Why AI Fears Are Suddenly Hitting Tech Stocks

0:00Hannah Miao:This is a new era of American innovation. Using Google AI, Etsy is making it easier for shoppers to discover unique creations and helping sellers connect with the people who love their work. Learn more at g.co slash American Innovation.

0:17Luke Vargas:software stocks keep on sliding as ai's rapidly evolving capabilities rattle investors plus shares of novo nordisk plummet as price competition reshapes the market for weight loss drugs and china flexes its regulatory muscle banning retractable door handles on electric vehicles

0:36Hannah Miao:it really shows how china has become not only a leader in evs but also a laboratory of experimentation when it comes to dealing with associated technologies.

0:47Luke Vargas:It's Wednesday, February 4th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today.

1:01Luke Vargas:Software stocks in Asia and Europe are sliding today following a rough day on Wall Street that saw the rise of new AI tools shave more than$300 billion off of companies that sell or invest in software. Yesterday's big losers included Adobe, Salesforce, LegalZoom.com, PayPal, Expedia, and Equifax as traders called into question the competitive moats those businesses had built up. And with more on this software sell-off, I'm joined by reporter Hannah Miao. Hannah, what triggered this? I kind of thought AI was a potential benefit for some of these companies, enabling them to kind of power up their professional offerings.

1:40Luke Vargas:And yet the thinking seems to be they could just get bypassed completely. Is that right?

1:44Hannah Miao:Yeah, we've seen Anthropic and OpenAI release new models and updates recently that have shown a pretty big advancement in just how much these AI tools can do. Anthropic's cloud code has really taken off. People have been vibe coding, which means people who are not technical software engineers being able to code their own tools using Claude. And that has enabled people to play around with tools that help with a wide variety of tasks from analyzing health data to compiling expense reports. So it's really kind of called into question the business models of these software companies. And more recently, Anthropic announced it was adding legal tools to its co-work assistant and that it could help automate a number of legal drafting and research tasks.

2:36Hannah Miao:So that in particular has hit a number of companies that provide legal tools or research databases. And that kind of lit the spark for the broader sell-off in the software market yesterday.

2:48Luke Vargas:And Hannah, the damage isn't limited there. I mean, not that that's anything to write off, but it goes further. This is spreading to investors in software.

2:56Hannah Miao:That's right. We've seen alternative investment firms in recent years really invest heavily in software equity and debt. So those firms such as KKR, Blue Owl Capital or Blackstone, they all saw their shares punished yesterday in the sell-off as well. So software has become a major slice of their investment portfolio and investors in those companies are wondering if that will impact their overall business.

3:23Luke Vargas:A lot of disruption in the air, Hannah. A bunch of analysts using this moment to be quite vocal about how they feel about AI, a threat to many of the big names in software. But I'm curious if that's the only view. Are we hearing cases for why some of these companies will be able to defend their moats?

3:40Hannah Miao:Yeah, it's hard to say exactly how this will play out. But we're hearing from software companies that, you know, it's not just the ability to write code that's the big part of their business. They also do a lot of data management. They have this trust with their clients. and if people are vibe coding things that are handling sensitive customer information, that might not be totally secure. So we're seeing software companies trying to defend really their value add in this environment, and we'll see how it plays out.

4:11Luke Vargas:That was the Journal's Hannah Meowth. Hannah, thank you as always for the update.

4:14Hannah Miao:Thanks for having me.

4:15Luke Vargas:Well, if you thought that the hyperscalers behind leading AI products are immune from that trend we just discussed, think again. Microsoft dipped almost 3 % yesterday on concerns that AI tools could make enterprise subscriptions less necessary. The company's co-pilot assistant is a key part of its growth plans, but new data from Recon Analytics shows that subscribers who use Microsoft's co-pilot as their primary option almost have in the last six months, while Google's Gemini gained in popularity. According to Citi Research, some companies are using just 10 % of the co-pilot subscription seats they've paid for.

4:53Luke Vargas:Well, it's also a bad week for crypto, with Bitcoin now down nearly 40 % since hitting a record in October. The ongoing slump is also starting to hurt trading platforms like Coinbase and Robinhood, as well as companies previously rewarded for hoarding cryptocurrencies like Michael Saylor's strategy. And as markets reporter Alex Osipovich explains, that could hurt crypto prices even more. If you want to bet on Bitcoin going up, you can just buy Bitcoin. But you can also bet on Michael Saylor and strategy because you know that not only is your money when you invest in strategy going to be used to purchase Bitcoin, but it'll be used to purchase more Bitcoin.

5:31Luke Vargas:And if his stock goes up, he'll issue more stock, sell it and use it to buy Bitcoin. So it's kind of a leveraged bet on Bitcoin. The risk is that the effect will turn into reverse. And some of these companies could come under financial stress and then they won't have any recourse except to sell their holdings of cryptocurrency. And if they start selling, that'll put downward pressure on the price of whatever cryptocurrency they're holding, which would cause them to sell even more. For strategy, a Bitcoin price below$76 ,000 is largely loss-making because that's the average price that it paid for the crypto over the years.

6:08Luke Vargas:Bitcoin is today trading right around that price.

6:14Luke Vargas:Shares of Danish drugmaker Novo Nordisk are plunging this morning after the maker of weight loss drugs Ozempic & Wegovi shaved its sales forecast and warned of unprecedented pricing pressure. Journal Heard on the Street columnist David Wehner told me that Novo is facing intense competition from Eli Lilly, reshaping a GLP-1 drug market that looked vastly different just a few years ago.

6:36Hannah Miao:Both Eli Lilly and Novo Nordics agreed to reduce the prices of their drugs in some markets in exchange for some coverage with the Trump administration and obviously removal of the tariff threats that were a big cloud over the entire industry last year. There is obviously surging demand for these drugs, but the concern is that the price cuts are sort of working against or counteracting that growth in volume. So take Novo Nordics, for example. The company is anticipating a 5 % to 13 % sales decline this year. A lot of that is because prices are coming down. In some markets, the drug's even going generic, like Canada, for example, and it's not yet seeing that volume growth that makes up for that price decline.

7:19Hannah Miao:Over time, there is some hope that the company could see growth, especially as it rolls out the Wigavi pill, which is essentially the first tablet form of GLP-1. So a lot of excitement in the company for that. But volume growth needs to be very high to make up for that decline in prices that the company is seeing.

7:38Luke Vargas:David, these GLP-1 pills may be, as you say, an exciting new frontier. But the list prices we're seeing for them kind of underscores the pricing pressure you've been talking about. Novo selling them for$149 a month in the U.S., Eli Lilly planning to do the same. That's a far cry from the$1 ,000 or so a month that these companies have been charging for shots.

7:58Hannah Miao:Yeah, absolutely. We're certainly seeing price competition in a way that you don't normally see for big pharma, blockbusters. In a way, it underscores the different type of market that we're in. This isn't like that sort of immunotherapy cancer thing that comes out as$100 ,000 plus a year, and the pharma company just sort of milks that out until the patent expires. This is more of a mass market drug situation where the companies are just trying to get tens of millions of people to take these drugs and eventually hundreds of millions of people to be on these drugs. And then that sort of justifies those lower prices.

8:30Luke Vargas:Eli Lilly, the maker of ZepBound, is set to report earnings later this morning. Coming up, we'll look at President Trump's diplomatic pivot with Colombia and why China is banning retractable car door handles. Those stories and more after the break.

8:48Hannah Miao:This is a new era of American innovation. The National Cancer Institute is using Google AI to help cancer researchers collaborate, identify patterns, recommend research, and accelerate scientific discovery. Learn more at g.co slash American Innovation.

9:06Luke Vargas:President Trump is doubling down on his view that Republicans should nationalize voting in the U.S., Flanked by congressional Republicans in the Oval Office, Trump hit out at battleground states as places of alleged corruption without citing specific evidence and questioned whether they should continue to run their own elections as the Constitution spells out.

9:26Hannah Miao:I want to see elections be honest. And if a state can't run an election, I think the people behind me should do something about it.

9:33Luke Vargas:Democrats and top Republicans in Congress have opposed Trump's suggestion. Meanwhile, President Trump appears to have backed off threatened military action against Colombia. After a year of trading insults and feuding over counter-drug and immigration policy, Trump welcomed Colombian President Gustavo Petro to the White House yesterday. The press were blocked from their Oval Office sit-down, but Trump called the meeting productive, and Petro emerged from the White House with a red MAGA hat in hand, saying that things had ended on an optimistic and positive note.

10:08Luke Vargas:Officials have been working behind the scenes for months to reset relations with one of Washington's most important security partners in Latin America.

10:21Luke Vargas:And finally, could retractable car door handles soon go the way of the dodo? The staple of many EVs meant to increase aerodynamic efficiency are facing increased safety concerns. And authorities in China this week banned their use starting next year, saying that new cars would need to have both internal and external handles that can be mechanically opened. Our Yoko Kubota is in Beijing.

10:45Hannah Miao:This decision comes after some accidents in China. State media here reported that last year, one of these accidents was a deadly one with a passenger that got stuck in a car with this kind of retractable door handle. And there were people that tried to take this person out, but the door couldn't be opened. So that has spiked public concerns and probably also helped authorities consider this kind of rules. Nearly half of all the cars sold in China are EVs or plug-in hybrids these days. It'll be interesting to see if we continue to see auto regulations set in China have an impact on car design worldwide and how people think about safety of electric vehicles and connected cars.

11:25Luke Vargas:And that's it for What's News for this Wednesday morning. Today's show was produced by Hattie Moyer and Daniel Bach. Our supervising producer is Sandra Kilhoff, and I'm Luke Vargas for The Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.

12:00Hannah Miao:With Google AI, Etsy is making it easier for shoppers to discover unique creations and helping sellers connect with the people who love them most. This is a new era of American innovation. Learn more at g.co slash American innovation.