Despite strong corporate earnings growth, the current earnings season has seen management and investors shift their focus entirely to another dimension: the threat posed by artificial intelligence (AI). An analysis of earnings call transcripts by Bloomberg on February 15th revealed that mentions of "AI disruption" by management have nearly doubled compared to the previous quarter. Although the technology has not yet significantly lowered profit expectations, investors are unwilling to wait for verification, opting instead to sell shares of any company perceived to be at risk immediately. Last week, commercial real estate giant CBRE Group Inc. reported better-than-expected earnings. However, after its CEO stated on the subsequent analyst call that "AI could reduce office space demand in the long term," the stock suffered a 20% sell-off over two days. Roberto Scholtes, Head of Strategy at Singular Bank, commented, "As usual, the market is shooting first and asking questions later." He pointed out that "investors have decided to place the burden of proof on companies. These companies will continue to be heavily impacted until they can conclusively prove they will be winners, so currently, no one is in a rush to jump into these troubled waters."

Strong Results Overwhelmed by AI Anxiety Even as talk of AI threats intensifies, fundamental corporate growth momentum remains robust. Industry research data shows that S&P 500 index constituent companies reported a 12% year-on-year increase in fourth-quarter profits, surpassing the 8.4% growth anticipated at the start of the earnings season. More than 75% of companies delivered positive earnings surprises, a rate higher than the historical average. However, market performance has stagnated. Since early September, the S&P 500 has been fluctuating between 6500 and nearly 7000 points. Initially, investors were concerned about excessive AI spending by large technology companies; now, the worry has shifted to the technology's potential threat to the profits of other businesses.

"If It's Digital, It's Vulnerable" Over the past year, global investors have been sifting through potential AI winners and losers. Stocks in media, software, and human resources have been viewed as the most likely sectors to suffer and were among the first to be hit. This year, particularly in the past week, this trend has spread to broader areas, with financial, professional services, and even logistics companies beginning to feel the impact. In contrast, Asian benchmark indices hit record highs last week, primarily driven by strong performances from heavyweight stocks like Taiwan Semiconductor Manufacturing Co. and SK Hynix Inc., which provide the "picks and shovels" (hardware infrastructure) for AI. A basket of stocks compiled by UBS Group AG, deemed vulnerable to AI risk, has plummeted 40% to 50% over the past year. In the US, these stocks include Salesforce Inc., Unity Software Inc., and ServiceNow Inc.; in Europe, they include London Stock Exchange Group Plc, WPP Plc, Wolters Kluwer NV, and Capgemini SE. Jean-Edwin Rhea, Fund Manager at Sunny Asset Management, stated, "The trend is clear: if it's digital, it's vulnerable. From a stock market perspective, the physical world offers more near-term certainty than the digital space."

Under pressure, corporate executives attempted last week to emphasize the benefits of leveraging AI rather than the threats it poses. For example, travel company Expedia Group Inc. discussed using AI to build products; UK-based RELX Plc, owner of the LexisNexis legal and news database, said it provides tools to help customers extract and analyze information; data company Zillow Group Inc. noted that its residential real estate market, being highly localized, is difficult for AI to disrupt. Although many Wall Street analysts believe the sell-off is overdone and some stocks have rebounded this month, market sentiment remains fragile.

Short Sellers Place Big Bets Despite some views that the market reaction is excessive, short sellers are targeting these companies, particularly in European markets. Short interest has surged in a basket of European stocks compiled by UBS, representing those at greatest risk of AI disruption. According to S&P Global Market Intelligence data, the average percentage of shares lent out as a proportion of free float—a measure of short interest—for stocks in this basket has jumped from about 2% two years ago to over 5%. Stocks with a loan ratio exceeding 5% include Randstad NV, Ubisoft Entertainment SA, Adecco Group AG, WPP, and Hays Plc. This basket has plunged 40% over the past year, while the benchmark Stoxx Europe 600 index has gained nearly 12%. Mark Hiley, founder of equity research firm The Analyst, said, "Short sellers are piling into this theme because the narrative is so powerful. Due to the pace of change, not only could business models be affected almost immediately, but future corporate profitability has also become highly uncertain."

Giants' Capital Expenditure Spree Continues Unabated Even as investors price in the disruptive impact of AI, spending by so-called "hyperscalers" on building massive data centers shows no signs of slowing down. According to a team led by Bank of America Corp. strategist Savita Subramanian, capital expenditure by the five tech giants—Amazon, Google, Meta, Microsoft, and Oracle—surged 72% in 2025 and is projected to climb another 63% this year. Subramanian's colleague Michael Hartnett wrote that following last week's "wildfire-like AI disruption," the most obvious catalyst for cooling the sell-off would be an announcement by one of these hyperscalers to cut capital expenditure.