AI Fear Trades Meet Big Tech Earnings Release

The most important market-moving story last week unfolded in two phases. First came an AI-driven fear trade. Anthropic's release of a new Claude legal automation tool raised concerns that AI agents could disrupt high-value software businesses across law, finance, and other knowledge-work industries.

That headline shock triggered indiscriminate selling across software, with the S&P 500 Software and Services Index falling nearly 9% over five sessions and more than 20% from its peak. Thomson Reuters dropped over 20%, while Salesforce and CrowdStrike also sold off sharply.

The second phase came as earnings redirected attention back to fundamentals. Google's results were broadly reassuring, showing that AI is being integrated into search and cloud without destabilizing core monetization, which helped calm markets. Amazon then reported weaker-than-expected results, and its stock fell 7% as investors focused on margin pressure and near-term profitability rather than long-term AI ambition. Microsoft stabilized after earlier losses, while Nvidia surged, reinforcing that markets are differentiating between AI beneficiaries and those facing disruption risk. By Friday, equities rebounded as panic gave way to selective positioning.

What's the key takeaway?

• AI headlines triggered a broad, fear-driven selloff
• Earnings restored focus on margins and cash generation
• Markets are sorting AI winners from vulnerable incumbents

LITE (+40.9%): Lumentum shares jumped after strong results and upbeat guidance pointed to rising demand for optical components in AI data centers, reinforcing its position as a key beneficiary of Big Tech infrastructure spending.

BMY (+12.5%): Bristol Myers Squibb shares rose as strong Growth Portfolio momentum from drugs like Breyanzi and Camzyos offset steep legacy declines, though 2026 revenue guidance pointed to a modest overall decline as patent erosion continues.

PEP (+11.0%): PepsiCo shares rose after beating earnings and revenue expectations, as improving organic sales and planned snack price cuts reassured investors despite ongoing volume pressure from price-sensitive consumers.

MOH (-26.6%): Molina Healthcare shares plunged after a sharp earnings miss and weak 2026 guidance, as higher-than-expected medical costs reignited investor fears over margin volatility in Medicaid-focused health insurers.

PYPL (-23.3%): PayPal shares slipped after hours after a CEO shake-up and weak 2026 profit outlook reinforced concerns over slowing branded checkout growth and limited visibility into a near-term turnaround.

AMZN (-12.1%): Amazon shares fell after a $200 billion 2026 capex plan and weaker near-term profit guidance overshadowed a solid quarter, intensifying investor concerns over AI spending and delayed cash returns.

Bitcoin suffered a violent selloff this week, tumbling toward $60,000 and briefly hitting its lowest level since late 2024. The decline marked a more than 50% drawdown from last year's peak and pushed the relative-strength index to deeply oversold levels, underscoring the speed and intensity of the move. Ether and Solana also plunged, signaling broad stress across crypto markets.

The selloff lacked a single trigger and instead reflected a macro-driven deleveraging. Risk appetite faded, positioning unwound, and large outflows from spot bitcoin ETFs drained liquidity. At the same time, investors began reassessing bitcoin's role as "digital gold," particularly as gold rallied while bitcoin traded down alongside equities.

A sharp rebound late in the week trimmed losses, but the damage to sentiment remains. The chart highlights how quickly confidence can collapse when liquidity thins and long-standing narratives are put to the test.