Data services stocks plummet to 10% as Anthropic releases AI into legal space

Shares of legal software companies and other data services companies plunged Tuesday after Anthropic released a new AI automation tool that investors worry could swallow up much of their core business.RELX Plc and Wolters Kluwer NV, both providers of professional analytics, fell more than 10%. Other software companies fell, with credit reporting company Experian Plc falling 9.0%, while financial data provider London Stock Exchange Group Plc. Thomson Reuters Corp., Legalzoom.com Inc. and FactSet Research Systems Inc. all fell by about 10% or more. The iShares Expanded Tech-Software Sector ETF fell as much as 4.4%, while a basket of UBS Group AG European stocks considered at risk of AI disruption fell almost 7%.

“Anthropic launched new capabilities for its Cowork in the legal space, increasing competition within the space,” Morgan Stanley analysts including Toni Kaplan wrote in a note on Thomson Reuters. “We view this as a sign of increasing competition, and therefore as a potential negative.”

Anthropic is part of a wave of AI startups developing tools for the legal industry. Long before Anthropic’s plugin, startups including Legora and Harvey AI were flooding the legal AI space by offering tools they marketed to save lawyers from doing the heavy lifting. Investors have been pouring money into AI products for the legal sector for more than two years now, with Harvey AI valued at $5 billion last year and Legora raising money at a $1.8 billion valuation.

However, Anthropic counters this by building its own models that can be adapted to the specific needs of a sector. Its position in the AI ​​ecosystem as a key model developer gives the company the unique advantage of disrupting both traditional legal news and data services and legal AI upstarts. Companies like Legora rely on the underlying models of developers like Anthropic. Anthropic has included a legal tool on its plug-in website that it says can automate work like contract reviews and legal briefings. “All results must be reviewed by licensed attorneys,” the website said.

The perceived risks to the software industry have been simmering for months, with the January release of the Claude Cowork tool amid fears of disruption from Anthropic. Video game stocks got into trouble last week after Alphabet Inc. began rolling out Project Genie, which can create immersive worlds with text or image prompts.

Among U.S. publicly traded companies, only 71% of software companies in the S&P 500 have exceeded revenue expectations so far this earnings season, Bloomberg data shows. That compares with 85% for the entire technology sector. Bloomberg LP, the parent company of Bloomberg News, competes with LSEG and Thomson Reuters in providing financial data and news.

“This year will be the defining year of whether companies are AI winners or victims, and the key skill will be avoiding the losers,” said Stephen Yiu, CIO of Blue Whale Growth Fund.

“Until the dust settles, standing in the way of AI is a dangerous path,” Yiu says.