The artificial intelligence wave is shaking up tech companies and reshaping power dynamics on Wall Street

The plunge in technology company stocks on Wall Street this week reflects the growing impact that artificial intelligence (AI) is beginning to have on the sector. While AI fueled historic valuations in recent years, its rapid advancement is now generating fear among investors and driving strategic shifts.

The disruption that AI can cause to established companies and the magnitude of the investment required to stay ahead have begun to weigh on market sentiment.

According to analysts at Barclays and Evercore ISI, who spoke to The New York Times, nearly half of the debt obligations of Business Development Companies (BDCs), equivalent to approximately 45.000 millions of dollars, will mature in 2030 or later.

This increases pressure on repayment schedules and the future viability of companies whose survival is threatened by technological advancements.

Why did Wall Street companies experience stock market declines

This week, the declines intensified after San Francisco-based company Anthropic released a suite of free, open-source software tools that automate functions such as customer service and legal services.

These solutions, accessible to anyone, have the potential to replace products that currently underpin the business models of many software companies and threaten to alter the internal structure of the sector.

The fears are not limited to potential technological obsolescence. Last Thursday, the revelation that Amazon plans to invest 200.000 millions of dollars in AI and other areas, 50.000 millions of dollars more than analysts had anticipated generated nervousness and triggered a drop of more than 7% in its stock price the following day.

For its part, Alphabet, Google's parent company, revealed a budget of up to 185.000 millions of dollars for the year, and Meta set its forecast at 135.00 millions of dollars, unprecedented sums largely dedicated to strengthening their capabilities in artificial intelligence.

Which companies are vulnerable to the advancement of AI

According to specialists, the phenomenon has become what they call the "SaaS apocalypse": software service companies, which distribute programs through online subscriptions instead of local sales, are highly exposed.

Shares of companies like LegalZoom, LexisNexis, and Thomson Reuters experienced declines of up to 20% during the week. Salesforce, another leader in the segment, has accumulated a 25% drop in the last month.

OpenAI CEO Sam Altman said in an interview with the streaming program TBPN: “There have been several large sell-offs of SaaS stocks in recent years as these software models have been implemented. I anticipate there will be more.”

Furthermore, the transformation is impacting the creative sector. Tools used by artists and designers, such as those developed by Adobe and Figma, saw their stock values decline by 9% and 17%, respectively. Doubts persist about the ability of these products to withstand the automation resulting from new AI applications.

What are the consequences of AI in the hardware and finance sectors

The hardware component has not been immune either. The increasing demand for RAM, key to the manufacture of AI devices, is straining the chip market.

Qualcomm, the microprocessor manufacturer, warned that it faces uncertainty regarding future demand, partly due to the sharp increase in memory prices. Its shares have fallen by approximately 20% during 2024.

In the financial sector, investment funds and corporate loans linked to software companies are showing volatility. A fund managed by VanEck that invests in leading business development companies (BDCs) has declined by 5% this year and by 20% over the past 12 months.

Furthermore, even companies with strong financial results, such as Ares Management and Blue Owl Capital, are failing to alleviate concerns: while Ares's shares have lost more than 20% this year, Blue Owl's shares have fallen by more than 16%, despite its co-CEO, Marc Lipschultz, defending the company's strength and stating, "We don't have any warning signs, not even yellow ones. In fact, we mainly have green lights."