Why Anthropic’s AI tool is sparking turmoil for data and software firms

With investors fretting about whether AI-related stocks are in a bubble, the president of investment manager Blackstone, Jon Grey, believes investors should instead be more concerned by disruption risk to big industries.

“What happens when industries change overnight, like what we saw to the Yellow Pages back in the nineties when the Internet came along,” explained Grey on Bloomberg TV.

Those comments seem prescient given the latest news from Anthropic, the company behind AI chatbot Claude, that it has released a suite of legal-focused AI tools.  

Bloomberg estimated the release wiped-out nearly $300 billion of market value from software, data, and professional services firms, the largest ever loss for the sector in a single day.

UK companies caught up in the sell-off included firms which had tried to talk themselves up as beneficiaries of AI including FTSE firms RELX, London Stock Exchange Group, Experian and education and legal publishing firm Pearson.

Other casualties included investment trust Finsbury Growth and Income, which fell 7% due to the fact its top 10 holdings include RELX, London Stock Exchange Group and Experian.  

Across the Atlantic, US enterprise software and custom relationship management companies Adobe and Salesforce shares fell around 7% apiece.

What is behind the selling?

The sell-off wasn’t caused simply by the launch of a new AI model but by the fact that Anthropic has moved into the application space, providing workflow products directly to users.

In other words, Anthropic has shifted from being a supplier to software companies to being their direct competitor in a classic case of gamekeeper turned poacher.

The risk for the incumbent companies is that clients stop paying them for ‘seats’ to use the software and instead use Claude directly to review contracts.

The Anthropic tools automate the process of examining, prioritising, reviewing and making compliance checks, functions for which companies like RELX can charge thousands of dollars.

How can the affected companies protect themselves?

While the price action suggests a ‘get me out of here’ reaction, it is worth pointing out that shares of companies like RELX were already in an established downtrend, with its shares already down close to 40% over the last year.  

Several observers have cautioned that the Anthropic tool is not a trained lawyer, and noted the company included a disclaimer that all work must be reviewed by humans because it does not provide ‘legal advice’.

It is also worth noting that companies like RELX still own the proprietary case law and data, providing a ‘sticky’ subscription revenue.  

However, the valued-added data analysis and insights provided to clients on top of access to the data may see more competition from AI companies. The release of the legal tool by Anthropic is just one of several plugins which encompass areas like sales, finance, marketing and data analysis.

The broader fundamental question for investors to grapple with is, what is preventing AI firms like Anthropic from moving into any sector and competing directly with the specialist incumbent businesses.