs data showed a sharp recent decline in hedge funds’ exposure to software companies, although the funds remained net long on the industry.
“After years of tech-driven market leadership, the balance of power is shifting as investors rotate toward traditional “old economy” sectors,” Angelo Kourkafas, senior global investment strategist at Edward Jones, said in a note.
The selloff also spread to sectors exposed to software companies such as asset management firms on concerns they extended loans through private credit.
Alternative asset manager Blue Owl, which was on track for its eleventh straight session of declines, said its total exposure to the software sector accounts for 8 per cent of its assets under management on the post-earnings call.
The performance of overseas tech stocks was mixed. Shares of London Stock Exchange Group ended 5.8 per cent higher, while data analytics firms RELX rose 2.9 per cent and Netherlands-based Wolters Kluwer gained 2 per cent.
In contrast, India’s software exporters index, which houses names such as HCL Technologies and Wipro, slipped 0.7 per cent, a day after plunging 6 per cent in its worst session in nearly six years.
Alphabet’s plan to nearly double its capital expenditure further stoked concerns over payoff from the massive AI investments and exacerbated the Big Tech selloff.
Market volatility has shot up across equities, commodities and digital assets in recent weeks, which market participants attribute to leveraged investors being forced to rapidly unwind positions.
Wall Street’s most watched gauge of investor anxiety, the Cboe Volatility Index, rose to a more than two-month high of 23.10, before paring gains to trade up nearly 2 points at 20.53.
Precious metals gold and silver resumed their slide on Thursday after a historic rout earlier this week, and bitcoin slipped below $70,000 for the first time.
“This is a lot of relative bets out there going wrong, and then there’s some kind of reset going on in the market internals, but time will tell,” John Hardy, Saxo’s global head of macro strategy, said on a podcast.