Who’s next?

Wall Street had an ugly session on Thursday. Technology was responsible for most of the losses, but not for the same reasons. Cisco plunged 12% after warning that rising memory chip prices could squeeze margins, pulling the Nasdaq 100 down roughly 2%. The Magnificent 7 fell about 2.3%, while the broader Nasdaq Composite dropped close to 2%.

The software selloff continued at full speed, with the iShares Expanded Tech-Software ETF falling as much as 3.5% intraday and now trading more than 30% below its September peak.

Logistics companies joined the AI Angst Selloff after another startup, Algorhythm Holdings — formerly a karaoke company (!!) — announced that it helps customers scale freight volumes by 300% to 400% without a parallel increase in headcount. Its shares surged 12% to $1.50 — still dramatically below their early-2000s peak above $3’300! The SPDR S&P Transportation ETF fell nearly 4%. Russell 3000’s trucking index fell nearly 8%.

And there is more to this story.

According to Morningstar’s PitchBook, the volume of distressed loans backing software companies — defined as loans trading below 80 cents on the dollar — doubled in January.

The market appears to be pricing in a future where generative AI models such as Anthropic’s Claude and similar tools disrupt – and kill - traditional SaaS (software-as-a-service) models. That may be an extreme interpretation.

Yes, easier coding and AI-assisted development will increase competition. Software companies could see margins pressured, and consolidation through M&A is likely.

But ultimately, many companies are likely to integrate AI into their existing SaaS offerings rather than be replaced by it. As PitchBook notes: “replacing a core SaaS platform is effectively open-heart surgery for an enterprise”, it may not be the future for everyone. That argument carries weight.

So the selloff may be justified to some extent — but it could also be overdone.

What’s next? Could we see McDonald’s caught up in AI-driven angst because robots replace workers?

But as we know, markets tend to overshoot before stabilizing.

The key question is whether this “SaaS-pocalypse” remains contained or spreads more broadly.

If stress remains largely limited to software and tech, the likely outcome is continued rotation — toward non-tech and non-US markets. That rotation has been underway for several months and looks more like reshuffling than systemic breakdown.

But if distress spreads further — and the weakness across logistics stocks is a red flag — the AI anxiety narrative could evolve into something more macro-relevant. In that case, broader multiple compression and earnings downgrades could follow, and rotation alone would not be enough to shield portfolios.

For now, continued rotation and diversification remains the more plausible scenario. The MSCI World ex-USA index is up around 7% year-to-date, while the S&P 500 is broadly flat. Asian markets have outperformed US peers, due lower valuations and their exposure to memory-chip manufacturers benefiting from AI demand. Korea’s KOSPI, for example, leads the race with a more than 30% since January. Europe’s Stoxx 600 has been relatively insulated from tech volatility due to its limited technology weighting. The FTSE 100 — heavy in energy and mining — has also benefited from diversification flows, and could be an interesting safe harbour when sterling exposure is hedged and if commodity prices remain supportive.

Precious metals, however, do not behave like traditional safe havens since a few weeks. Gold slipped below $5’000 per ounce during yesterday’s tech selloff, an unusual positive correlation with risk assets. Typically, gold attracts capital during equity stress and the latter supports gold miners such as Fresnillo, which nevertheless fell around 4% in London trading on Thursday. Gold is firmer this morning in Asia but faces resistance near recent highs, while Bitcoin is testing the $65’000 support. US Treasuries see haven inflows this week... and I am not even sure that we could call them safe, anymore.

The week hasn’t said its last word yet: attention now turns to the US CPI release. Both headline and core inflation are expected to have eased in January – moving closer toward the Federal Reserve’s (Fed) 2% policy target. If inflation eases, the Fed will be in a better position to lower rates and give some relief to the economy that’s rattled by AI concerns, and job losses that could follow... if AI doesn’t take people’s jobs, possible bankruptcies due to AI could.

So the thinking goes: a set of soft – and ideally softer than expected – CPI update could pull yields lower and throw a floor under the equity selloff. While a set of stronger than expected CPI figures could inject further stress into the market, and trigger a further selloff.

Note that, the selloff that we see across major US indices looks just like the beginning of a correction – if the correction develops further. A 10–20% pullback in the Nasdaq, for example, would be possible – and even healthy – after the past three years’ almost uninterrupted rally. That could bring the Nasdaq all the way down to the 21K–23.5K range.

I am not saying this is what’s next. But it is within the realm of possibility.