When ChatGPT was launched in November 2022, any stocks linked to the AI theme surged – from chipmakers and software firms to raw-materials suppliers and even companies most exposed to AI disruption. Over the past three years, investors have sought exposure to all things about artificial intelligence, including high-flying tech stocks behind some of the leading AI technology.
But over the past year or so, Wall Street has gone through waves of AI-related selloffs, sparked by fears about everything from more cost-efficient competition in China to the likelihood of a looming AI bubble. Recently, though, the market’s focus has shifted, as predictions that AI will be so successful that it might supplant the need for many types of businesses and workers has driven some stocks down sharply.
Wall Street is calling it the “AI scare trade.” The moniker first popped up among market participants unnerved by rolling selloffs in industries such as trucking that previously hadn’t been considered related to AI. For the first time since the stocks rally started in 2023, investors’ views on AI have shifted: Long viewed as a potential productivity booster, some now see the technology as a threat to entire industries.
The change in perspective threatens to shift the direction of the market after three straight years of gains.
Wall Street traders have been so spooked by the disruptive potential of AI that all it took to spark a drop in the S&P 500 Index at the end of February was a gloomy research memo. The scare trade in AI is essentially two fears wrapped up into one action — sell all things AI-linked — in a market that until recently had been trading at bubble-like valuations.
The first fear is that firms like Microsoft and Amazon.com, whose stock prices dropped after reporting earlier this year, are spending too much money on data centres and building out AI infrastructure. The second is that AI will severely disrupt entire industries because AI agents will be able to replace white collar workers, shrinking the workforce and, by extension, consumer spending.
That fear has rolled from one industry group to another in recent weeks, sparking massive selloffs in sectors such as software development, even as the overall stock market has remained flat so far this year. At the end of last year, 83% of companies in the S&P 500 listed AI as a “material risk” to their business, up from 72% in the third quarter of 2025 and just 12% in 2023, according to data compiled by the Conference Board and shared with Bloomberg.
To some extent, the current uncertainty on Wall Street reflects the mixed messages coming from Silicon Valley and the wider business community. For years, tech leaders have signalled AI is progressing rapidly and framed it as a transformational technology that will reshape large portions of the global economy.
Mind-boggling global AI spending spree is projected to cross $2.5tn in 2026, a 44% increase year-over-year. But as of now, the global AI trade is starting to fracture as soaring capex, rising debt loads and doubts over who will profit from the technology force investors to draw sharper lines. In the near term, however, AI’s impact is murkier. Multiple studies last year found employees were using AI to produce “workslop,” undercutting productivity rather than boosting it. Leading AI labs are also still working to help businesses understand how best to use their tools. What’s certain is that AI is here to stay, and the companies that stand to benefit are those providing the foundation of the infrastructure — utilities, chipmakers, and manufacturers of grids and pipelines.