NEW YORK: On Wall Street, rising fears about artificial intelligence (AI) keep pummeling the shares of companies at risk of being caught on the wrong side of it all, from small software companies to big wealth-management firms.
The latest sell-off erupted on Tuesday when a tax-strategy tool rolled out by a little-known startup, Altruist Corp, sent the shares of Charles Schwab Corp, Raymond James Financial Inc and LPL Financial Holdings Inc down by 7% or more.
It was the deepest slide for some of those stocks since the market’s trade-war meltdown in April.
But it was only the most recent example of a sell-first, ask-questions-later mentality that’s rapidly taken hold as the hundreds of billions of dollars poured into AI are starting to turn into commercial products – and sowing anxiety about how it could upend entire industries.
“Every company with any sort of potential disruption risk is getting sold indiscriminately,” said John Belton, a money manager at Gabelli Funds.
The advances in AI have been at the forefront of Wall Street over the past few years with tech stocks leading the charge.
As the rally pushed stocks to record highs, questions persisted about whether it was a bubble about to burst – or would set off a productivity boom that would remake corporate America.
But since early last week, a trickle of AI product rollouts triggered a stark sea change. Instead of focusing on picking the winners, investors instead are quickly trying to avoid getting caught owning any company with the slightest risk of being displaced.
“I have no idea what’s next,” said Will Rhind, the chief executive officer (CEO) of Graniteshares Advisors.
“The story from last year was we all believe in AI – but we’re searching for the use case,” he said. “And when we keep discovering the use cases that seemingly are more and more powerful and more and more compelling, it’s now leading to disruption.”
The software industry has been dogged by worries about AI for some time. It started shifting more broadly to other sectors last week, when new tools from Anthropic PBC sparked a deep rout in stocks across the software, financial services, asset-management and legal-service sectors.
The same fears hammered shares of US insurance brokers on Monday after the online marketplace Insurify unveiled a new application that uses ChatGPT to compare auto-insurance rates.
On Tuesday, wealth-management stocks were the next casualty, pulled down by Altruist’s product, Hazel, which helps financial advisers personalise strategies for clients.
Altruist CEO Jason Wenk said even he was surprised by the scale of the stock market’s reaction, which wiped billions of dollars off the market values of a number of investment firms. But he said it sends a strong signal about the competitive threat posed by his company.
“It’s dawning on people – this architecture we’re using to build Hazel, it can replace any job in wealth management,” he said in an interview. “Usually these are jobs done by entire teams. And they’ll be done with AI effectively for US$100 a month.”
AI companies like OpenAI and Anthropic have made solid inroads into software engineering with products that help developers streamline the process of writing and debugging code and are moving into other industries.
Yet there are plenty of questions about how the technology will be adopted. The banking industry, for one, has seen periodic challenges from crypto, electronic services and other technology that ultimately have done little to chip away at its dominance.
Belton, the fund manager with Gabelli, is among those who are sceptical of how Wall Street has gone from worrying about an AI bubble to fears that it’s set to disrupt huge segments of the economy. — Bloomberg
