The trillion-dollar AI market was wiped out as investors banked that ‘almost every tech company would be a winner’.

Investors wobbled last week as they worked through the disruption AI is likely to cause to global industries, with more hiccups potentially bubbling up this week. But the calculation should have been expected, Deutsche Bank argued in a note to clients this morning, because it is a readjustment of more optimistic expectations.

Software stocks were notably wiped out amid growing concern that larger language models could replace current service offerings. Companies in the legal, IT, consulting and logistics sectors were also affected. JP Morgan wrote last week that nearly $2 trillion of software market caps were wiped out alone as a result, a reality that a fortnight ago, Deutsche’s Jim Reid argued was purely academic.

The 13-figure sell-off is something Reed has been predicting for some time, telling clients: “For months, my published view has been that no one knows who the long-term winners and losers will be in this extraordinary technology. But as recently as October, the markets were clearly pricing in a world where almost every tech company would emerge a winner.

“In recent weeks we’ve seen a more realistic divergence emerge within tech – but that repricing is now spreading across the wider economy with surprising speed.”

Reed was not alone in his suspicions that investors were likely painting the entire stock market (and indeed the broader economy) with the same, optimistic brush. Some speculators have made broad-stroke arguments that the efficiencies offered by AI will win out for many companies, while others have argued that while AI is not in a bubble, there are pockets of over-optimism that could burst.

Jamie Dimon, CEO of JP Morgan, expressed this opinion, explaining in fate Last year’s Most Powerful Women Summit: “You have to keep using it,” (speaking to any business listening). But he said in 1996 that “the Internet was real” and “you could see the whole thing as a bubble.” He then breaks down the real differences he sees between AI, on the one hand, and generative AI, on the other. That’s an important distinction, Dimon said, because “some asset prices are high, in some sort of bubble zone.”

Indeed, Jeremy Siegel, emeritus professor of finance at the Wharton School of the University of Pennsylvania, argued that such changes have investors “asking the right questions.” Writing a week ago for WisdomTree, where he serves as a senior economist, Siegel said: “When companies talk about $200 billion in capital spending, markets must examine whether sustainable moats can be built in an environment where payback periods, competitive dynamics, and technology are evolving at breakneck speed. That tension will explain the narrative of continuing leadership. Intact.”

That said, Reid suggested the market could overzealous re-pricing, arguing that the disruption in “old economy” sectors is overdone: “The real challenge is that even by the end of this year we don’t have enough evidence to confidently identify structural winners and losers. That leaves plenty of room for investors’ optimistic and optimistic imaginations. That kind of big sentiment will continue throughout the day.”