Wall Street is grappling with a new reality as artificial intelligence fears triggered a massive selloff in software stocks last week. The catalyst was AI startup Anthropic's release of tools designed to automate work tasks across industries from legal services to financial research. Investors responded by dumping shares of major companies including Expedia Group, Salesforce, and London Stock Exchange Group, sending shockwaves through the market.

The panic spread rapidly, with Thomson Reuters Corp.'s Canada-listed shares plunging 20% for their steepest weekly decline ever. Morningstar Inc. posted its worst week since 2009, while software makers HubSpot, Atlassian, and Zscaler each tumbled more than 16%. The broader impact was severe - 164 stocks in software, financial services, and asset management sectors shed $611 billion in market value.

This AI-driven selloff marks a dramatic shift from the previous investment narrative that focused primarily on AI winners. While semiconductor stocks have more than tripled since late 2022, the rapid pace of new AI tools from companies like Anthropic and Google is making disruption seem much more imminent. Traditional software stocks have been under pressure since last year, with Salesforce down 48% from its December 2024 peak and ServiceNow dropping 57% since January 2025.

Despite the selling pressure, some analysts remain skeptical about the extent of the disruption. Wall Street analysts project 19% earnings growth for software companies in 2026, up from previous estimates. The iShares Expanded Tech-Software ETF has fallen to its lowest valuation in years, trading at just 21 times estimated profits compared to over 100 in late 2021. Quick Fact: The iShares Expanded Tech-Software ETF declined 12% over four sessions before rebounding Friday.