Investor sentiment around artificial intelligence has shifted dramatically as concerns mount over the technology’s potential to disrupt businesses and the broader economy. The tech sector is experiencing significant volatility, with the AI hype that once drove markets now contributing to widespread anxiety about where financial risks may emerge next.
Recent developments from AI companies and economic forecasts have intensified the market turmoil. According to industry analysts, updates from Anthropic and warnings about labor market disruption have fueled a software sector sell-off that even strong earnings from major chipmakers couldn’t reverse.
Private Credit Emerges as AI Investment Risk
The private credit market has become a focal point for investor concern, particularly regarding AI infrastructure financing. Daniel Newman, CEO and principal analyst at Futurum, told Business Insider that he believes there is a significant risk in the private credit space. Newman specifically cited Oracle as an example, noting concerns about how companies will continue raising capital for expensive AI-related expenditures.
These worries intensified following attention on Blue Owl Capital, with prominent figures including economist Mohamed El-Erian and JPMorgan’s Jamie Dimon drawing comparisons to 2007, the period preceding the Great Financial Crisis. Additionally, anxieties have spread to data center financing as software stocks continue to decline.
Paul Meeks, head of tech research at Freedom Capital Markets with over 30 years of investing experience, explained that private lenders attract business from companies unable to secure traditional bank financing. He indicated that pressure on lenders funding AI buildouts is expected to persist as concerns grow about AI profitability.
Banking Sector Faces Multiple AI-Related Threats
While Blue Owl and similar firms have drawn scrutiny for their AI exposure, traditional banking institutions also face significant vulnerabilities according to investment professionals. Major banks have increased their involvement in private credit through leveraged loan syndication and collateralized loan obligations in recent years.
Meeks suggested that banks could be particularly vulnerable to investor concerns, especially given the historical comparisons to 2007 indicating mounting financial stress. However, the banking sector faces AI-related risks beyond private credit exposure, including potential disruption to their own operations.
John Belton, a Gabelli portfolio manager focused on growth stocks, noted that banks face indirect exposure through labor market impacts if AI drives significant employment changes. He indicated that current market conditions have been favorable to banks, potentially leading to stretched valuations that don’t fully account for multiple AI-related risks.
Physical AI Could Disrupt Industrial Sectors
Physical AI systems that interact with the real world, including automated machinery and autonomous vehicles, represent the next major technology frontier. According to Citi projections, the total addressable market for warehouse-automation systems alone will reach $112 billion by 2029, with automated guided vehicles and autonomous mobile robots presenting significant use cases.
Meeks expects opportunities around physical AI to develop rapidly, presenting both significant opportunities for early adopters and major threats to companies that fail to adapt. The analyst identified industrials and transport sectors as particularly vulnerable to physical AI disruption.
Meanwhile, as investors have rotated out of technology stocks into cyclical sectors, they may be increasing exposure to physical AI risks within industrial companies. Belton suggested that some stocks are being perceived as immune to AI disruption, potentially stretching their valuations and creating vulnerable pockets in the market if artificial intelligence drives major economic upheaval.
Software Sector Faces Continued Pressure
The software sector has suffered some of the steepest losses during the recent tech sell-off, according to market observers. Newman expects the subsector will eventually recover, though not uniformly across all companies.
He anticipates that application software companies focused on specific features that went public during the software-as-a-service boom will likely be consolidated into larger platforms or eliminated entirely. Newman cited Expensify and Monday as examples of potentially vulnerable companies. Software firms without proprietary data advantages, platform integration, or protection from AI replacement face the greatest risk of further declines before market sentiment improves.
Market participants will continue monitoring earnings reports and AI development announcements for signals about which sectors may stabilize first, though uncertainty remains about the timeline for recovery across technology and AI-exposed industries.
