The market’s AI trade just flipped from euphoria to fear, and four major industries are suddenly in the bargain bin.
In a note shared Thursday, veteran investor Ed Yardeni said investors have moved from “AI-phoria to AI-phobia,” hammering Software, Brokers, Insurers and Asset Managers in just weeks.
Instead of bidding up anything with an AI angle, markets are now punishing companies seen as vulnerable to it.
1. Software: Disruption Or Discount?
Software stocks have taken the hardest hit.
The iShares Tech-Expanded Software Sector ETF (NYSE:IGV) is down nearly 20% year-to-date, making it the worst-performing industry group.
The catalyst? Fears that AI-native tools — like Anthropic’s Claude — could disintermediate traditional enterprise software providers in areas like legal services, finance and sales.
Data providers were not spared.
Thomson Reuters Corp. (NASDAQ:TRI) shares have fallen 31.1% year to date and 57.6% from their high last summer. RELX plc (NYSE:RELX), the parent of LexisNexis, is down 30% this year and 47.4% from their May peak.
FactSet Research Systems Inc. (NYSE:FDX) has slid 30% year to date and 57.3% from its Dec. 2, 2024 high. S&P Global Inc. (NYSE:SPGI) is off 25% in 2026 and 30% from last August’s peak.
Investors quickly extrapolated: if generative AI can perform specialized workflows, do companies still need high-priced application software?
“For those who lived through the advent of the Internet, this feels like déjà vu all over again,” Yardeni said.
Forward price-to-earnings ratios have compressed sharply.
Application Software now trades at 23.7 times forward earnings, down from 35.3 at its recent high. Systems Software trades at 23.3, down from 35.5.
Cheap for a reason — or simply cheap?
2. Brokers: If AI Can Advise, What Happens To The Advisor?
Investment banks and brokerage firms also saw pressure after fintech firm Altruist rolled out AI tools capable of recommending personalized tax strategies.
The fear: if AI can optimize taxes today, could it handle broader financial advice tomorrow?
The S&P 500 Investment Banking & Brokerage index – as tracked by the iShares U.S. Brokers-Dealers & Securities Exchanges ETF (NYSE:IAI) – is only modestly positive year-to-date — but some individual names have fallen 7% to 10% from recent highs.
Shares of Raymond James Financial Inc. (NYSE:RJF) sunk by 9% on Tuesday – the company’s worst session since March 2020. Charles Schwab Corp. (NYSE:SCHW) also dropped 8% on the same day.
The industry’s forward P/E has dropped from 24.7x to 15.9x. Yet, this is less about current earnings and more about long-term margin pressure.
If AI reduces friction in financial advice, traditional advisory models could face structural competition.
3. Insurance Brokers: Automation Anxiety
Insurance brokers were also hit after reports that AI-driven tools are being integrated directly into conversational platforms to generate personalized insurance quotes.
“OpenAI approved an insurance application for ChatGPT developed by the Spanish digital insurer Tuio,” Yardeni highlighted as key news disrupting the sector.
If underwriting, comparison and quoting become seamless within AI interfaces, where does the broker fit?
The S&P Insurance Brokers industry index – as closely tracked by the State Street SPDR S&P Insurance ETF (NYSE:KIE) – has fallen 4% year-to-date. Shares of major players have dropped sharply from their peaks.
Yet insurance remains relationship-driven and compliance-heavy — areas where incumbents maintain advantages.
Again, the core issue is earnings durability. Will AI meaningfully erode commissions? Or will brokers incorporate AI into their own distribution channels?
4. Asset Managers: Collateral Damage
Alternative asset managers may be the most indirect casualties of the AI selloff, according to Yardeni.
Investors worry they have significant exposure to private software companies — both through equity stakes and private credit.
As public software valuations decline, exit opportunities shrink and concerns rise about marks on private portfolios.
Several large alternative managers are down double digits year-to-date — and significantly more from their late-2024 highs.
Shares of KKR Inc. (NYSE:KKR) and Apollo Global Management Inc. (NYSE:APO) have fallen by 16% and 11% year-to-date, respectively.
“Before worries about their exposure to software weighed on the stocks, they’d been facing investors’ fears that credit losses in a wide variety of industries lurk in their private loan portfolios,” Yardeni said.
Meanwhile, Blue Owl Capital Inc. (NYSE:OWL) has already fallen more than 50% from its record highs.
Are These Industries Cheap Enough Now?
“These industries’ forward P/Es have plummeted to ridiculously low levels relative to current earnings projections,” Yardeni said.
According to Wall Street consensus estimates for 2026, earnings growth projections remain intact:
- Financial Exchanges & Data: 7.6% growth, 22.5x forward P/E
- Insurance Brokers: 12.2% growth, 15.9x
- Investment Banking & Brokerage: 14.4% growth, 16.9x
- Asset Management & Custody Banks: 15.4% growth, 15.5x
- Application Software: 17.3% growth, 23.7x
- Systems Software: 19.8% growth, 23.3x
Those multiples are dramatically lower than recent peaks. In several cases, they’ve fallen from the mid-30s to the low-20s — or from the mid-20s to the mid-teens.
On paper, that looks like a reset.
But the market isn’t debating valuation in isolation — it’s debating durability.
“Will AI competition trigger downward earnings revisions as contracts are renewed? That’s the risk,” Yardeni said.
Photo: Shutterstock
