What happens: A new AI automation tool from Anthropic caused a $285 billion plunge in stocks across the software, financial services and wealth management sectors, as investors rushed to dump stocks with even the slightest exposure. The sell-off started before US markets opened on Tuesday and lasted until Wednesday.
Why this is important: Markets are reassessing whether software companies built around information resale and process automation retain meaningful value when AI systems can deliver comparable results immediately.
The software sector is experiencing a real-time valuation reset as investors recalibrate what companies can charge in an era of AI automation, according to the CEO of one of the world’s largest independent financial advisory organizations.
A new AI automation tool from Anthropic caused a $285 billion drop in stocks in the software, financial services and wealth management sectors on Tuesday, as investors rushed to dump stocks with even the slightest exposure. A basket of U.S. software stocks from Goldman Sachs fell 6%, the biggest one-day drop since the tariff-induced sell-off in April, while an index of financial services stocks tumbled nearly 7%.
Nigel Green, CEO of deVere Group, said the sell-off reflects a fundamental shift in market thinking about software valuations rather than fear of technological change.
Economy, no fear
“The sell-off is not about fear of AI, but about what software companies can realistically charge in an AI-first world,” Green said.
“When AI agents can instantly perform legal reviews, data analytics, investigations and compliance, subscription-heavy models lose pricing leverage. Investors are reassessing whether decades-old assumptions about recurring revenue still hold.”
The size and speed of the declines underline how abruptly investor thinking has changed. Software companies that have long been valued for their predictable subscription revenues, entrenched workflows and information benefits are now judged by a different standard.
Thomson Reuters, the legal research giant behind Westlaw, saw its share price fall 18%, wiping out $8.2 billion in one session – the steepest drop on record. Britain’s RELX (which owns LexisNexis) fell 14%, losing $11 billion, while Dutch Wolters Kluwer lost 13%, a drop of $6 billion.
Price power under pressure
Markets are increasingly asking whether software companies will retain scarcity value if AI can compress tasks that once justified premium prices and long-term contracts.
Green notes that this represents a fundamental change in the way investors assess technology risk. The assumption that digital products inherently enjoy sustainable pricing power is being challenged as automation removes complexity from workflows.
“It’s a valuation reset driven by the economy. AI is forcing investors to examine what customers are actually paying for, and whether those services will remain differentiated when intelligent systems become widely available,” he said.
Software sentiment is at its “worst ever,” according to a note from Jefferies, while Anurag Rana of Bloomberg Intelligence described the sector as “radioactive.”
The sale spread worldwide. Indian IT companies were among the latest to plummet: Tata Consultancy Services fell as much as 6%, while Infosys fell 7.1%.
Another factor weighing on valuations is the rapid erosion of switching costs. As AI systems improve, the friction that once locked customers into long-term software contracts is decreasing. Results become more standardized, competition becomes fiercer and customer loyalty becomes more difficult to express in monetary terms.
Margin compression on the way
“Markets are making a clear distinction between companies that actually control the AI economy and companies that simply integrate AI to protect existing businesses,” Green said.
“The former can potentially increase margins, while the latter risk passing on cost savings directly to customers. It appears that markets are punishing companies that rely on older platforms, high headcount or process-intensive models that can be bypassed entirely.”
Billy Fitzsimmons, an analyst at Piper Sandler, wrote in a note: “Our concern is that the seat compression and atmosphere coding stories could put a ceiling on multiples.”
The sell-off reflects a growing recognition among investors that AI is compressing value chains and concentrating returns, Green said. A small number of companies will make disproportionate profits, he explains, while a much larger group will struggle to defend pricing power.
The iShares Expanded Tech-Software Sector ETF is now down 29% since early January, its worst two-month stretch since 2008.
Australian small businesses are facing similar pressures. According to research into AI adoption in Australian SMEs, companies must move beyond experimentation and achieve commercial viability as investors demand concrete returns on AI investments rather than theoretical potential.
“AI removes the insulation that once protected software margins,” Green concluded.
“What seemed like stable, recurring revenue is becoming increasingly exposed. Investors aren’t waiting for profit warnings or guidance. They’re repricing now as AI is accelerating disruption faster than quarterly results can capture.” The sharp declines in software stocks reflect a market that recognizes that margins, not innovation, are now the battleground.
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