US Tech Stocks Plunge on AI Disruption Fears

US stock markets experienced a broad sell-off on Tuesday, February 3, 2026, driven by mounting anxieties over the potential for artificial intelligence to disrupt the software industry. The declines extended a trend that began earlier in the week, signaling a significant shift in investor sentiment towards a sector previously considered a reliable growth engine.

The Nasdaq Composite, heavily weighted towards technology companies, closed down 1.7 per cent. The broader S&P 500 Index also fell, declining 0.8 per cent, pulling back from recent highs. The weakness was particularly pronounced among companies involved in data services and analytics, following the release of an automation tool for the legal profession by artificial intelligence firm Anthropic.

Several key players experienced substantial losses. EPAM Systems Inc. Saw its share price fall 13 per cent, while Intuit Inc. Dropped 11 per cent. S&P Global and Moody’s declined by 11 per cent and 9 per cent respectively. Gartner fell 21 per cent. The iShares Expanded Tech-Software Sector ETF (IGV) is now down approximately 22 per cent from its recent peak, officially entering bear-market territory, a decline that began to accelerate last Thursday.

The concerns extend beyond individual company performance. A JPMorgan index tracking US software stocks has fallen 18 per cent year-to-date. Investors are questioning whether the increasing capabilities of AI and automation tools will erode demand for traditional software licenses and established workflows. This fear outweighed positive earnings reports from some companies, including ServiceNow, whose shares still fell 10 per cent on Thursday despite exceeding earnings expectations.

“Software is getting a shellacking,” commented Charlie McElligott at Nomura, highlighting the severity of the market reaction. The sell-off appears to be fueled by a growing realization that the second-order impacts of AI rollout are now being felt across the technology landscape.

Even companies seemingly positioned to benefit from the AI boom were not immune. Chipmaker Nvidia, a key supplier to the AI industry, saw its stock price decline 2.8 per cent. Microsoft also experienced a further decline, losing 2.9 per cent. Oracle dropped 3.4 per cent despite a successful $25 billion bond offering on Monday.

The interconnectedness of the tech sector is exacerbating the anxieties. As Mike O’Rourke at Jones Trading pointed out, many software companies are clients of the large “hyperscalers” – Amazon, Microsoft, and Alphabet – and if these hyperscalers face disruption from AI, it will have ripple effects throughout the industry.

AMD, a competitor to Nvidia in the AI chip market, also experienced a decline, falling approximately 5 per cent after market close on Tuesday, despite reporting better-than-expected revenue and sales forecasts. However, investors are increasingly focused on the potential for rising memory chip costs, driven by demand from data centers, to squeeze the margins of major tech companies like AMD, Intel, and Apple.

The market’s sensitivity to AI-related news is also being attributed to reduced investor positioning in software stocks. Jeremy Abelson at Irving Investors noted that positioning is at multiyear lows and risks are at multiyear highs, leaving the sector vulnerable to sharp corrections. He described the scale of Tuesday’s moves as unusual, with many stocks falling between 4 and 15 per cent.

The impact extended beyond publicly traded companies, with private equity firms that have heavily invested in software also experiencing significant declines. Ares Management, KKR, and Apollo Global Management all saw their share prices fall, dropping 10 per cent, 10 per cent, and 4.8 per cent respectively.

The current volatility echoes a similar market sell-off in January of last year, triggered by the emergence of the Chinese AI start-up DeepSeek. The scale of Tuesday’s moves has been described as a result of herd mentality and the “impossible-to-predict impact of AI” by Steven Grey, chief investment officer at Grey Value Management.

In contrast to the struggling software sector, sectors considered less vulnerable to AI disruption, such as transport and consumer staples, saw gains on Tuesday. The declines were not limited to the US, with Relx, a UK-based information provider, losing over £6 billion in market value following concerns about the impact of AI on its legal information platform, LexisNexis.

Anthropic’s new legal tool, which automates tasks like contract reviews and compliance workflows, is part of a broader trend of AI-powered solutions targeting specific business functions. This has prompted concerns that companies across various sectors, including consulting and financial services, could face similar disruption. LSEG, which has a data licensing deal with Anthropic, also experienced a significant decline, falling 12.8 per cent, its worst one-day performance in five years.