A wave of fear surrounding artificial intelligence is hitting Wall Street, causing a broad sell-off in stocks of companies perceived as potential targets for disruption. This trend is affecting businesses ranging from small software firms to large wealth management corporations.

The latest round of selling intensified on Tuesday following the release of a tax strategy tool by a relatively unknown startup, Altruist Corp. This development triggered declines of 7% or more in the shares of Charles Schwab Corp., Raymond James Financial, and LPL Financial Holdings Inc. For some of these stocks, this marked their most significant drop since the market downturn induced by trade tensions last April. This event is the newest illustration of a "sell first, ask questions later" mentality that is gaining traction as billions of dollars invested in AI begin to materialize into commercial products, fueling anxieties about the technology's potential to upend entire industries.

"Companies with any perceived risk of disruption are being sold indiscriminately," noted John Belton, a portfolio manager at Gabelli Funds.

In recent years, advancements in AI have been a primary driver on Wall Street, with technology stocks leading market gains. As this rally pushed stock prices to record highs, debates persisted over whether it represented an impending bubble or the beginning of a productivity boom that could reshape American business. However, since the beginning of last week, a series of AI product launches has prompted a noticeable shift in market sentiment. Investors are no longer focused solely on identifying potential winners; they are now rapidly attempting to avoid holding shares in any company facing even a minor risk of obsolescence.

"The narrative last year was about universal belief in AI, but we were searching for its practical applications," said Will Rhind, CEO of GraniteShares Advisors. "Now, as we encounter increasingly powerful and convincing applications, it is leading directly to concerns about disruption."

The software sector has been grappling with AI-related anxieties for some time. Last week, these concerns spread more broadly to other industries when a new tool from Anthropic PBC triggered significant declines in stocks across sectors like software, financial services, asset management, and legal services. A similar fear impacted shares of US insurance brokers on Monday after Insurify, an online insurance marketplace, launched a new application using ChatGPT to compare auto insurance rates. By Tuesday, wealth management stocks became the next casualty, dragged down by the introduction of Hazel, a product from Altruist designed to help financial advisors create personalized strategies for clients.

Jason Wenk, CEO of Altruist, expressed his own surprise at the scale of the stock market reaction, which erased billions of dollars in market value from several investment firms. However, he noted that the reaction sends a strong signal about the competitive threat his company represents. "People are starting to realize that the architecture we used to build Hazel can replace any job within wealth management," Wenk stated in an interview. "Typically, these tasks are handled by entire teams. Now, AI can perform them effectively for just $100 per month."

AI companies like OpenAI and Anthropic have already made significant inroads in fields such as software engineering with products that help developers streamline and debug code. They are now expanding into other sectors. Nevertheless, many questions remain about how this technology will be adopted. The banking industry, for example, has periodically faced challenges from electronic services and other technologies, which ultimately failed to undermine its dominant position.

Some market participants, like Gabelli's John Belton, are skeptical about Wall Street's rapid shift from worrying about an AI bubble to fearing its imminent disruption of large swathes of the economy. "There will be winners and losers in every industry," Belton said, adding, "A rule of thumb is that technological disruption often takes longer to materialize than expected."

This market pullback may also reflect broader anxieties about the significant stock market gains of the past few years, which were fueled by an AI spending boom and an unusually resilient US economy. These gains have led to stretched valuations, making investors more sensitive to any signs of reversal. "Stocks are falling 10% on news that the market perceives as slightly negative, a reaction that would not occur in a market not trading at current elevated levels," observed GraniteShares' Will Rhind.

Ross Gerber, CEO of Gerber Kawasaki, believes the recent anxiety over potential AI losers, which has hit parts of the market over the past week, is premature. He suggests it is too early to determine the precise impact. "We can try to extrapolate how AI will change the world in five years, but we simply do not know," Gerber said. "The market is trying to price this in while we are still at the very beginning of this technology's infancy."