A new artificial intelligence tool from Anthropic PBC sent shockwaves through the stock market on Tuesday, sparking a significant selloff in software company shares. Investors reacted to concerns that the advanced automation technology could displace established business models, leading to widespread declines across the sector.
The market downturn was swift, with the iShares Expanded Tech-Software Sector ETF (IGV) falling by as much as 5.6%. The drop marked the sixth consecutive day of losses for the prominent technology fund, highlighting growing unease about the disruptive potential of AI.
Key Takeaways
- A new AI automation tool from Anthropic PBC triggered a major stock market selloff on Tuesday, February 3, 2026.
- The software sector was hit hardest, with the iShares Expanded Tech-Software Sector ETF (IGV) dropping up to 5.6%.
- The selloff began with legal and data service companies like Thomson Reuters and Legalzoom.com Inc. before spreading sector-wide.
- The IGV ETF has now lost over 14% in six consecutive sessions and suffered its worst month since 2008 in January.
The Initial Impact
The selloff began in a targeted manner, affecting companies whose services appeared most vulnerable to immediate disruption by advanced AI automation. Shares of businesses focused on legal software and data services were the first to tumble.
Companies such as Experian Plc, London Stock Exchange Group Plc., Thomson Reuters Corp., and Legalzoom.com Inc. experienced significant downward pressure. Investors appeared to quickly reassess the long-term value of these firms in a world where AI can perform complex data analysis and administrative tasks more efficiently.
A Growing Concern
The market's reaction reflects a broader anxiety about the pace of AI development. While previous AI advancements were seen as tools to enhance existing software, this new generation of automation technology is increasingly viewed as a potential replacement for entire business platforms, raising fundamental questions about the future of many software-as-a-service (SaaS) companies.
A Sector-Wide Contagion
What started as a focused dip in a few sub-sectors quickly snowballed into a broader crisis of confidence for the entire software industry. The initial concerns about AI displacement spread rapidly, leading investors to divest from software stocks across the board.
The performance of the iShares Expanded Tech-Software Sector ETF, which trades under the ticker IGV, provides a clear measure of the damage. The fund's 5.6% intraday drop was a significant event, but it is part of a much larger negative trend that has gripped the sector for over a week.
By the Numbers
The IGV ETF has been under immense pressure. Over the past six trading sessions, it has plummeted by more than 14%. This sharp decline follows a difficult January, during which the fund plunged 15%, marking its worst monthly performance since the financial crisis of 2008.
This sustained downturn suggests that the market is not just reacting to a single product announcement but is fundamentally re-evaluating the valuation of the entire software sector in the face of rapidly advancing AI capabilities.
The New AI Threat
Anthropic, a prominent AI research company, has been at the forefront of developing powerful artificial intelligence models. While details of the new tool that sparked the selloff are still emerging, its perceived ability to automate complex professional tasks has clearly unnerved investors.
The fear is that such tools could diminish the need for specialized software that companies currently pay for. For instance, if an AI can independently analyze legal documents, draft contracts, or manage vast datasets, the demand for dedicated legal or data management software could decline sharply.
"This is a moment of reckoning for many software companies that have built their empires on specific, task-oriented solutions. The market is now pricing in the risk that a single, powerful AI platform could render many of those solutions obsolete," one market analyst noted on Tuesday.
Looking Ahead: A Paradigm Shift
The market's dramatic reaction signals a potential paradigm shift. For years, technology investors have poured capital into software companies with the belief that their services were indispensable for modern business operations. Tuesday's events challenge that core assumption.
The key questions for the industry now are:
- How will existing software companies adapt their products to incorporate or compete with these new AI tools?
- Can traditional software firms pivot quickly enough to avoid being displaced?
- What new investment opportunities will arise from the companies building these foundational AI models, like Anthropic?
The recent market volatility indicates that investors are uncertain about the answers. The coming months will be critical for the software sector as it navigates the disruptive force of a new era in artificial intelligence.