Wall Street: When AI Stops Being a Buzzword and Starts Being a Threat

Software, we were told, is the cleanest business model on Earth: low marginal costs, recurring subscriptions and loyal customers. The software sector didn't just grow, it ascended. It almost became a religion, complete with prophets in Patagonia vests and believers who treated earnings calls like scripture. And then AI showed up, not as a feature, but as a force. This week, the market is beginning to act like it has finally understood what that means.

On Wednesday morning, anxiety is still the dominant theme. U.S. stock index futures were relatively muted, but the real story is the continued retreat from software and cloud stocks after a bruising slide the previous session: an extended drop that has now become the sector's steepest losing streak since March 2020. That's not a "rotation". That's a moment. A collective realization that something may have changed.

The market isn't just repricing earnings, it's repricing certainty. AI is not just a new product, it's a new competitor. There's a basic assumption embedded in how Wall Street has valued enterprise software for the last decade: the customer needs the software company. That assumption is now under negotiation.

Artificial intelligence doesn't simply improve software, it threatens to replace parts of it. It can summarize, analyze, draft, explain, classify, and recommend. In other words, it can do many of the things software products have historically charged for. And it can do them inside a chat window, without requiring a monthly subscription and an onboarding process.

Investors aren't fleeing because they dislike AI. They're fleeing because they fear AI might upend software business models. AMD has been one of the most obvious AI beneficiaries, a natural candidate for investors looking for an alternative to Nvidia. But the company slid sharply after issuing a dour forecast, including a slight dip in quarterly revenue.

Investor nervousness spilled even more into the software sector yesterday following Anthropic's announcement of new AI solutions. It unveiled the launch of a new legal support tool for basic corporate tasks. The messaging sent providers of professional data solutions tumbling, notably Relx and Wolters Kluwer, which are highly exposed to the legal sector. The shockwave spread to companies that bill for analysis and advisory services (Capgemini, Accenture, etc.) and to those that generate profits from data (London Stock Exchange, Experian, etc.). More broadly, the software sector (Salesforce, Adobe, etc.) was taken to the cleaners, along with private equity groups exposed to the space (KKR, Ares Management and Blue Owl all sank by more than 9% as well).

With its new tool, Anthropic is clearly telling some of these professionals: hello, I am stepping onto your turf, and I have all kinds of shoes to do it. Software analysts tend to downplay the impact, with lines such as "we already knew this", "they have more moat than people think", "LLMs need these players to make their offerings reliable", "they announce a lot but we do not know the real effectiveness", and so on. There is some common sense in all that, but say what you will, the slice of cake is smaller when too many people turn up at the birthday party. In any case, this episode crystallises investors' latent fears. Adobe is down 22% since 1 January. Salesforce -26%. Capgemini -14%. Constellation Software, the Canadian benchmark for software investment, -31%.

Super Micro Computer, on the contrary, jumped after raising its annual revenue forecast on strong demand for AI-optimized servers. Hardware and infrastructure, data centers, servers, the physical picks-and-shovels, still feel tangible. 

If software is where the business model anxiety lives, infrastructure is where the spending reality lives. That's why the market can punish AI software narratives while rewarding AI capacity expansion.

Investors are also drifting toward undervalued small caps and overlooked corners of the market, with the Russell 2000 showing relative strength.

Today also sees many corporate earnings.  Alphabet, Eli Lilly, AbbVie, Costco, Uber, Qualcomm, Boston Scientific and Arm Holdings are the main headliners in New York. 

Today's economic highlights:

On today's agenda: RBA Jones Speech in Australia; Services PMI in Spain and Italy; Yearly and monthly inflation rates, as well as core inflation in the Euro Area; Yearly and monthly inflation rates in Italy; In the United States, the MBA 30-Year Mortgage Rate, ADP Employment Change, ISM Services PMI, and EIA Crude Oil and Gasoline Stocks Change. See the full calendar here.

• Dollar index: 97,350
• Gold: $5,027
• Crude Oil (BRENT): $67.43 (WTI) $63.37
• United States 10 years: 4.27%
• BITCOIN: $75,790

In corporate news:

• Ford Motor is reportedly in talks with Geely Automobile to allow the Chinese automaker to use Ford's European factories and potentially share vehicle and automation technologies.
• Texas Instruments agreed to acquire Silicon Labs for about $7.5 billion, aiming to strengthen its embedded wireless portfolio and generate significant manufacturing and operational synergies.
• Nvidia faces blocked sales of certain AI chips to China following a U.S. security review and is also reportedly close to a $20 billion investment in OpenAI.
• AbbVie reported higher fourth-quarter revenue and earnings driven by strong growth of newer immunology drugs Skyrizi and Rinvoq, more than offsetting declining Humira sales, and guided 2026 profit above expectations.
• CME Group posted higher fourth-quarter profit as increased trading activity, particularly in equity and metals products, boosted volumes and revenue.
• Union Pacific signed a $1.2 billion agreement with Wabtec to modernize locomotives, improving fuel efficiency, reliability and performance starting in 2027.
• Eli Lilly forecast 2026 profit above Wall Street estimates as surging demand for its weight-loss and diabetes drugs Zepbound and Mounjaro continues to drive growth.
• Cognizant Technology Solutions forecast full-year revenue above estimates, citing strong enterprise demand for AI- and cloud-related IT services.
• Phillips 66 beat fourth-quarter profit estimates as U.S. refining margins rebounded sharply from last year's lows.
• The New York Times projected first-quarter subscription revenue growth above expectations, supported by its bundled news and lifestyle offerings.
• RTX said its Raytheon unit secured multi-year Pentagon agreements to significantly increase production of missiles including Tomahawk, AMRAAM and SM-series interceptors.
• Uber Technologies forecast first-quarter profit below expectations due to higher taxes and a shift toward cheaper ride options, despite continued growth in trips and bookings.
• IDEX forecast 2026 profit below Wall Street estimates as weak industrial demand continues to weigh on orders.
• Yum Brands! topped fourth-quarter same-store sales estimates, helped by strong value-meal demand at Taco Bell and international growth at KFC.
• GE HealthCare forecast 2026 profit above estimates on sustained demand for diagnostic imaging and medical devices, particularly in the U.S. and Europe.
• GE Aerospace announced a $300 million investment in Singapore to expand aircraft engine repair capabilities using advanced automation and AI-enabled inspection technologies.
• Bunge beat fourth-quarter profit estimates as strong performance across all business segments lifted results.

Analyst Recommendations:

• Aes Corporation (The): Barclays downgrades to market weight from overweight with a target price of USD 15.
• Booking Holdings Inc.: Mizuho Securities upgrades to outperform from neutral with a target price of USD 6000.
• Broadridge Financial Solutions, Inc.: D.A. Davidson upgrades to buy from neutral with a target price of USD 228.
• Cf Industries Holdings, Inc.: Rothschild & Co Redburn downgrades to sell from neutral and reduces the target price from USD 86 to USD 72.
• Enphase Energy, Inc.: BMO Capital Markets upgrades to market perform from underperform and raises the target price from USD 31 to USD 41.
• Entegris, Inc.: Deutsche Bank downgrades to hold from buy and raises the target price from USD 100 to USD 105.
• Kimberly-Clark Corporation: Zacks upgrades to outperform from neutral with a price target raised from USD 108 to USD 114.
• Lumentum Holdings Inc.: B Riley Securities Inc. upgrades to buy from neutral with a price target raised from USD 147 to USD 526.
• Nov Inc.: Barclays upgrades to market weight from underweight and raises the target price from USD 15 to USD 20.
• Paypal Holdings, Inc.: Canaccord Genuity downgrades to hold from buy and reduces the target price from USD 100 to USD 42. 
• Verisk Analytics, Inc.: BMO Capital Markets upgrades to outperform from market perform with a target price of USD 233.
• Webster Financial Corporation: Jefferies downgrades to hold from buy and reduces the target price from USD 80 to USD 75. RBC 
• Amcor Plc: Baird maintains its outperform rating and raises the target price from USD 10 to USD 54.
• Applied Materials, Inc.: Citi maintains its buy recommendation and raises the target price from USD 250 to USD 400.
• Atlassian Corporation: BMO Capital Markets maintains its outperform rating and reduces the target price from USD 195 to USD 135.
• Ball Corporation: Mizuho Securities maintains its outperform recommendation and raises the target price from USD 58 to USD 70.
• Bellring Brands, Inc.: Jefferies maintains its buy recommendation and reduces the target price from USD 49 to USD 38.
• Doximity, Inc.: Mizuho Securities maintains its neutral recommendation and reduces the target price from USD 62 to USD 45.
• Fedex Corporation: Citi maintains its buy recommendation and raises the target price from USD 327 to USD 401.
• Gartner, Inc.: Baird maintains its outperform recommendation and reduces the target price from USD 301 to USD 240.
• Graphic Packaging Holding Company: BNP Paribas maintains its neutral recommendation and reduces the target price from USD 14.70 to USD 11.30.
• Hubspot, Inc.: Oppenheimer maintains its outperform recommendation and reduces the target price from USD 550 to USD 350.
• Lockheed Martin Corporation: Morgan Stanley maintains its equalwt recommendation and raises the target price from USD 543 to USD 675.
• Newmont Corporation: CIBC Capital Markets maintains its outperform recommendation and raises the target price from USD 112 to USD 177.
• Oracle Corporation: BMO Capital Markets maintains its outperform recommendation and reduces the target price from USD 270 to USD 205.
• Royal Gold, Inc.: CIBC Capital Markets maintains its neutral recommendation and raises the target price from USD 250 to USD 330.
• Seagate Technology Holdings Plc: BNP Paribas maintains its outperform recommendation and raises the target price from USD 430 to USD 530.
• Servicenow, Inc.: CITIC Securities Co Ltd maintains its buy recommendation and reduces the target price from USD 1119 to USD 168.
• Skyworks Solutions, Inc.: Citi maintains its neutral recommendation and reduces the target price from USD 80 to USD 63.
• Super Micro Computer, Inc.: Needham maintains its buy recommendation and reduces the target price from USD 51 to USD 40.
• Teradyne, Inc.: Baird maintains its outperform rating and raises the target price from USD 195 to USD 305.
• Western Digital Corporation: BNP Paribas maintains its outperform recommendation and raises the target price from USD 250 to USD 375.