LIVE MARKETS-Stocks worries aren’t broad, Barclays turns positive on risk assets

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STOCKS WORRIES AREN’T BROAD, BARCLAYS TURNS POSITIVE ON RISK ASSETS

Stocks sold off last week as investors were spooked about AI destroying the software sector and Big Tech burning cash on questionable spending plans.

But analysts at Barclays Capital, led by Ajay Rajadhyaksha, say there's no reason to panic about overall market health. In fact, they're now turning positive on risk assets after three weeks of taking a neutral stance.

Here are their arguments.

There is no threat to debt markets. Software makes up only 2.8% of high-yield bonds and 3.1% of investment-grade corporate bonds, which include high-quality names like Microsoft and Oracle. Even if software defaults spike, Business Development Company debt—a potential trouble spot—represents less than 1% of the investment-grade market.

The selloff got too indiscriminate. Cybersecurity firms are well-positioned for the AI era, and vertical SaaS companies with decades of proprietary data and conservative clients (like government and pharma) should be fine. The real AI threat is in horizontal SaaS, not the entire sector.

Markets are being inconsistent. Last summer, an MIT paper showed 95% of firms saw no improvement from AI, triggering a selloff. Last week? Markets panicked that AI would work too well and destroy business models worth 10% of the S&P 500 .SPX. Both can't be true. Barclays bets the massive AI spending by tech giants is justified.

The real economy looks strong. The U.S. grew around 2.5% in 2025 despite weak housing, barely any job creation, and a global trade war. This year brings $110 billion in tax refunds, $100 billion from lower tax withholding, investment incentives, and a falling dollar easing financial conditions.

With AI spending rising and the budget deficit at 5.5-6% of GDP, this doesn't look like recession territory. Unlike the 2014-2016 energy collapse that killed business investment, the opposite is happening now.

(Karen Brettell)

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