The AI Tidal Wave is Coming

This week, someone made visible what investors have been worried about for some time: The disruptive power of generative AI. Anthropic, the developers of Claude AI, released 11 open source plug-ins that is shaking multiple industries.

One particular plug-in was a legal prompt that could analyze non-disclosure agreements for non-standard clauses and compliance reviews. The issue isn’t that these were created. The concern is this plug-in is a template that is open source, available for any business to customize for their unique workflow. This decreases the cost of business for many firms that charge a premium price for these services.

The companies hit the hardest:

These legal and financial analysis firms are taking a hit in the market due to this newly exposed uncertainty around their pricing models. For instance, many people won’t pay LegalZoom if they can trust AI will accurately inform them of every legal document they need for their situation and how to complete the forms.

A deeper example would be Thomson Reuters, a content and technology company which charges firms a licensing fee for each employee that has access. I used Thomson Reuters as an auditor to download workpapers and guides for testing procedures we performed. They would ensure these workpapers were updated with each new accounting ruling or development to ensure we were in compliance.

What’s stopping accounting firms from hiring a development team to build and update AI models to perform the updates to the firm’s standards? A small development team could possibly handle this task cheaper than all the licensing fees paid to the content company.

Here’s the shakedown. The cost of these services are being compressed and everyone knows it. If everyone knows it costs less to complete your services, than you’re likely forced to lower your prices or change your pricing model. The risk is that companies charging a subscription can no longer reasonably predict their future revenues. If I can’t predict your revenues, then I can’t be comfortable developing a valuation for that company. This fact is causing a sell off that is responsible for $285 billion of market cap disappearing over the last few weeks.

Along with the legal and financial analysis industries, homeowners insurance providers, insurance brokers, wealth management, and logistics businesses have also seen some market cap dwindle as investors are de-risking their portfolios.