AI is here — and investors lost over $400 billion to the realization that entire industries are on the cusp of being replaced.

Why it matters: The software-industry selloff, sparked by Anthropic's latest release, is ultimately just a baby step in a bigger transformation that may reshape how we all live and work.

• It's also the first tangible verdict on what happens when AI starts eating entire categories of work, well before the long-feared white-collar bloodbath even really begins.

Driving the news: Anthropic recently released a suite of software-killing tools — prompting investors to reconsider software companies' value, with the sector down 25%.

Zoom in: AI isn't just hitting software valuations, it's changing how these companies operate from the inside out.

• OpenAI CEO Sam Altman said he felt "useless" and "sad" using his own AI to code.
• Software engineers using the technology are also talking to each other less than ever, showing the "death of a community," Peter Coy writes.

The big picture: As of now, investors are seriously looking at AI not just as a productivity boost for software firms, but as a substitute.

• "AI is not just going to do something to labor ... it's going to do something to profits," Shelby McFaddin, portfolio manager of a $2.6 billion fund, tells Axios.
• One strategist likened it to BlackBerry: It survived, but its business model and valuation never recovered after being fully disrupted.

Yes, but: Some investors are still bullish on software stocks, especially now that they come at a discount.

• The winners could be companies offering software toolkits, rather than single-use apps.
• Software incumbents will also be hard to replace: "With AI, code may become cheap, but context is expensive ... you can't LLM your way past 10 years of customer data," Pitchbook noted in a report.

What we're watching: Stock prices are a bet, but sales are are the actual proof.

• Growth has already slowed for software names — and is a metric to watch for other industries that could be disrupted by AI.
• Customer retention will signal if people are switching to AI tools, David Fetherstonhaugh, EVP at VistaShares, tells Axios.
• Watch for the market to price in AI's broader labor hit across several industries in about a year-plus, McFaddin said.

What's next: Investors' fears about AI's impact on software companies could spread to other industries the emerging tech stands to disrupt.

The bottom line: Markets just ran the math on software in an AI world — and didn't like the answer.

AI promises to make work more productive for lawyers, but there's a problem: Their clients are using it, too.

Why it matters: The rise of AI is creating new headaches for attorneys — they're worried about the fate of the billable hour, a reliable profit center for aeons, and are perturbed by clients getting bad legal advice from chatbots.

Zoom in: "It's like the WebMD effect on steroids," says Dave Jochnowitz, a partner at the law firm Outten & Golden, referring to how medical websites can give people a misguided understanding of their condition.

• "ChatGPT is telling them 'You got a killer case,'" Jochnowitz says.
• But the models don't understand the full context, the actual laws that apply or the full history of certain types of cases. They often give clients a false impression of what's possible, lawyers tell Axios.
• The disconnect "makes people not believe what you're saying," says S. Randall Hood, a personal injury lawyer and founder of McGowan, Hood, Felder & Phillips in South Carolina.

The big picture: AI is shaking up the legal world, but it's still early stages.

Read more.

Mallory McMorrow, a Democrat running for Senate in Michigan, is laying down a marker on kids' online privacy and AI as her primary race heats up, per an exclusive interview with Axios.

Why it matters: McMorrow, a state senator who currently leads polling in the Democratic primary, is among the first Democrats running for national office this year to roll out a comprehensive plan for kids' online safety.

What's inside: McMorrow's plan calls for:

• Banning cellphones in the classroom.
• Requiring social media platforms to have "privacy by default" settings for minors.
• Prohibiting social media providers from allowing users under age 14 to access features like "infinite scroll" and limiting push notifications.
• Prohibiting chatbots from representing themselves as licensed professionals.

Keep reading.

• Moltbook was peak AI theater. (MIT Technology Review)
• Data centers are slated to account for a whopping 50%-ish of U.S. power demand growth the remainder of this decade. (Axios)
• A little-known Japanese firm, Nittobo, dominates production of a key glass fiber essential to advanced AI chips, creating a global supply bottleneck. (WSJ)

I had a blast getting to watch the team figure skating competition this weekend rinkside, as I captured photos for Axios. This, of "Quad God" Ilia Malinin, was one of my favorites.