How Are Investors Dealing With AI Fears These Days? ‘Sell First, Ask Questions Later'

Key Takeaways

• Companies in the financial sector were the latest casualty of perceived AI-disruption fears.
• While some fears may appear overblown, it doesn’t help that AI impact has become more measurable recently, making those concerns easier to quantify.

This week it was financials. Last week it was software and legal services. Perhaps next week something else will be crushed by fears of AI disruption.

Investors appear to have pivoted from worrying about AI getting over its skis in valuation terms, to fretting about what it could displace—and selling it.

Between Anthropic’s unveiling of an AI model the company said would be better at tasks including financial analysis, research, and work involving spreadsheets, and with tech platform Altruist launching an AI-powered tax planning tool, investors have panned shares of financial companies like Charles Schwab (SCHW) and LPL Financial (LPLA) this week. The SPDR S&P Software & Services (XSW) and Financial Select Sector SPDR (XLF) ETFs are down 19% and 3%, year-to-date, respectively, while the benchmark index is in the green.

AI-related disruption, real or perceived, would appear to be entrenched in market vibes. That may, in part, be driven by the impact of the technology becoming more quantifiable. And it could be a source of indiscriminate selling going forward, with equity strategists saying “disruption-related volatility” is likely to be “recurring.”

WHY THIS MATTERS TO INVESTORS

Broad market indexes are moving in fits and starts, with AI-related volatility interrupting rallies in the S&P 500 and the Nasdaq. That, some analysts say, means some stocks have been “mispriced” as investors have overreacted.

In a broader swath of companies tracked by Morgan Stanley, 30% cited at least one measurable impact of AI adoption in the fourth quarter of last year, the firm’s equity analysts wrote Wednesday. That’s up from 16% over the same period in 2024. That said, the perception of disruption has “unfairly” dinged companies, including those in the software and services sectors, the analysts said.

The firm listed a set of stocks that have been subsequently “mispriced”—including Microsoft (MSFT), Intuit (INTU), and Palo Alto Networks (PANW) as well as Sony Group (SONY), Tencent Holdings, and Spotify (SPOT).

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Analysts across various firms are picking through their respective coverage universes to find stocks that deserve to be rescued because even valid concerns may have landed too early and too roughly.

“While difficult to disprove the bear narrative in software given fears are more about genAI implications for the industry in the out years, we contend that any meaningful disruption will likely play out over a much longer timeline than investors anticipate,” Deutsche Bank’s Brad Zelnick said in a Wednesday note.

Meanwhile, Ed Yardeni of Yardeni Research, reaffirmed his “overweight” recommendation, effectively a bullish posture, for financial stocks, characterizing the recent decline in the sector as a “sell first, ask questions later” reaction.

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