Analysis-For stock market, AI turns from lifting all boats to sinking ships 

By Lewis Krauskopf

NEW YORK, Feb 12 (Reuters) – Investors are discovering that the artificial intelligence landscape is not just fertile ground for stocks — it is also a minefield.

Enthusiasm about AI’s profitability has fueled the U.S. bull market, with stock gains for technology companies and others tied to the build-out of data centers and related infrastructure. Many investors have also pointed to 2026 as the year AI will start boosting bottom lines more broadly, as companies see productivity benefits.

But recent concerns over the technology’s disruptive potential are rattling industries, including software, legal services and wealth management, as investors rethink how to value those businesses.

Questions over massive AI capital spending are pressuring the share prices of some of the world’s biggest companies, including Amazon.com and Microsoft.

“You’ve clearly seen that breakdown in terms of the monolithic AI trade,” said Garrett Melson, portfolio strategist at Natixis Investment Managers Solutions. “You’re going to have these tug-of-war dynamics in a lot of the bigger index weights, just by how the market’s rewarding perceived winners and losers in the AI race.”

Already in 2026, Anthropic’s launch of plug-ins for its Claude Cowork agent triggered selling of software stocks. The heavyweight S&P 500 software and services index was down 15% since the end of January, as of Wednesday.

Shares of U.S. brokerages tumbled on Tuesday after wealth management startup Altruist introduced AI-enabled tax planning features, with LPL Financial, Raymond James Financial and Charles Schwab each dropping at least 7%. Shares of U.S. insurance brokers such as Willis Towers Watson and Arthur J Gallagher also slumped this week, after online insurance platform Insurify released an AI‑powered comparison tool built on ChatGPT.

“You’re going to see a lot of volatility driven by these headline stories that are also going to be very single-name centric,” said Alex Morris, CEO ‌and ‌CIO of F/m Investments.

SOFTWARE CHEAPER BUT ‘NARRATIVE’ CLOUD LOOMS 

Some of the signature stocks of this bull market have also struggled this year, undercut by concerns they would fail to reap sufficient returns from high capital spending. Shares of Microsoft, which has been caught up in the concerns about the software space, are down 16% this year, while Amazon.com shares are down over 11%. 

“The concern that they’re just spending far too much money … I think that’s an open question,” said Yung-Yu Ma, chief investment strategist at PNC Financial Services Group, adding that he thinks “some of the negativity around the spending is going to ease up.”

Some investors sense a buying opportunity as valuations become more enticing. For example, the forward price-to-earnings ratio for the software and services index recently fell to 22.7 times, its lowest level in nearly three years, according to LSEG Datastream.

JPMorgan equity strategists on Tuesday recommended investors add exposure to a basket of higher-quality and “AI-resilient” software companies, saying in a note that they believe “the balance of risks is increasingly skewed towards a rebound.”

“The challenge right now is that AI is moving quickly,” said Keith Lerner, chief investment officer at Truist Advisory Services. “Earnings are still strong, but it’s hard for companies to come out and disprove the narrative.”

In assessing the fallout from AI developments, Sean Dunlop, director of equity research at Morningstar, said economic “moats” – a term used to describe a company’s competitive advantages – can help investors “sift through the wheat and the chaff to some extent, whereas selling has been pretty indiscriminate, creating investable opportunities.” 

AVOIDING ‘IMPLOSIONS’ COULD BE KEY

The AI trade lifted a wide swath of technology and related stocks for much of 2025, when the benchmark S&P 500 posted a double-digit percentage return for a third straight year. 

Bullish investors entered 2026 heartened by an upbeat backdrop that includes S&P 500 earnings estimated to rise over 14% this year and the Federal Reserve expected to further ease interest rates. The S&P 500 was last up over 1% this year and not far from record highs, as other areas of the market have picked up the slack for the lagging tech sector.

But AI-driven volatility adds a wrinkle. S&P 500 constituents that were lower on the year as of Tuesday were down an average of 10.6%, according to Michael O’Rourke, chief market strategist at JonesTrading. That decline compares to the average 5.9% fall for index members that were lower at this point last year.

“In 2026, less is more, and stock picking is about avoiding implosions,”  O’Rourke said in a note.

(Reporting by Lewis Krauskopf; additional reporting by Ateev Bhandari in Bangalore; editing by Megan Davies, Rod Nickel )