For one, there’s the sheer speed and breadth of it. In the span of two days, hundreds of billions of dollars were wiped off the value of stocks, bonds and loans of companies big and small across Silicon Valley. Software stocks were at the epicenter, plunging so much that the value of those tracked in an iShares ETF has now dropped almost $1 trillion over the past seven days.

For another, this drubbing, unlike many previous ones, was triggered not by fears of a bubble but rather concern that AI is on the verge of supplanting the business models of a wide swathe of companies that doomsayers have long predicted were at risk.

“I don’t think it is an overreaction,” said Michael O’Rourke, chief market strategist at Jonestrading. “For two years, we have been talking about how AI is going to change the world and that it is a multi-generational technology. In the past few weeks, we have seen signs of it in practice.”

The spark was innocuous on its face: AI startup Anthropic PBC released a new tool for legal work, like reviewing contracts. On its own, the product isn’t seen as a game-changer — yet. But coming after a year in which Anthropic’s coding tools helped transform software development — part of a broader wave of AI innovation — the four-paragraph launch announcement was taken extremely seriously.

“While today it’s legal tech, tomorrow it might be sales or marketing or finance,” wrote Jackson Ader, an analyst at KeyBanc.

Adding to investor unease, even companies long seen as the prime beneficiaries of the AI boom are showing signs of fatigue. In earnings reports, Alphabet Inc. said capital spending on AI would be higher than anticipated, while Arm Holdings Plc issued a revenue forecast that missed expectations. Both stocks fell in after-hours trading.

“We start with just selling off software, now we’re selling everything,” said Gil Luria, a managing director at D.A. Davidson. It “self-perpetuates, stocks go down enough then that creates negative momentum, and then other people sell.”

Winners and Losers

The rout is hardly limited to US listed companies. London Stock Exchange Group Plc, Tata Consultancy Services Ltd. and Infosys Ltd. have all tumbled this week on AI displacement fears.

It’s also widened to include the industry’s Wall Street backers, from lenders to private equity owners for whom software firms have been popular targets. More than $17.7 billion of US tech company loans in a Bloomberg index dropped to distressed trading levels during the past four weeks.

Losses deepened in Asia on Thursday, with a drop in South Korean memory chipmaker Samsung Electronics Co. dragging down the world’s best-performing equity benchmark. Taiwan’s tech-dominated market also slid, while Arm’s sales warning weighed on shares of its majority owner SoftBank Group Corp. in Tokyo.

In many ways, the anxiety remains hypothetical. Leading software makers ServiceNow Inc. and Salesforce Inc., for example, haven’t missed earnings numbers or told Wall Street that AI was causing them to lose customers.

Software companies have spent the last few years developing their own AI tools, generally promising the ability to use AI in a secure way, tapping customer data already stored within their systems. Still, many vendors have thus far reported disappointing results. Microsoft Corp. said last week that it had 15 million paying users of its Copilot tool — a tiny sliver of the company’s user base of hundreds of millions.

The latest developments raise the specter that AI leaders will overtake established industry players in innovation, and the fear is that the reckoning will happen sooner rather than later.

“It is going to be an interesting year,” said Dec Mullarkey, managing director at SLC Management. “What we’re seeing now is kind of the early stages of this repositioning on who are going to be the winners and losers, who are the most vulnerable as we go through this process.”