The “AI scare trade” is moving from software into places that don’t usually share a group chat: private credit exposure tied to software, data firms, and more
Angela Weiss/AFP via Getty Images
Wall Street is back to playing defense against AI. After the long weekend, stocks reopened under pressure. The Nasdaq $NDAQ Composite slid close to 1% in early trading, with the S&P 500 (down 0.8%) and the Dow Jones Industrial Average (down 0.4%) also in the red.
The selling wasn’t confined to obscure corners of the market. Mid-morning trading showed broad weakness across the AI complex — from chipmakers to platforms — as investors tried to sort out who actually benefits from the boom and who might be replaced by it.
The market reaction has been messy rather than surgical, and in the AI neighborhood watch, nobody was spared: Around 10 a.m. ET, shares of Nvidia $NVDA were down around 1.6%, Microsoft $MSFT and Palantir $PLTR Technologies were also lower, 1.3% and 1.2%, respectively, and Advanced Micro Devices had fallen almost 5%. Amazon $AMZN — a major cloud and AI player — was also trading down. Investors are acting like AI is now close enough to the revenue line to matter.
The market is scanning for businesses that sell expensive human processes. If AI agents can do more of the end-to-end work — planning, searching, comparing, synthesizing, executing — then the companies that make money as toll collectors start looking less inevitable.
Recent reporting has tied waves of selling to product launches that make automation feel less theoretical and more operational. Wealth-management platform Altruist rolled out AI-enabled tax planning. Insurance marketplace Insurify launched a ChatGPT-style comparison tool. Each announcement was followed by pressure in brokerages and insurance intermediaries, as investors asked: If software can handle more of the workflow, what happens to the fee?
The fear has spread well beyond fintech.
The “AI scare trade” moving from software into places that don’t usually share a group chat: private credit exposure tied to software, financial intermediaries and data firms, real estate services, insurance brokers, even trucking and logistics after an AI freight tool claim spooked the sector. When a narrative starts jumping industries like that, it stops being a single-stock debate and becomes a market behavior.
That makes AI a potential margin compressor. The S&P software and services group has shed roughly $2 trillion since its October peak, with a large share of that damage concentrated in recent weeks. Analysts at BNP Paribas estimate that about a fifth of private credit exposure is tied to software, which helps explain why alternative asset managers have also been swept into the turbulence.
Strategists are split on what comes next. Jefferies economist Mohit Kumar has framed the move as rotation — capital moving between winners and losers rather than fleeing equities outright. At JPMorgan $JPM Chase, strategist Dubravko Lakos-Bujas has argued that markets may be flirting with worst-case disruption assumptions, creating potential rebound opportunities in higher-quality software. Meanwhile, Daniel Skelly of Morgan Stanley $MS recently described a “bull market in disruption hysteria.”
The market can believe two things at once: That AI will drive massive spending on chips, cloud, and data centers, and that AI will take a razor blade to certain profit pools. On ugly mornings, it will sell both the supposed “victims” and the obvious “enablers,” because uncertainty is contagious and positioning is a blunt instrument.
The question on Wall Street today is less “Who benefits from AI spending?” and more “Who gets their margin compressed first?” And for now, Wall Street is answering that question with maybe the only tool it trusts: the sell button.
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