The artificial intelligence threat trade is continuing to widen as fears AI will disrupt a variety of industries hits a new group of stocks every day. Media stocks are the latest to fall victim to the scare trade as investors assess the risk AI-generated content poses to streaming and linear platforms peddling TV shows, films and other forms of entertainment content. "This is a market that is dominated by AI, both positive and negative, with seemingly every sector / sub-sector taking a turn at being declared obsolete," JPMorgan traders said in a morning note to clients Friday. Media companies suffered a steep sell-off on Thursday. Walt Disney fell 5% on the day, while Fox plunged nearly 8%. Streaming platforms Spotify and Netflix shed roughly 8% and 5%, respectively. All of the stocks have traded lower since the beginning of this year. Spotify and Fox have plunged 23%, while Netflix has lost 19%. Disney is down 10%. Those lower valuations reflect the potential impact of threats posed by emerging, AI-assisted media to traditional media houses, according to Wells Fargo. "Media stocks are down as investors reckon with fast-growing AI video platforms," Wells Fargo equity analyst Steven Cahall said Thursday in a note to clients. "We acknowledge this new reality, which will linger in lower valuations." The analyst added that short-form user generated content on YouTube is the largest source of TV time, capturing between 13% and 14% of audiences. Meanwhile, the quality of user generated content may soon improve through the use of AI tools, potentially fueling its dominance. But, the pullback in traditional media stocks and the rise of alternative content only tells part of the story. Spotify co-CEO Gustav Söderström said Thursday that his firm is building a data set that is less prone to disruption from AI because of its unique, qualitative nature. Meanwhile, Wells Fargo analysts noted that AI and amateur-generated content often lacks compelling narrative elements found in traditional media, leaving room for Hollywood heavyweights to continue courting audiences in a rapidly evolving landscape. "While the threat of new competition is real, we think today's moves lack some nuance," Cahall wrote. "None of these emerging AI video platforms improve storytelling…We think the market is assuming that the visual component is most of the journey to pro content, which is far from the truth."
