Why Wall Street analysts see the tech-sell-off as overblown, and fueled by 'fear, not fundamentals'
Brendan McDermid/Reuters
- Tech stocks, led by software, are under pressure amid fresh fears of AI disruption.
- Bank of America analysts say the sell-off is overblown, comparing it to 2025's DeepSeek panic.
- Investor fears, not fundamentals, are what's driving the downturn, William Blair analysts say.
Bank of America analysts say Wall Street is blowing the latest AI fears out of proportion as the tech sell-off drags on.
The tech-heavy Nasdaq Composite is down about 2% on Wednesday, extending losses from Tuesday's session. Analysts say recent losses, fueled by AI disruption worries and some poorly received earnings, are overblown and don't justify the broad sell-off.
Anthropic unveils the latest AI 'boogeyman'
The sell-off kicked off in the software sector after AI start-up Anthropic introduced a new plugin for its Claude Cowork AI agent. The new tool is said to be more automatic in completing clerical tasks than conversational chatbots, fueling worries that AI will replace software and dethrone existing market leaders.
William Blair analysts say these fears are overstated, calling the new AI tool the latest "boogeyman in software."
The analysts say that while there will be some AI disruption in store for software makers, it will be how companies adapt to the AI era that sets apart the winners and losers.
"There will naturally be some disruption, especially for point solutions, nice to have tools (as opposed to mission-critical systems), and vendors that are not able or willing to adapt to the new tech paradigm," they wrote, noting, "This does not justify the broad-based indiscriminate selling we are seeing across the sector."
Bank of America likens tech sell-off to DeepSeek 2.0
Bank of America compared the recent tech sector nosedive to the January 2025 sell-off fueled by Chinese AI DeepSeek, which spurred major short-term losses for Wall Street and erased $1 trillion in market capitalization in one day.
"In several respects, the current indiscriminate selloff resembles the DeepSeek-driven decline of Jan'25, which ultimately proved unfounded and was followed by higher capex and accelerating AI token growth."
Despite investors' panic that DeepSeek marked a turning point in the AI arms race, major indexes not only recovered but ended 2025 up by double digits, fueled in large part by AI momentum. The analysts also noted that global cloud capital spending grew 69% in 2025 from the year-ago period, above previous forecasts in spite of worries.
It's 'fear, not fundamentals': William Blair
Software's dramatic downturn reflects negative investor sentiment around the sector, not a change in fundamentals.
In fact, Bank of America underlined the incongruence of Wall Street's thinking, which is driving "inconsistency in AI stock moves."
"Price action implies AI capex is deteriorating to the point of weak ROI and unsustainable growth, while simultaneously suggesting AI adoption will be so pervasive and productivity-enhancing that long-standing software workflows and business models become obsolete. Both outcomes cannot occur at once."
William Blair analysts echoed a view calling software weakness a "sentiment problem." They highlighted the post-earnings price declines in Microsoft and ServiceNow stocks, despite the companies' fundamentally strong prints. AMD saw a similar drop after its stock fell over 17% on Wednesday, despite earnings beating on the top and bottom lines.