$400 Billion Gone! How AI Triggered the Biggest Market Shake-Up of the Year

AI wiped out $400 billion this week — and it's only getting started. AI is here — and this week, investors lost over $400 billion to the realization that entire industries are on the cusp of being replaced.

AI is here — and this week, investors lost over $400 billion to the realization that entire industries are on the cusp of being replaced.

Why it matters: The software-industry selloff, sparked by Anthropic's latest release, is ultimately just a baby step in a bigger transformation that may reshape how we all live and work.

• It's also the first tangible verdict on what happens when AI starts eating entire categories of work, well before the long-feared white-collar bloodbath even really begins.

Driving the news: Anthropic recently released a suite of software-killing tools — prompting investors to reconsider software companies' value, with the sector down 25% in the last week.

• One, Claude Code, promises to write code on users' behalf, essentially creating software at will.
• The other, Cowork, offers plugins designed to help AI agents operate like a full-time coworker.

Zoom in: AI isn't just hitting software valuations, it's changing how these companies operate from the inside out.

• OpenAI CEO Sam Altman said he felt "useless" and "sad" using his own AI to code.
• Software engineers using the technology are also talking to each other less than ever, showing the "death of a community," Peter Coy writes.

Yes, but: Some investors are still bullish on software stocks, especially now that they come at a discount.

• The winners could be companies offering software toolkits, rather than single-use apps.
• Software incumbents will also be hard to replace: "With AI, code may become cheap, but context is expensive ... you can't LLM your way past 10 years of customer data," Pitchbook noted in a report.

The big picture: As of this week, investors are seriously looking at AI not just as a productivity boost for software firms, but as a substitute.

• "AI is not just going to do something to labor ... it's going to do something to profits," Shelby McFaddin, portfolio manager of a $2.6 billion fund, tells Axios.
• One strategist likened it to BlackBerry: It survived, but its business model and valuation never recovered after being fully disrupted.

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What we're watching: Stock prices are a bet, but sales are are the actual proof.

• Growth has already slowed for software names — and is a metric to watch for other industries that could be disrupted by AI.
• Customer retention will signal if people are switching to AI tools, David Fetherstonhaugh, EVP at VistaShares, tells Axios.
• Watch for the market to price in AI's broader labor hit across several industries in about a year-plus, McFaddin said.

What's next: Investors' fears about AI's impact on software companies could spread to other industries the emerging tech stands to disrupt. 

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