By Matt Wirz and Jack Pitcher
Investors' fears that new developments in artificial intelligence will supplant software reverberated through the stock market Tuesday, dragging down the shares of companies that develop, license and even invest in code and systems.
Traders have questioned whether AI will chip away at the competitive moat built by software makers like Adobe and Salesforce ever since generative AI models hit the market several years ago. Recent advancements in tools such as those from AI developer Anthropic are now prompting more scrutiny.
On Tuesday morning, investors homed in on Anthropic's announcement that it was adding new legal tools to its Cowork assistant meant to help automate a number of legal drafting and research tasks. Shares of Thomson Reuters, Legalzoom.com, and London Stock Exchange, which all provide some form of legal tools or research databases, fell more than 10%.
By afternoon trading, the downturn had swept through the broader software market. PayPal, Expedia Group, EPAM Systems, Equifax and Intuit were among the hardest hit, all also dropping more than 10%. In late afternoon trading, the 138 stocks in the State Street SPDR S&P Software & Services exchange-traded fund had lost a combined $291 billion in market value.
"If things are advancing as rapidly as we hear from OpenAI and Anthropic, it's going to be a problem. Investors are starting to go after any of the companies that could be disrupted, which is all kind of software application names," said Art Hogan, chief market strategist at B. Riley Wealth Management."
Private-funds firms, whose funds in recent years have invested heavily in software equity and debt, were also dragged into the selloff. Shares of Ares Management and Blue Owl Capital dropped more than 9%, while Apollo Global Management and KKR fell more than 7%, and Blackstone lost over 5%.
Private-equity managers emerged as big buyers of software companies in recent years, and private-debt funds increasingly backed those firm's leveraged buyouts. The flurry of deals left software as a significant slice of their investment portfolios.
Software was supposed to "eat the world," as tech investor Marc Andreessen once predicted. And for much of the past decade, the industry's growth made for profitable investments. Now, with the industry under pressure from AI, some of those software holdings have drawn scrutiny.
"I don't view this as a private credit or liquid issue," Jon Gray, Blackstone's president and chief operating officer, said at WSJ Invest Live on Tuesday. "It's the change happening in the economy. You could be an incumbent software company that's the system of record and maybe you face risk from AI disrupters."
Gray said the private-credit industry is healthy despite issues with a handful of specific investments in recent months. But investing in the software sector now comes with "disruption risk," thanks to the accelerating pace of change brought by AI and other advancements.
Software now accounts for about 20% of investments in business development companies, or BDCs, a booming type of private-credit fund. That compares to around 10% in 2016, according to research by Barclays.
Blue Owl, in particular, became an evangelist for "recurring-revenue" lending. The firm and others bet that corporate clients would be unlikely to end "sticky" software contracts because of the difficulties involved with changing technology systems.
Write to Matt Wirz at matthieu.wirz@wsj.com and Jack Pitcher at jack.pitcher@wsj.com
(END) Dow Jones Newswires
February 03, 2026 15:46 ET (20:46 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments