AI Shock Shakes Wall Street, Losing Technology Stocks a Trillion Dollars

In one of the most severe shocks to financial markets in years, nearly a trillion dollars in market value of global technology stocks evaporated within a few days, amid unprecedented investor fears that artificial intelligence is no longer just a helpful tool... but a competitor threatening the very business models themselves.

The collapse that hit the stock and credit markets this week is the broadest since the emergence of the ChatGPT program and the widespread adoption of AI technologies three years ago.

While markets have previously experienced sell-offs related to excitement or anxiety about AI, what happened this time was different in terms of speed, breadth, and depth.

* Seven Days Were Enough to Erase Hundreds of Billions

In just two days, hundreds of billions of dollars were wiped off the value of stocks, bonds, and loans of major and minor technology companies in Silicon Valley.

Software companies were at the heart of the storm, as their stocks plummeted sharply, causing the total value of stocks listed in the iShares exchange-traded fund to decline by nearly one trilliondollars within just seven days, according to data reported by Bloomberg.

However, what is striking about this collapse is that it is not linked to fears of a traditional financial bubble, but to something deeper and more dangerous:

The fear that AI is now capable of replacing entire business models of companies that have long been considered invulnerable or leaders in innovation.

* The Spark: A Legal Tool... and the Shock is Greater than the Product

The initial spark seemed ordinary at first; the AI startup Anthropic announced the launch of a new tool aimed at legal businesses, such as contract review.

The product itself was not seen as an immediate revolutionary breakthrough, but its timing was deadly for the markets.

Just one year after AI-powered programming tools contributed to a radical transformation in software development, investors became more sensitive to any signal that AI might rapidly expand into other areas.

Bank of Keefe, Bruyette & Woods analyst Jackson Adair wrote:

"If these tools are being used today in legal technology, we might see them tomorrow in sales, marketing, or finance."

* Even AI Giants Under Pressure

What heightened the panic was that companies considered the biggest winners from the AI revolution began to show clear signs of stress.

In recent earnings reports:

• Alphabet (the parent company of Google) announced that its capital expenditures on AI would be higher than expected.

• Arm Holdings issued revenue forecasts lower than market estimates.

The result was immediate: a sharp drop in the stocks of both companies during after-hours trading.

And D.A. Davidson managing director Gil Luria said:

"We started selling software stocks only, then it turned into selling everything. And when stocks drop sharply, negative momentum builds, pushing more investors to exit."

* The Contagion Spreads Globally: From London to Tokyo

The decline was not limited to the United States. It included:

• The London Stock Exchange Group's stocks fell,

• and Tata Consultancy and Infosys stocks in India declined, amid fears that AI might replace services provided by these companies.

Losses also extended to sector supporters on Wall Street, from lenders to private equity firms, as loans to U.S. technology companies listed in the Bloomberg index—worth over $17.7 billion—fell to low trading levels over the past four weeks.

In Asia, pressures intensified on Thursday after:

_ Samsung Electronics' stock fell, leading to a drop in one of the best-performing stock indices globally,

_ and the Taiwan market, dominated by technology companies, declined,

_ and SoftBank Group's stocks were negatively affected in Tokyo after Arm warned about sales.

* Theoretical Concerns... But Likely to Become Reality

Despite the bleak outlook, some concerns remain theoretical for now; Salesforce and ServiceNow did not fail to achieve lower-than-expected profits, nor did they report to Wall Street that AI caused them to lose actual customers.

However, the reality is not without alarming signs. After years of developing internal AI tools and promises of safe use based on customer data, the results fell short of ambitions;

Microsoft revealed last week that the number of paid users for the Copilot tool reached only 15million users, a small number compared to its user base of hundreds of millions.

* Major Repositioning... and Winners Have Yet to be Determined

Observers believe that what is happening is not a transient collapse, but the beginning of a phase of redefining power centers in the technology sector.

And SLC Management managing director Dick Molarcy said:

"This year will be extremely exciting. What we are witnessing now is the early stages of repositioning, to determine who will be the winner and who will be the loser, and who will be most at risk."

Between AI, which promises an unprecedented productivity revolution, and markets that fear this revolution could engulf entire companies, Wall Street today stands before a fateful question:

Is AI the opportunity of the century... or the greatest threat known to modern technology?