AI is here — and this week, investors lost over $400 billion to the realization that entire industries are on the cusp of being replaced.
Why it matters: The software-industry selloff, sparked by Anthropic's latest release, is ultimately just a baby step in a bigger transformation that may reshape how we all live and work.
- It's also the first tangible verdict on what happens when AI starts eating entire categories of work, well before the long-feared white-collar bloodbath even really begins.
Driving the news: Anthropic recently released a suite of software-killing tools — prompting investors to reconsider software companies' value, with the sector down 25% in the last week.
Zoom in: AI isn't just hitting software valuations, it's changing how these companies operate from the inside out.
- OpenAI CEO Sam Altman said he felt "useless" and "sad" using his own AI to code.
- Software engineers using the technology are also talking to each other less than ever, showing the "death of a community," Peter Coy writes.
The big picture: As of this week, investors are seriously looking at AI not just as a productivity boost for software firms, but as a substitute.
- "AI is not just going to do something to labor ... it's going to do something to profits," Shelby McFaddin, portfolio manager of a $2.6 billion fund, tells Axios.
- One strategist likened it to BlackBerry: It survived, but its business model and valuation never recovered after being fully disrupted.
Yes, but: Some investors are still bullish on software stocks, especially now that they come at a discount.
- The winners could be companies offering software toolkits, rather than single-use apps.
- Software incumbents will also be hard to replace: "With AI, code may become cheap, but context is expensive ... you can't LLM your way past 10 years of customer data," Pitchbook noted in a report.
What we're watching: Stock prices are a bet, but sales are are the actual proof.
- Growth has already slowed for software names — and is a metric to watch for other industries that could be disrupted by AI.
- Customer retention will signal if people are switching to AI tools, David Fetherstonhaugh, EVP at VistaShares, tells Axios.
- Watch for the market to price in AI's broader labor hit across several industries in about a year-plus, McFaddin said.
What's next: Investors' fears about AI's impact on software companies could spread to other industries the emerging tech stands to disrupt.
The bottom line: Markets just ran the math on software in an AI world — and didn't like the answer.
