Chapter 1: What are the current challenges facing software stocks in the AI era?
AI is transforming industries, but the data centers powering it require more energy and water than ever. At the break, join Christoph Beck, Chairman and CEO of Ecolab, for insights on using water effectively while safeguarding this critical resource for future generations.
Welcome to Tech News Briefing. It's Tuesday, January 27th. I'm Katie Dayton for The Wall Street Journal. Today, after a long run as a Wall Street darling, software stocks are no longer flying as high as they once were. And unsurprisingly, AI has a lot to do with it. We find out what the future holds for the likes of Salesforce and ServiceNow.
Then, prediction market companies like Kalshi and Polymarket are using a legal loophole to allow wagering on sports outcomes everywhere, which has them going toe-to-toe with more traditional sports betting platforms. We'll be taking a look at what this very modern heated rivalry means for the future of gambling.
But first, when artificial intelligence emerged as a force to alter the way business is done, many thought software companies would be some of the biggest beneficiaries of the tech. But for investors, the vibe seems to have shifted. Software stocks, including Salesforce, Adobe, and ServiceNow, have dropped by at least 30% since the beginning of last year.
Increasingly, investors are concerned about how the sector could be upended by AI companies. WSJ reporter Sam Goldfarb has been keeping an eye on this trend and is here to tell us what's going on. So, Sam, in a world where every company at some point said it was a software company, who are we talking about here? Which stocks are appearing as some of the biggest losers in this software slump?
So basically all of them, some big names are Salesforce, Adobe, ServiceNow. But really there's like countless number of software companies, both publicly traded and those that are owned by private equity companies, companies that are midsize and had...
loans that were broadly syndicated to investors and then a lot of companies that were lent to by these private credit companies and who are smaller. So it's like anywhere from tiny companies that were handling the billing issues for yoga studios to the big giants like Salesforce.
And how rapidly has this decline in interest taken place?
So it's happened gradually starting around the beginning of 2025. Beginning of 2025 is actually when the term vibe coding was like invented and the downturn sort of coincides around with that. There was a lot of talk about just how easy it was to write software With these AI tools, AI can do what a junior software coder has been able to do.
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Chapter 2: How are prediction markets changing the landscape of sports betting?
A lot of people think that there should be some companies that even benefit from this trend that are able to use AI to
lower the cost and improve their products but it's just very unclear like which of those companies will be those successful companies so a lot of people do think that now could be a buying opportunity because stocks have fallen so much and you know now could be a time to buy the stock of whatever your favorite software company is but it's just you know unclear exactly what company that is
That was Wall Street Journal Markets reporter Sam Goldfarb. Have you tried vibe coding? If you're a listener on Spotify, be sure to let us know in the comments. Coming up, we're lifting the lid on the fiercest and nerdiest rivalry in the NFL season. Prediction markets versus sports betting apps. That's after the break.
How can enabling smarter water management help AI scale responsibly? Here's Christophe Beck, chairman and CEO of Ecolab.
All water of the Earth that we can drink is 35 miles wide. That's all we've got for the whole planet. So we'd better find ways to reuse water. That's especially true for AI. But here's the good news. We have technology that can reuse water in that process of the chips manufacturing. And the technology that we bring is ultimately at every step of the process in the chip manufacturing to reuse it.
Next month, Americans are expected to wager some $1.5 billion on the Super Bowl. It would be a new record for sports betting, which has had a rapid rise in the U.S. Since 2018, sports gambling has been legalized in 30 states and Washington, D.C. But this year, a loophole that skirts state legislation will allow sports fans everywhere to get in on the action in the form of prediction markets.
Ahead of the big game, tensions have been simmering between prediction market leaders Polymarket and Kalshi, the new kids on the block, and the old Ishgard of FanDuel and DraftKings. My colleague Peter Ciampelli is breaking it all down with some pre-game analysis with WSJ sports reporter Jared Diamond.
Jared, to start with the basics, what are prediction markets?
It's a more complicated question than you probably think because the answer is it depends on who you ask, right? To the prediction markets companies themselves, this is a financial product. It's trading on futures the way any sort of financial product would be traded. But to most people, to the general consumer, prediction markets are the latest trend in the growing American pastime of betting.
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Chapter 3: What is the legal distinction between prediction markets and traditional sports betting?
State regulators then make their own laws. around gambling in those states. That's why whatever state you're in, the gambling rules on FanDuel or DraftKings might be a little bit different. Now here comes prediction markets. They say, we're not gambling. We don't fit the sort of criteria for gambling.
And it has to this point, federally regulated by the CFTC as a financial product, which for now is allowing it to operate Everywhere in Texas and California, those are the two big states that have no legal sports betting. Well, hey, we're not sports betting. So we're able to operate here. And they are. Now, you can imagine how some of the stakeholders feel about this.
California and Texas are saying, hey, this is sports betting. We didn't legalize this. How are you allowed to do this in our state? Meanwhile, states where sports betting is legal, say Ohio, Massachusetts, many of them are saying, wait a second. We have sports betting laws. You're skirting them. And we're not getting the tax revenue that's supposed to come from legal betting. So they're upset.
And now there's several states that have sued the prediction markets. And most people in the gambling industry believe that this also will be settled in the Supreme Court.
Zooming out, you note that the two biggest online sports betting companies took in $15 billion last year through November, right? up over a billion dollars since the previous year. What impact overall have apps had on American gambling as a whole?
The rise of online sports betting has fundamentally changed American culture just in profound ways. If you've basically been paying attention at all over the last nearly eight years, sports gambling is everywhere. You can't go to a sporting event without seeing advertisements for FanDuel and DraftKings.
Increasingly, there are venues, sporting arenas, stadiums that have sports books literally inside them. We also know from studies that
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Chapter 4: How do prediction markets operate under federal regulations?
particularly men between the ages of 18 and 35, are gambling at extraordinarily high rates. There's an incredible surge in gambling addiction. And that's why it's not a surprise that prediction markets have proven so appealing. Now you can bet on anything.
That was WSJ sports reporter Jared Diamond speaking to our colleague Peter Ciampelli. And that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Julie Chang with supervising producer Katie Ferguson. I'm Katie Dayton for The Wall Street Journal. We'll be back later this morning with TMB Tech Minute. Thanks for listening.
How are data center operators working to improve sustainability and water savings at every stage of the data center lifecycle? Here's Ecolab's Christoph Beck with some thoughts.
The Mach 7 or the Mach 4, the ones who are really so focused on high-tech, are the most forward-looking. They have the means, they have the mindset, they have the passion for innovation, and they're really open to try new things as well because everything is new with AI and with that technology as well.
I think even if we're not where we wanted to be with that industry right now, we will be ahead in the next few years because innovation that's coming up right now is working much better than we thought. And it's really thinking in circular ways, being in a data center or in a microchip manufacturing plant.
Learn more about Ecolab at Ecolab.com.
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