(Bloomberg) — In what’s turning out to be a great quarter for corporate earnings growth, company executives and investors alike are focused on something else entirely: the threat from artificial intelligence.
Mentions of AI disruption on management calls almost doubled compared to the previous quarter, a Bloomberg News analysis of transcripts shows. While the technology hasn’t yet noticeably reduced earnings estimates, investors aren’t waiting around and instead are selling any company perceived to be at risk.
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Last week, commercial real estate company CBRE Group Inc. published better-than-expected earnings. In a call with analysts following the results, its chief executive officer said it’s possible AI will reduce demand for office space in the long term. The comments sparked a 20% selloff in the stock over two days.
“As usual, markets shoot first and ask questions later,” said Roberto Scholtes, head of strategy at Singular Bank. “Investors have decided to place the burden of proof on companies that will continue to be hammered until they conclusively prove that they will be among the winners, so there is no rush to jump into these troubled waters.”
The threat is overshadowing powerful growth. Fourth-quarter earnings for companies in the S&P 500 are increasing 12% from a year ago, better than the 8.4% expected at the start of the season. More than 75% of companies have reported positive surprises, above average, according to Bloomberg Intelligence data.
Yet markets have been stuck in neutral, with the S&P 500 bouncing between 6,500 and almost 7,000 since early September, first because investors were worried that Big Tech companies were spending too much on AI, and now because the technology threatens earnings.
Over the past year, investors have been sorting the potential AI winners from the losers across the globe. Media, software and staffing stocks, seen as the most likely businesses to suffer, have already been affected. This year, and especially over the past week, the trend has broadened, with financial, professional services and even logistics companies hit.
In Asia, meanwhile, benchmark indexes set fresh record highs last week thanks to the heavy weighting of companies such as Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc. that make the figurative picks and shovels for AI.
Baskets of stocks at risk from AI compiled by UBS Group AG have plunged 40% to 50% in the past year. In the US, they include Salesforce Inc., Unity Software Inc. and ServiceNow Inc., while in Europe, they include London Stock Exchange Group Plc, WPP Plc, Wolters Kluwer NV and Capgemini SE.
“The trend is clear: If it’s digital, it’s vulnerable,” said Jean-Edwin Rhea, a fund manager at Sunny Asset Management. “From a stock market perspective, the physical world offers more near-term certainty than the digital space.”
Corporate executives last week tried to play up the benefits they’re getting from using AI in their businesses, rather than the threat it poses.
Travel company Expedia Group Inc., for example, talked about how it’s using AI to build products. RELX Plc, the UK company that owns the LexisNexis legal and news databases, said it already offers tools to help clients extract and analyze information. And data company Zillow Group Inc. said the residential real estate market it works in is tough to disrupt with AI in part because it’s deeply local.
Plenty of Wall Street analysts say the selloff has gone too far, and some stocks have seen a rebound this month.
Still, short sellers are circling some of these companies, especially in Europe, with surging short interest for components of a UBS basket of European stocks most at risk from AI disruption.
Shares out on loan as a percentage of free float — an indication of short interest — has jumped to more than 5% for stocks in the UBS basket from just about 2% two years ago, according to S&P Global Market Intelligence data. Stocks with a ratio above 5% include Randstad NV, Ubisoft Entertainment SA, Adecco Group AG, WPP and Hays Plc. The basket has plunged 40% over the past year, while the benchmark Stoxx Europe 600 has jumped almost 12%.
“Short sellers are piling in to the theme because the narrative is so powerful,” said Mark Hiley, founder of equity research firm The Analyst. “Not only could there be an almost immediate impact on the business models due to the speed of change, but the earnings power of a business in the future has become extremely uncertain.”
Even as investors price in disruption from AI, there’s no sign of a letup in the spending by so-called hyperscalers to build the big data centers that power the tools. Capital spending by the big five — Amazon.com Inc., Alphabet Inc., Meta Platforms Inc., Microsoft Corp. and Oracle Corp. — increased 72% in 2025, according to Bank of America Corp. strategists led by Savita Subramanian, and it’s seen soaring another 63% this year.
After last week’s “wildfire AI disruption,” the most obvious catalyst to cool the selling would be one of the hyperscalers announcing a cut to capital spending, Subramanian’s colleague Michael Hartnett wrote.
–With assistance from Macarena Muñoz and Lisa Pham.
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