(Feb 13): Prices buckled across several asset classes as concern about tech profits and weakness in commodities sent stocks down the most in over three weeks. Gold and silver tumbled as traders plowed money into the perceived safety of bonds. A rout in bitcoin deepened.
The S&P 500 and the Nasdaq 100 slipped 1.6% and 2% respectively. Cisco Systems Inc plunged 12% as a tepid margin outlook signalled higher memory-chip prices are taking a toll. All megacaps fell and an ETF tracking software firms slumped 2.7%. Worries about artificial intelligence (AI) disruption engulfed industries from logistics to commercial real estate. In late hours, Applied Materials Inc gave an upbeat forecast.
Weeks of rising anxiety over the impact of AI on multiple sectors showed signs of morphing into a broader reassessment of risk after more than a year of steady appreciation across assets.
Wall Street’s jitters over the outlook for the industry that has powered the bull market have grown despite solid results from megacaps, with traders dumping a broad range of tech shares. Besides all the worries over whether AI investments will pay off, fears about disruption have been mounting.
Those concerns have deepened since AI start-up Anthropic released new tools designed to automate work tasks in various industries, sparking fears that the innovations would doom countless businesses. That’s not to mention the rush from big techs to raise unprecedented amounts of money to build out AI, making the credit market vulnerable — especially with risk premiums already near the tightest levels since the financial crisis.
“This is the most uncertain outlook we have seen for AI and the tech-driven rally since this bull market started,” said Tom Essaye at The Sevens Report. “That does not mean tech won’t recover like it has since then. But I do want to caution against dismissing this weakness as ‘just another bump in the road’.”
See also: US stocks resume decline as tech weakness drags on indices
In the past few weeks, and specifically the past few days, it feels the market landscape is “full of AI landmines,” according to Steve Sosnick at Interactive Brokers. The software sector, then insurance brokers, wealth managers, and real estate brokers succumbed sequentially to fears of being decimated by advancements in AI that could impair their business models, he noted.
In his view, the outsized downward reactions are a testament to a momentum-driven market’s ability to overreact to bad news as well as good. And it is also a testament to a huge change in market psychology.
“For most of the past three years, investors took a ‘glass half-full’ approach to AI,” noted Sosnick. “It was, ‘What can AI do to make a business or industry more efficient?’ It now seems to be ‘How can AI ruin a business’s or industry’s profitability model?’ — and rather than searching for winners, investors are hunting for potential losers.”
See also: Real estate services stocks sink in latest ‘AI scare trade’
Equities fell from near-record levels. OpenAI has warned US lawmakers that its Chinese rival DeepSeek is using unfair and increasingly sophisticated methods to extract results from leading US AI models to train the next generation of its breakthrough R1 chatbot, according to a memo reviewed by Bloomberg News.
In the run-up to key inflation data, the yield on 10-year Treasuries slid seven basis points to 4.10%. A US$25 billion sale of 30-year bonds drew historic demand. Bitcoin traded under US$66,000. Gold sank below US$5,000, with algorithmic traders appearing to amplify the precious metal’s sudden drop. Silver plunged 11%. Oil slid about 3%.
“From AI-phoria to AI-phobia,” Yardeni Research strategists said in a note. “For those who lived through the advent of the Internet, this feels like ‘déjà vu all over again.’ Both AI and the Internet are technological disruptions profound enough to shift the behavior of just about everyone.”
Fears that new firms using AI will replace incumbent operators have hurt stocks across a wide range of industries over the past two weeks, they said.
“There is simply more bad news about AI disruption than good news about AI implementation and margins right now,” said Dennis DeBusschere at 22V Research. “AI usage baskets can bounce when there is a friendlier balance between good margin/implementation news and existential risk.”
Today’s market action is a broad deleveraging, he said. While there may be a macro contribution from investors becoming more concerned about easy financial conditions following strong jobs data, the contribution of idiosyncratic risk (AI) to returns is still outsized, he concluded.
“AI might be boosting the economy thanks to massive capex investments and productivity enhancements but it’s becoming a net negative for the stock market,” said Adam Crisafulli at Vital Knowledge. AI is “demolishing” stocks in legacy industries, he said.
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For the past two and a half years, AI stocks have absorbed virtually all money flow while the rest of the market languished, but the AI monopoly on capital flows is ending, according to Brett Ewing at First Franklin Financial Services
“We’re not calling for a massive crash, but rather a normalisation as investors finally demand real metrics around adoption rates and monetisation,” he said. “The easy money in AI is done — these stocks have been consolidating sideways for 4-5 months and will face increased scrutiny in 2026 as fundamentals finally rule the day over hype.”
The spreads for the hyperscalers have widened within the indices, and supply is being impacted in a meaningful way by AI, according to Christian Hoffmann at Thornburg Investment Management.
“A major theme related to AI is the ‘software scare,’ which is still playing out in equity markets,” he said. “This dynamic is also reverberating through fixed income markets, particularly in lower-quality segments. As those fears get repriced, investors are reassessing assets and applying greater scrutiny to their underlying exposures.”
AI disruption risk is only partially priced in credit, with further repricing likely through 2026 and early 2027, according to UBS strategists led by Matthew Mish.
“February’s selloff reflects faster AI adoption, but spreads — particularly in US leveraged finance markets — do not yet fully discount higher default risk and refinancing challenges,” they said.
Despite some stabilisation in US equity benchmarks in recent days, investor concerns over the disruption of AI continue to weigh on various sectors, according to UBS Global Wealth Management’s Ulrike Hoffmann-Burchardi.
“With AI acting both as a driver and a detractor of performance, investors should hold a diversified exposure as they dynamically evaluate the AI landscape,” she said. “We also believe companies that actively use AI to enhance operations and evolve their business models should benefit, especially those in the financials and health care sectors.”
To start 2026, markets have broadened out over hopes of a “run hot” US economy, driven by a combination of monetary and fiscal stimulus and investor angst over AI capital spending plans, noted Chris Senyek at Wolfe Research.
“Throughout earnings season we’ve seen wild, whipsaw price action as AI news has created headline risk across a variety of industries, with the carnage in software spreading to other areas at risk of being “AI’d” such as asset managers and other data providers,” he said.
To be fair, he says some recent positive US economic datapoints such as payrolls and manufacturing further support a broadening out trend causing factor unwinds beneath the surface.
“Ongoing cyclical strength is generally consistent with an improving economy and rising risk appetite,” said Adam Turnquist at LPL Financial. “Recently, however, the ratio has diverged from the S&P 500 as big tech has cooled and relative strength in financials, consumer discretionary, and real estate has weakened.”
While this doesn’t yet signal a full‑scale rotation into defensive sectors, the emerging tilt towards risk aversion is something we’re monitoring closely, he said.
Equity leadership is indeed broadening beyond mega-cap tech, and if the path for longer-term yields continues to be flat to slightly higher, valuations and fundamentals take on heightened importance, according to Simeon Hyman at ProShares.
That has been one of the drivers of broadening equity market performance so far this year, he noted.
Meantime, Thierry Wizman at Macquarie Group says AI may enter the monetary policy debate very soon.
“Hawks on the FOMC may rely on the real-time inflation and unemployment data to justify raising the policy rate,” he said. “If the ‘AI scare’ sinks sentiment further, the ‘burden of proof’ may soon rest with the hawks to justify why policy shouldn’t ease.”
Traders continued to assign little chance that Federal Reserve officials lower rates when they meet next in March, with a July cut fully priced in.
A survey conducted by 22V Research showed 33% of investors believe that the market reaction to the CPI will be “risk-on,” 43% said “mixed/negligible” and only 24% bet on a “risk-off” move. In addition, the tally shows that 62% of investors think the core CPI is on a Fed friendly glide path while 38% think financial conditions need to tighten, which is the highest share since September.
Markets are complacent on the outlook for US inflation, making trades that pay out if price pressures climb look attractive, said Benjamin Wiltshire at Citigroup Inc. Investors may be underestimating the resilience of the US consumer and market expectations for inflation are likely to be revised slightly higher, he noted.
“Markets seem to have this conviction that inflation is going to come down,” Wiltshire said in an interview. “We are still in a structurally higher inflation environment.”
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