Wall Street experienced significant turbulence this week as AI-driven disruption triggered a major sell-off in software stocks, but JPMorgan strategists are urging investors to view the volatility as a positive market development rather than a cause for concern.
The catalyst for Tuesday’s tech stock plunge was Anthropic’s announcement of new plugins for its Cowork agent, which significantly enhanced the AI system’s capabilities for legal work. This demonstration of AI’s expanding capabilities sent shockwaves through the software sector, as investors rapidly reassessed the vulnerability of traditional software companies to AI disruption. The panic quickly spread beyond legal tech, with investors rushing to exit positions across multiple software stocks.
Stephen Parker, co-head of global investment strategy at JPMorgan Private Bank, offered a contrarian perspective during a CNBC interview, characterizing the sell-off as a “healthy rotation” rather than a fundamental market problem. Parker argues that the movement represents investors pivoting away from the tech-heavy concentration that has dominated markets and toward a more diversified portfolio of opportunities.
“We’re seeing a rotation,” Parker explained. “It’s about a broadening of the recovery story. Cyclicals are picking up the slack, and it’s not just the AI infrastructure plays and the hyperscalers that are driving markets higher.” This shift suggests that while AI infrastructure companies and hyperscalers have been primary market drivers, other sectors are now positioned to contribute to market growth.
Parker acknowledged that AI beneficiaries will continue causing disruption, particularly in software and other sectors perceived as vulnerable to AI replacement. However, his team maintains a bullish stance on technology overall while simultaneously identifying growth opportunities in other industries that have received less attention during the AI boom.
Specifically, JPMorgan is highlighting opportunities in US cyclical sectors, particularly industrials and power, which Parker believes are poised for significant growth. The firm is also bullish on international markets, especially emerging markets in Asia (excluding Japan), which have demonstrated steady growth and strong economic leadership throughout the past year. Goldman Sachs has similarly identified these emerging markets as key areas to watch in 2026.
Parker emphasized that investors shouldn’t overlook the global growth story, noting that emerging market leadership has successfully guided their economies through a year of solid expansion, positioning them as beneficiaries of the broader market diversification trend.
Key Quotes
We’re seeing a rotation. It’s about a broadening of the recovery story. Cyclicals are picking up the slack, and it’s not just the AI infrastructure plays and the hyperscalers that are driving markets higher.
Stephen Parker, co-head of global investment strategy at JPMorgan Private Bank, explained his view that the tech sell-off represents healthy market diversification rather than a fundamental problem, suggesting that market leadership is expanding beyond AI-focused companies.
There’s also opportunities more broadly, whether you’re thinking about cyclical opportunities in the US. We really like the industrial story and the power story.
Parker identified specific sectors that JPMorgan believes will benefit from the rotation away from concentrated tech investments, highlighting industrials and power as particularly attractive opportunities for investors seeking alternatives to AI-heavy portfolios.
If you’re looking for opportunities that may not be as specifically focused in technology, that are beneficiaries from this global broadening, markets particularly Asia, [excluding] Japan, that we think are going to be big beneficiaries.
Parker emphasized JPMorgan’s bullish stance on international markets, particularly emerging Asian economies, as alternatives to the AI-dominated tech sector, suggesting these markets offer growth potential with less exposure to AI disruption risks.
Our Take
The market’s violent reaction to Anthropic’s Cowork enhancement reveals a fundamental tension in AI investing: the same technology driving massive gains for infrastructure providers simultaneously threatens to destroy value in application-layer companies. This creates a bifurcated market where AI creators and AI victims diverge sharply in valuation.
JPMorgan’s sanguine response is strategically astute but potentially premature. While market broadening is healthy in principle, the pace and scope of AI disruption may accelerate beyond current expectations, making today’s “safe” cyclical sectors tomorrow’s disruption targets. The industrial and power sectors Parker favors may indeed benefit from AI infrastructure buildout, but they’re not immune to AI-driven automation.
Most significantly, this episode demonstrates that AI market impacts are becoming unpredictable and non-linear—a single product feature can trigger billions in market cap destruction within hours, suggesting we’re entering a period of sustained volatility as AI capabilities continue advancing.
Why This Matters
This development represents a critical inflection point in the AI investment narrative that has dominated markets for the past two years. The Anthropic announcement and subsequent sell-off demonstrate that AI is transitioning from a speculative growth story to a tangible disruptive force with real consequences for established software companies.
The market’s reaction reveals growing investor sophistication about AI’s differential impact across sectors—recognizing that while AI infrastructure providers may continue thriving, companies whose products can be replaced by AI agents face existential threats. This more nuanced understanding could lead to significant capital reallocation and valuation adjustments across the technology sector.
For businesses and workers, the volatility underscores the accelerating pace of AI disruption, particularly in knowledge work sectors like legal services. The fact that a single product announcement can trigger broad market movements indicates that AI’s impact on employment and business models is no longer theoretical but immediate and measurable.
The JPMorgan perspective also signals a potential end to AI exceptionalism in markets, suggesting that diversification and traditional economic fundamentals may reassert importance alongside AI-driven growth narratives.