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Chapter 1: Why are software stocks sliding due to AI advancements?
Software stocks keep on sliding as AI's rapidly evolving capabilities rattle investors. Plus, shares of Novo Nordisk plummet as price competition reshapes the market for weight loss drugs. And China flexes its regulatory muscle, banning retractable door handles on electric vehicles.
It really shows how China has become not only a leader in EVs, but also a laboratory of experimentation when it comes to dealing with associated technologies.
It's Wednesday, February 4th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today. Software stocks in Asia and Europe are sliding today following a rough day on Wall Street that saw the rise of new AI tools shave more than $300 billion off of companies that sell or invest in software.
Yesterday's big losers included Adobe, Salesforce, LegalZoom.com, PayPal, Expedia, and Equifax as traders called into question the competitive moats those businesses had built up. And with more on this software sell-off, I'm joined by reporter Hannah Miao.
Chapter 2: What impact is pricing pressure having on Novo Nordisk's stock?
Hannah, what triggered this? I kind of thought AI was a potential benefit for some of these companies, enabling them to kind of power up their professional offerings. And yet the thinking seems to be they could just get bypassed completely. Is that right?
Yeah, we've seen Anthropic and OpenAI release new models and updates recently that have shown a pretty big advancement in just how much these AI tools can do. Anthropic's Cloud Code has really taken off. People have been vibe coding, which means people who are not technical software engineers being able to code their own tools using Claude.
Chapter 3: How is China regulating retractable car door handles?
And that has enabled people to play around with tools that help with a wide variety of tasks from analyzing health data to compiling expense reports. So it's really kind of called into question the business models of these software companies.
And more recently, Anthropic announced it was adding legal tools to its co-work assistant and that it could help automate a number of legal drafting and research tasks. So that in particular has hit a number of companies that provide legal tools or research databases. And that kind of lit the spark for the broader sell-off in the software market yesterday.
And Hannah, the damage isn't limited there. Not that that's anything to write off, but it goes further. This is spreading to investors in software.
That's right. We've seen alternative investment firms in recent years really invest heavily in software equity and debt. So those firms, such as KKR, Blue Owl Capital, or Blackstone, they all saw their shares punished yesterday in the sell-off as well.
So software has become a major slice of their investment portfolio, and investors in those companies are wondering if that will impact their overall business.
A lot of disruption in the air, Hannah. A bunch of analysts using this moment to be quite vocal about how they feel about AI, a threat to many of the big names in software. But I'm curious if that's the only view. Are we hearing cases for why some of these companies will be able to defend their moats?
Yeah, it's hard to say exactly how this will play out, but we're hearing from software companies that it's not just the ability to write code that's the big part of their business. They also do a lot of data management. They have this trust with their clients. And if people are vibe coding things that are handling sensitive customer information, that might not be totally secure.
So we're seeing software companies trying to defend really their value add in this environment. And we'll see how it plays out.
That was the journal's Hannah Miao. Hannah, thank you as always for the update.
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Chapter 4: What are the implications of AI advancements for software companies?
The ongoing slump is also starting to hurt trading platforms like Coinbase and Robinhood, as well as companies previously rewarded for hoarding cryptocurrencies like Michael Saylor's Strategy. And as markets reporter Alex Osipovich explains, that could hurt crypto prices even more.
If you want to bet on Bitcoin going up, you can just buy Bitcoin. But you can also bet on Michael Saylor and strategy because you know that not only is your money when you invest in strategy going to be used to purchase Bitcoin, but it'll be used to purchase more Bitcoin. And if his stock goes up, he'll issue more stock, sell it and use it to buy Bitcoin.
So it's kind of a leveraged bet on Bitcoin. The risk is that the effect will turn into reverse. And some of these companies could come under financial stress and then they won't have any recourse except to sell their holdings of cryptocurrency.
And if they start selling, that'll put downward pressure on the price of whatever cryptocurrency they're holding, which would cause them to sell even more.
For strategy, a Bitcoin price below $76,000 is largely loss-making because that's the average price that it paid for the crypto over the years. Bitcoin is today trading right around that price. Shares of Danish drugmaker Novo Nordisk are plunging this morning after the maker of weight loss drugs Ozempic and Wegovi shaved its sales forecast yesterday. and warned of unprecedented pricing pressure.
Journal Heard on the Street columnist David Wehner told me that Novo is facing intense competition from Eli Lilly, reshaping a GLP-1 drug market that looked vastly different just a few years ago.
Both Eli Lilly and Novo Nordisk agreed to reduce the prices of their drugs in some markets in exchange for some coverage with the Trump administration and obviously removal of the tariff threats that were a big cloud over the entire industry last year. There is... obviously surging demand for these drugs.
But the concern is that the price cuts are sort of working against or counteracting that growth in volume. So take Novo Nordisk, for example. The company's anticipating a 5% to 13% sales decline this year. A lot of that is because prices are coming down. In some markets, the drug's even going generic, like Canada, for example.
And it's not yet seeing that volume growth that makes up for that price decline. Over time, there is some hope that the company could see growth, especially as it rolls out the Wegovy pill, which is essentially the first tablet form of GLP-1. So a lot of excitement in the company for that. But volume growth needs to be very high to make up for that decline in prices that the company is seeing.
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