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US software stocks saw a fresh round of selling on Monday as investors worried that AI would hurt the industry, leading to a sharp selloff by private capital groups that have made huge loans to tech companies.
Wall Street’s S&P 500 index in New York fell 1.1 percent by midday. The tech-heavy Nasdaq Composite declined 1.2 percent.
Software stocks, hit hard by fears over AI disruption in recent weeks, were among the worst performers on Monday, with Workday, CrowdStrike and Datadog all falling more than 8 percent. Both Salesforce and ServiceNow declined about 5 percent.
The move came as Jenny Johnson, chief executive of US$1.7 trillion asset manager Franklin Templeton, told the FT that “you really have to question whether enterprise software companies can thrive” as new models begin to commoditize their businesses.
US private capital giants, which lend to software companies and are also holders of their equity, were caught in Monday’s selloff after Blue Owl sent the industry into a tizzy by permanently halting withdrawals from investors in one of its funds.
Ares, KKR, Apollo and Blackstone all fell more than 6 percent, extending their poor start to the year, as concerns grow that market volatility due to concerns around AI disruption could slow fundraising and delay asset sales. Blue Owl slipped 5 percent, bringing its decline for the year to more than 30 percent.
According to PitchBook data, the software sector will account for about 18 percent of US private equity deal value in 2025.
Monday’s decline marked the latest decline for the software and private capital sectors after AI start-up Anthropic released new coding tools earlier this month.
Investors have recently seized on social media rumors and incremental growth by smaller AI companies to justify further selling, with a widely circulated blog post by Citrini Research over the weekend detailing how AI could hypothetically push the US unemployment rate above 10 percent by 2028 proving to be the latest catalyst.
UBS analysts led by Samantha Meadows said, “Coding has become the first domain where AI outperforms humans at scale and as a result, the software sector… has emerged as the most immediate pressure point.”
He said: “We see the greatest disruption risk (from AI software) in leveraged loans and private loans where the technology represents the bulk of the holdings.”
In a sign of growing concern, redemptions from private debt funds, which are popular among wealthy savers, averaged 4.4 percent of their net assets in the fourth quarter, from 1.6 percent in the previous quarter, according to Fitch Ratings.
Shares of big US banks also came under selling pressure, with JPMorgan Chase, Bank of America, Citigroup and Wells Fargo all falling more than 4 percent.
Investors took a defensive position as risk sectors declined. The communications sector, reputed for its consistent dividends, was among the only gainers on Monday.
The price of US government debt also increased, causing yields to fall. Yields on 10-year Treasuries fell 0.05 percentage points to 4.04 percent.
Gold, typically a safe-haven asset, rose 1.7 percent to $5,191 a troy ounce.
Additional reporting by Joe Leahy in Beijing and Ian Smith in London
