A widespread selloff driven by artificial intelligence concerns has intensified this week, impacting stocks and credit markets with unprecedented severity. While AI-induced market downturns have occurred periodically since ChatGPT entered the mainstream three years ago, the current collapse stands out for its speed and breadth. Over just two days, the market value of stocks, bonds, and loans from Silicon Valley companies large and small has plummeted by hundreds of billions of dollars. Software stocks have been at the epicenter, with a key iShares exchange-traded fund tracking the sector losing nearly $1 trillion in total market capitalization over the past week. Unlike previous selloffs triggered by bubble fears, this sharp decline stems from growing apprehension that AI is on the verge of displacing the business models of numerous companies long identified as vulnerable by doomsayers. The immediate catalyst appeared modest: AI startup Anthropic PBC introduced a new tool for legal tasks such as contract review. While the product itself isn't currently seen as disruptive, market participants treated the announcement seriously given that Anthropic's coding tools have already helped transform software development over the past year as part of the broader AI innovation wave. Compounding investor unease, even companies long viewed as primary beneficiaries of the AI boom are showing weakness. Alphabet reported higher-than-expected AI capital expenditures, while Arm Holdings issued disappointing revenue guidance, with both stocks declining in Thursday's after-hours trading. The downturn has extended beyond U.S. markets, affecting companies like London Stock Exchange Group Plc, Tata Consultancy Services Ltd., and Infosys Ltd. due to AI substitution worries. The panic has also spread to Wall Street backers of the technology sector, with over $17.7 billion in U.S. tech company loans falling to distressed levels according to a Bloomberg index. Despite the anxiety, the threat remains largely hypothetical. Leading software providers like ServiceNow and Salesforce haven't yet reported AI-related earnings misses or customer attrition. While software companies have been developing their own AI tools promising secure implementation using existing customer data, results have been disappointing so far. Microsoft recently reported 15 million paid users for its Copilot tool, representing only a small fraction of its hundreds of millions of users. The latest developments have raised concerns that AI leaders might out-innovate established industry players, with markets fearing this reckoning may arrive sooner rather than later. Market participants describe the selloff as creating a self-perpetuating cycle where price declines generate negative momentum, prompting further selling across sectors.