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AI is transforming industries, but the data centers powering it require more energy and water than ever. At the break, join Christophe Beck, chairman and CEO of Ecolab, for insights on using water effectively while safeguarding this critical resource for future generations.
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Welcome to Tech News briefing. It's Tuesday, January 27th. I'm Katie Dayton for the Wall Street Journal. Today, after a long run as a Wall street darling, software stocks are no longer flying as they once were. And unsurprisingly, AI has a lot to do with it. We find out what the future holds for the likes of Salesforce and ServiceNow. Then prediction market companies like Kalshi and Polymarket are using a legal loophole to allow wagering on sports outcomes everywhere, which has them going toe to toe with more traditional sports betting platforms. We'll be taking a look at what this very modern heated rivalry means for the future of gambling. But first, when artificial intelligence emerged as a force to alter the way business is done, many thought software companies would be some of the biggest beneficiaries of the tech. But for investors, the vibe seems to have shifted. Software stocks, including Salesforce, Adobe and ServiceNow, have dropped by at least 30% since the beginning of last year. Increasingly, investors are concerned about how the sector could be upended by AI companies. WSJ reporter Sam Goldfarb has been keeping an eye on this trend and is here to tell us what's going on. So Sam, in a world where every company at some point said it was a software company, who are we talking about here? Which stocks are appearing as some of the biggest losers in this software slump?
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So basically all of them. Some big names are Salesforce, Adobe, ServiceNow, but really there's like countless number of software companies, both publicly traded and those that are owned by private equity companies, companies that are mid size and had, you know, loans that were broadly syndicated to investors and then a lot of companies that were lent to by these private credit companies and who are smaller. So it's like anywhere from tiny companies that were handling the billing issues for yoga studios to the big giants like Salesforce.
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And how rapidly has this decline in interest taken place?
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So it's happened gradually starting at around the beginning of 2025. Beginning of 2025 is actually when the term Vibe coding was like invented. And the downturn sort of coincides around with that. There was a lot of talk about just how easy it was to write software with these AI tools. AI can do what a junior software coder has been able to do. So that just makes it a lot easier to write, create Software with fewer people. So stocks started to gradually decline. And then there's been more sharp declines this year because of the release of Anthropic's Claude code, which just seems to be especially powerful tool for writing software.
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Has there been anything else going on in the economy or in the tech industry at large that might also have rocked software?
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Even before the AI concerns, software companies had taken a bit of a hit or software stocks from when rates rose in 2022. So it was really before 2022. That was the boom times for software stocks and software lending. That's when rates were super low. And also that was like the pandemic when there was a shift to remote work and that seemed to be good for various types of software. As we all went more online, the rising rates hurt stock valuations generally in software stocks in particular, and also made it more expensive to borrow. So that preceded the introduction of the AI risk, which only exacerbated those concerns.
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Where do analysts think the industry will go from here? Are they predicting the end of software's reign as we know it, or is there a more optimistic take out there?
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Even though there's been this almost uniform decline in stock prices, a lot of people just don't think that AI should be the death of software generally. A lot of people think that there should be some companies that even benefit from this trend that are able to use AI to lower the cost and improve their products. But it's just very unclear, like which of those companies will be those successful companies. So a lot of people do think that now could be a buying opportunity because stocks have fallen so much and, you know, now could be a time to buy the stock of whatever your favorite software company is, but it's just, you know, unclear exactly what company that is.
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That was Wall Street Journal markets reporter Sam Goldfarb. Have you tried Vibe coding? If you're a listener on Spotify, be sure to let us know in the comments. Coming up, we're lifting the lid on the fiercest and nerdiest rivalry in the NFL season. Prediction markets versus sports betting apps. That's after the.
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How can enabling Smarter Water Management help AI scale responsibly? Here's Christophe Beck, chairman and CEO of Ecolab.
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All water of the earth that we can drink is 35 miles wide. That's all we've got for the whole planet. So we'd better find ways to reuse water. That's especially true for AI. But here's the good news. With technology that can reuse water in that process of the chip's manufacturing and the technology that we bring is ultimately at every step of the process in the chip manufacturing to reuse it.
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Next month, Americans are expected to wager some $1.5 billion on the super Bowl. It would be a new record for sports betting, which has had a rapid rise in the U.S. since 2018. Sports gambling has been legalized in 30 states and Washington, D.C. but this year, a loophole that skirts state legislation will allow sports fans everywhere to get in on the action in the form of prediction markets ahead of the big game. Tensions have been simmering between prediction market leaders polymarket and Kalshi, the new kids on the block, and the old Ishgard of FanDuel and DraftKings. My colleague Peter Ciampelli is breaking it all down with some pre game analysis with WSJ sports reporter Jared Diamond.
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Jared, to start with the basics, what are prediction markets?
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That's a more complicated question than you probably think because the answer is it depends on who you ask. Right. To the prediction markets, companies themselves. This is a financial product. It's trading on futures the way any sort of financial product would be traded. But to most people, to the general consumer, prediction markets are the latest trend in the growing American pastime of betting.
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So what is the real difference between prediction markets and sports betting?
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Good question. So it's a little complicated, but I'll try to simplify it. With traditional sports betting, you, the consumer, the gambler, are betting against the house. The house being, let's say, FanDuel, DraftKings or in the old days, an old fashioned casino in Las Vegas. The house sets the line and you are betting against them. So if you win, the house loses and vice versa. In prediction markets, there is no house. Polymarketing, Kalshi, you are wagering or trading with other people as opposed to betting against this centralized house. That is essentially the difference. And it is to this point what has allowed Kalshi and polymarket to operate as a financial product and not as a gambling product, which really is at the center of of this entire discussion about what these things are and sets up a huge fight to come that likely ends up at the Supreme Court.
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Yeah. So as you mentioned in your piece, about 50% of Americans live in states that have banned sports gambling, most notably California and Texas. But prediction markets are approved at the federal level. So is this basically a legal workaround?
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So to answer that, we really need to talk quickly about how sports gambling in America came to be. Right back in 2018, the Supreme Court decides, hey, states have the constitutional right to legalize sports gambling if they want. And since then, many states have. Nearly 40 states now have some form of legal sports betting. In many of them, it's online sports betting. State regulators that make their own laws around gambling in those states. That's why whatever state you're in, the gambling rules on FanDuel or DraftKings might be a little bit different. Now here comes prediction markets. They say, we're not gambling. We don't fit the sort of criteria for gambling and has to this point, federally regulated by the CFTC as a financial product, which for now, is allowing it to operate everywhere. In Texas and California, those are the two big states that have no legal sports betting. Well, hey, we're not sports betting, so we're able to operate here. And they are. Now, you can imagine how some of the stakeholders feel about this. California and Texas is saying, hey, this is sports betting. We didn't legalize this. How are you allowed to do this in our state? Meanwhile, states where sports betting is legal, say Ohio, Massachusetts, many of them are saying, wait a second, we have sports betting laws. You're skirting them, and we're not getting the tax revenue that's supposed to come from legal betting. So they're upset. And now there's several states that have sued the prediction markets, and most people in the gambling industry believe that this also will be settled in the Supreme Court.
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Zooming out, you Note that the two biggest online sports betting companies took in $15 billion last year through November, up over a billion dollars since the previous year. What impact overall have apps had on American gambling as a whole?
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The rise of online sports betting has fundamentally changed American culture, just in profound ways. If you've basically been paying attention at all over the last nearly eight years, Sports gambling is everywhere. You can't go to a sporting event without seeing advertisements for FanDuel and DraftKings. Increasingly, there are venues, sporting arenas, stadiums that have sports books literally inside them. We also know from studies that particularly men between the ages of 18 and 35 are gambling at extraordinarily high rates. There's an incredible surge in gambling addiction. And that's why it's not a surprise that prediction markets have proven so appealing. Now you can bet on anything.
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That was WSJ sports reporter Jared diamond speaking to our colleague Peter Ciampelli. And that's it for Tech News Briefing. If you're a listener on Spotify, be sure to leave us a comment. Today's show was produced by Julie Chang with supervising producer Katie Ferguson. I'm Katie Dayton for The Wall Street Journal. We'll be back later this morning with TMB Tech Minute. Thanks for listening.
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How are data center operators working to improve sustainability and water savings at every stage of the data center lifecycle? Here's Ecolab's Christoph Beck with some thought.
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The Mach 7 or the Mach 4 are the ones who are really so focused on high tech, are the most forward looking. They have the means, they have the mindset, they have the passion for innovation and they're really open to try new things as well because everything is new with AI and with that technology as well. I think even if we're not where we wanted to be with that industry right now, we will be ahead in the next few years because innovation that's coming up right now is working much better than we thought. And it's really thinking in circular ways being in a data center or in a microchip manufacturing plant.
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Learn more about Ecolab at ecolab. Com.
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Custom content from WSJ is a unit of the Wall Street Journal Advertising Department. The Wall Street Journal news organization was not involved in the creation of.