By Teresa Rivas
Artificial intelligence may still be in its infancy, but this mainstay of the stock market rally now has investors worried it will be its downfall. Investors suddenly see numerous areas of tech and other sectors are vulnerable to AI and its big funding needs, leading them to look elsewhere.
While the S&P 500 and Nasdaq Composite both closed lower on Tuesday and Wednesday, it was the tech-centric Nasdaq that felt the worst pain.
Part of the concern came from a Wall Street Journal report that Nvidia's deal to provide ChatGPT owner OpenAI with up to $100 billion could be on the rocks, given a funding delay. Another issue is fear that Anthropic's AI model Claude, which now offers Claude Cowork and Claude Legal, potentially represents a threat to existing companies in those areas, such as LegalZoom, Thomson Reuters, and ServiceNow.
On the surface, neither of these seem particularly worrisome. Nvidia refuted the reports about OpenAI and said it had until the second half of the year to fund the deal. Moreover, the promised productivity gains from AI products like those Claude is offering have been a big part of the bull thesis around the technology.
Yet as with a Batman villain, there is more than what meets the eye. Fears that the Nvidia-OpenAI agreement is fraying reflect broader anxiety about how AI companies will come up with the vast amounts of investment needed to continue innovating. OpenAI alone has committed to spend $1 trillion.
On Tuesday, Yardeni Research's Ed Yardeni reiterated his view from late last year that "AI was causing the Magnificent 7 to compete more with one another, forcing them to significantly increase their spending on AI infrastructure."
The implication is that investors shouldn't pile into Big Tech stocks assuming they would all be AI winners.
And while workers have long been worried about being replaced by AI, Claude's evolution raises the risk it could do the same to companies wholesale.
"If AI begins to make entire, large sectors of tech no longer needed, that is a problem for the Nasdaq and the S&P 500 and that loss of earnings could offset AI efficiency gains in the short and medium term," writes Sevens Report President Tom Essaye. "If AI blows up large market sectors, that will not be good for the S&P 500."
Software makes up more than 40% of the Information Technology sector, he says.
S&P 500 software stocks had their worst five-day stretch since the Covid-19 outbreak, falling to a five-year low versus the broader index, noted Renaissance Macro Research Director Kevin Dempter.
"What had been a bullish backdrop of massive investment in AI infrastructure is increasingly shifting toward a more bearish tone, driven by concerns over industry disruption, widespread layoffs, and potential credit stress," he writes. "In this environment, updates from models like Claude could become as market-moving as key economic data releases, as investors assess which businesses may be easily replicated or displaced by AI."
That said, even if investors are feeling nervous, they can diversify. And that doesn't necessarily mean ditching tech entirely.
"Ultimately, we view this as another AI scare with software and related areas bearing the brunt of it," writes Wolfe Research analyst Chris Senyek. "Within Tech, we'd use weakness to buy AI related semiconductor stocks, and our favorite sector for new money is [Consumer] Discretionary."
Yardeni likewise highlights semiconductor equipment stocks, saying "companies in this industry are relatively immune to competition. They do well as long as there is strong demand for equipment that can increase the semiconductor companies' capacity."
For his part, Essaye notes that with the economy still humming along, cyclical sectors like industrials, financials, materials, and energy can outperform, as can small-caps. Like Wolfe Research's Senyek, he is also on board with discretionary stocks.
He suggests investors try the VanEck Retail exchange-traded fund or the State Street SPDR S&P Retail ETF for exposure, rather than the State Street Consumer Discretionary ETF, which is heavily weighted toward Amazon.com.
Like manufacturers of industrial goods, chip-equipment makers, and energy producers, retailers' core business, selling physical products, makes them a haven from AI's competitive threat.
"Bottom line, we learned in late 2025 that history suggests the rest of the market can hold up if tech is weak, as long as economic growth is solid," he writes. There is more to life than chatbots.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
February 04, 2026 16:33 ET (21:33 GMT)
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