Taleb, Citrini Fuel AI Scare Trade as IBM Drops Most in 25 Years

(Bloomberg) — The artificial intelligence “scare trade” erupted again on Monday as growing concerns about the disruptive power of AI dragged down shares of delivery, payments and software companies, and sent International Business Machines Corp. to its worst plunge in 25 years.

It began after a bearish report was published over the weekend by a little known firm called Citrini Research.

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The report, released on social media Sunday, outlined the potential risks to various segments of the global economy, using hypothetical scenarios set in the future, specifically calling out food delivery services and credit card companies as ones facing trouble.

Then AI startup Anthropic said in a blog post Monday that Claude Code tool can help with modernizing COBOL, a dated programming language that’s mainly run on IBM computers.

And finally came a warning from Nassim Taleb: investors should brace for escalating volatility and even bankruptcies in the software sector as the AI rally enters a fragile phase.

IBM shares closed down 13%, the biggest one-day drop since 2000. DoorDash Inc., American Express Co., KKR & Co Inc. and Blackstone Inc. all slumped by at least 6%. Shares of other companies name-checked in the article, including Uber Technologies Inc., Mastercard Inc., Visa Inc., Capital One Financial Corp. and Apollo Global Management Inc. all fell by 4% or more.

“The sole intent of this piece is modeling a scenario that’s been relatively underexplored,” a preface to the article, which was published Sunday, said. “Hopefully, reading this leaves you more prepared for potential left tail risks as AI makes the economy increasingly weird.”

Citrini Research, founded by James van Geelen, presented a scenario set in June 2028 where AI’s disruption has caused mass unemployment for white collar workers, declining consumer spending, software-backed loan defaults and economic contraction. Still, the report notes clearly — “What follows is a scenario, not a prediction.”

Among the various outcomes discussed in this “thought exercise,” Citrini laid out a situation where the dominance of delivery apps like DoorDash and Uber Eats are displaced by “vibe-coded” alternatives.

“We definitely believe agentic commerce will be transformative to the industry,” DoorDash co-founder Andy Fang said in an X post in response to Citrini. “The ground is shifting underneath our feet, and the industry is going to need to adapt to it.”

To Taleb, the author of the markets are underpricing structural risks while overestimating the durability of current AI leaders.

Dire Outlook

Citrini’s report described a potential scenario where AI agents seek to save users’ money by eliminating transaction fees charged by payment processing firms like Mastercard and Visa.

“We are certain some of these scenarios won’t materialize,” the report said. “As investors, we still have time to assess how much of our portfolios are built upon assumptions that won’t survive the decade.”

The grim illustration added even more anxiety into a stock market that has been jolted repeatedly in recent weeks by fears of AI disruption and geopolitical upheaval.

“The report raises real concerns about disruption, even if things don’t end up as dire as the worst-case scenario,” said Thomas George, a portfolio manager at Grizzle Investment Management. “Certainly you don’t feel great after reading it, and I’m sure it leaves anyone holding these stocks with less conviction,” he said.

Citrini’s van Geelen started his career in medicine, and holds a bachelor of science degree from the University of Connecticut in pre-medicine studies, according to his LinkedIn profile. Speaking to Bloomberg’s Odd Lots podcast in 2023, he said he worked his way through undergraduate studies as a paramedic — first in Connecticut and then in California. He also co-founded one of Connecticut’s first medical marijuana dispensaries.

Sectors from software, to wealth management and logistics have all been swept up in the indiscriminate selloffs in recent weeks as investors nervous about the potential disruptions from new AI tools have slipped into a “shoot first, ask questions later” mode.

While software companies have been among the hardest hit, insurance brokers, private credit firms, cybersecurity and even real estate services stocks have all been caught up in the so called “AI scare trade.”

Yet, analysts, strategists and investors have also warned that many of these reactions are exaggerated and are likely overestimating any AI-related risks at this point.

“It is a remarkable reaction,” said Michael O’Rourke, chief market strategist at Jonestrading. “I have seen this market exhibit incredible resilience in the face of actual negative news. Now a literal work of fiction sends it into a tailspin.”

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