Software companies clawed back some losses on Monday after a bruising seven-session selloff fuelled by fears that AI could intensify competition.
The selloff last week came shortly after an AI company called Anthropic revealed updates to its chatbot known as Claude, an advanced large language model, or LLM, similar to ChatGPT and Gemini that industry-watchers are monitoring for its potential in processing large and lengthy documents used in health care, finance, legal and manufacturing sectors among others.
“What we saw in the market for stocks was a pretty severe reaction from software stocks, specifically,” says Josh Sheluk, portfolio manager and chief investment officer at Veracan Capital Management.
“They sold off aggressively in the guise of perhaps this software from Anthropic is going to either displace some of the software that’s out there that has been so dominant for so long, or perhaps make it a lot easier for people to get very cost-effective substitutes.”
Anthropic, which is financially backed by Amazon and Google’s parent company, Alphabet, said on Feb. 5 that Claude was recently updated, and can now work on tasks for longer and more reliably.
“Claude can be used with legal compliance, where you try to review the contracts, want to analyze policy, and definitely with education and research. So its applicability is everywhere,” says Saiqa Aleem, an assistant professor at Wilfrid Laurier University in the Department of Computer Science and Physics.
“So that’s why people are thinking, ‘OK, we don’t need, maybe DocuSign or something like that.’”
As of publication, shares of Salesforce, Adobe and DocuSign had each lost between 3.5 per cent and 5.5 per cent in their value over the past five trading days.
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Sheluk goes on to explain how many investors were likely selling simply because they don’t know exactly how the software sector could change with the rollout of these new AI innovations and large language models.
“There’s just a lot of uncertainty around it and people are cashing out because of that,” says Sheluk.
“It’s very unclear right now as to what’s going to be most affected and we’ve seen kind of rolling impacts on different parts of the market over the past few years, really, since the first LLM really kind of hit the market. But I think its probably a little bit overdone.”
The Bank of Canada’s governor, Tiff Macklem, spoke last week about three main challenges for Canada’s economy right now and in the near future. These included the changing trade relationship with the United States, slowing population growth and the rise of AI.
He said while in some cases, there may be increased demand for workers with AI skills, the “flip side is we may be seeing some early evidence that AI is reducing the number of entry-level jobs in some occupations.”
“This may be boosting youth unemployment, although separating the effects of AI from the impact of trade and demographic changes is difficult,” he said.
A lot is still unknown about how AI being integrated into the workplace through these software applications, but some experts think it helps to look back on history to see how society has adapted to rapidly changing technologies for anyone worrying about what the ups and downs mean for them.
“Spreadsheets were created in the 1990s, but that didn’t exactly replace accountants. I’d say we probably have far more accountants today than we did at any point in history,” says Sheluk.
“Computers and spreadsheets and calculators do a lot of the more menial tasks for us. And I think what we’ll find over time is the use of AI will very much fill a similar role.”
And for Canadians wondering what last week’s selloff means for their portfolios or retirement planning?
Sheluk said the underlying fundamentals of many of the companies are likely still strong and that even in dips, many of the companies are typically still “very high quality businesses.”
“That’s when you’re maybe going to see some really good opportunities to get some good high quality businesses at a very discounted price,” he added.
–with a file from Reuters
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