Wall Street Anticipates AI-Driven ‘Creative Destruction’ Impacting Whole Corporations

AI's Expanding Impact: Businesses Face New Uncertainties

Concerns are mounting in the stock market as the rise of artificial intelligence threatens not just jobs, but entire companies. While many economists believe fears of widespread job loss due to AI are exaggerated, history shows that major technological advances can dramatically reshape industries.

For example, the technology boom of the 1990s brought a wave of productivity growth that accelerated the US economy. However, it also made certain businesses and even whole sectors obsolete—think travel agencies, stockbrokers, classified ads, newspapers, and video rental shops.

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Experts anticipate that AI will boost productivity, a crucial factor for long-term economic growth. Yet, investors are increasingly uneasy about the potential disruptions AI could cause—not just in the workforce, but throughout financial markets. Unlike the internet revolution, AI's reach could be far more extensive.

Anton Korinek, an AI specialist at the University of Virginia, notes, “This time, the impact is much greater—possibly tenfold. The internet mainly changed how information is shared, but AI is transforming cognitive work itself, affecting a much broader segment of the economy.”

The Potential of AI

It’s important to remember that much of this discussion is speculative, as AI is still a rapidly evolving and largely untested technology. Its greatest promise lies in enhancing worker productivity.

Productivity measures how much output employees can generate with available tools, and it typically rises sharply with the introduction of groundbreaking innovations like the internet or AI.

Data for the last quarter of 2025 is expected soon. While economists caution against reading too much into a single quarter’s results, the overall trend is upward. Since early 2023, productivity has grown at an average rate of 2.6%—more than double the pace seen in the decade before 2019, despite pandemic-related volatility.

Debate continues over how much of this improvement is directly linked to AI. Still, even skeptics believe AI’s influence on productivity will become significant in the near future.

Greater productivity enables companies and their employees to increase earnings without fueling inflation. Historically, economies have adapted to major technological shifts by creating new industries and jobs, ultimately raising living standards.

Market Volatility and the AI Effect

Looking at the bigger picture, the path to progress is rarely smooth. Simon Johnson, a Nobel laureate economist at MIT, explains, “Booms and busts in certain sectors are normal—perhaps even necessary. But when companies fail, especially those with heavy debt, it can pose broader risks, particularly to the financial system.”

So far, the so-called “AI scare trade” has had little impact on US capital markets. The S&P 500 has climbed roughly 66% since ChatGPT debuted in November 2022, with much of that growth driven by AI-focused firms and their suppliers, such as Meta Platforms and Nvidia. This creates risks if these technologies fail to deliver as expected.

Another concern is that AI could indeed bring about the anticipated surge in productivity, which could have unpredictable effects. A research note from Citrini, a lesser-known firm, briefly sent the S&P 500 tumbling last week by speculating about massive white-collar layoffs due to AI by 2028—a scenario not currently reflected in today’s low unemployment rates.

Daniel Keum of Columbia Business School, who researches how automation shifts power within companies, has found that executives are increasingly viewing employees as costs, as seen in earnings calls and annual reports. Even if layoffs or wage cuts haven’t materialized yet, companies are already reducing benefits like healthcare, remote work options, and office perks.

Capitalism and Creative Destruction

When technology allows businesses to operate with fewer employees, profits and shareholder returns often rise. For instance, Block, the fintech company led by Twitter’s Jack Dorsey, recently announced plans to cut nearly half its workforce to capitalize on AI-driven productivity—sending its stock up over 15%.

However, productivity gains can also hurt investors. Last week, IBM’s shares suffered their biggest drop in 25 years after Anthropic, an AI startup, revealed a tool that can modernize Cobol code—work that previously required large teams of consultants. IBM’s stock later recovered most of those losses.

History is full of examples where technological progress left once-dominant companies behind, such as Kodak and Blockbuster. Economist Joseph Schumpeter described this as “creative destruction,” the process by which innovation drives progress.

Tom Barkin, President of the Federal Reserve Bank of Richmond, recently referenced this idea, noting that such disruptions have been part of the American economic landscape for centuries and are fundamental to capitalism.

Still, this offers little comfort to industries, investors, and workers facing short-term uncertainty. Korinek at UVA points to sectors like back-office operations, content creation, customer service, legal and financial analysis, and programming as particularly vulnerable.

He warns, “Ultimately, any business whose main advantage is human expertise that AI can replicate will be affected. The transition could involve stranded assets, excessive debt, and sharp market corrections.”

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