S&P 500 futures were flat-to-up this morning before the markets opened in New York, a sign that traders may be temporarily sated after the carnage they wreaked in the stock markets over the past few days. The index fell 0.51% yesterday, closing at 6,882, after spending much of the previous month flirting with the 7,000 level.Markets were flat or down globally this morning, with the worst performer being South Korea’s KOSPI, which lost 3.86%.The damage came from the tech and software sector, as investors began to realize that the promise of AI won’t always be sunshine and roses. Until recently, the markets had assumed that companies would be buoyed by the massive amount of capex (capital expenditure) going into AI, and that AI would generate new efficiencies and higher productivity that would ultimately result in higher revenues and earnings per share. Over the past few days, however, traders have reacted to the notion that AI also has the power to destroy the revenues of companies reliant on selling traditional software that can be replaced by AI.
As much as $1 trillion was wiped off the market cap of software companies yesterday, according to Bloomberg. Alphabet closed down nearly 2% yesterday and lost a further 2.53% overnight after revealing on its earnings call that it planned to double AI capex. The beatdown on Alphabet shares came despite better-than-forecast revenue growth that indicates the company’s advertising sales are in no way being cannibalized by consumer adoption of AI, including its own Gemini AI chatbot and its AI Mode in Google Search.
