The market is panicking, but is it right to fear the "Claude crash"?
While the broader stock market might be enjoying a steady climb, a specific corner of the investment world has been experiencing a significant downturn, so much so that it's earned a rather dramatic nickname: the "Claude crash." This isn't just a minor blip; it's a reaction to the integration of AI, specifically the plug-in legal products introduced by the AI firm Anthropic for its Claude Cowork office assistant. You might think this sounds like a minor tech update, but the stock market's reaction over the past few weeks suggests a much larger narrative: the AI revolution is poised to significantly impact some of the UK's most established public companies, particularly those in the often-overlooked but highly successful "data" sector. Think of giants like Relx, the London Stock Exchange Group, Experian, Sage, and Informa.
Among this group, Relx, formerly known as Reed Elsevier, stands out as particularly intriguing. Its brands, including prestigious publications like The Lancet and the legal information powerhouse LexisNexis, might not immediately conjure images of cutting-edge tech. In fact, the company's own description – "a global provider of information-based analytics and decision tools for professional and business customers" – could easily induce a yawn. Yet, prior to the emergence of these AI concerns, Relx's share price was nothing short of remarkable. Climbing from a humble £5 in 2012 to a staggering £41 just last May, the company reached a valuation of roughly £70 billion, making it the fifth-largest entity within the FTSE 100 index.
And now? The situation has dramatically shifted. Relx's shares have effectively been slashed in half from their peak. The most precipitous declines have occurred precisely since the introduction of Claude's seemingly disruptive plug-ins. The market's sentiment has undergone a complete reversal, moving from viewing Relx as an AI beneficiary – due to its existing use of AI to enhance its products – to a position of fear, with concerns that its impressive 34% profit margin could be on the verge of collapse.
So, what's the company's perspective on this upheaval? While Relx's recent full-year results weren't titled "The Stock Market Has Lost Its Mind" (that's simply not their style), the figures and accompanying statement exuded a strong sense of confidence. Revenues saw a healthy 7% increase, reaching £9.6 billion, with operating profits climbing 9% to £3.3 billion. The company also projected "another year of strong growth in 2026," announced a 7% dividend hike, and committed to a substantial £2.25 billion share buyback program.
Chief Executive Erik Engström further articulated a compelling vision, explaining why the ongoing evolution of AI is expected to "remain a key driver of customer value and growth in our business for many years to come." In essence, his argument is that AI tools are not a novel concept. The recent launches causing such a stir are primarily "workflow" products designed for organizing, categorizing, and reviewing documents for specific projects. Relx, on the other hand, predominantly operates in a niche market for essential, comprehensive information that is legally defensible and highly reliable. This information can be a mix of public data, historical public data, hard-to-find data, licensed data, and proprietary data. Crucially, it's all imbued with "judgments, inferences and interpretations gathered over decades" that are invaluable to professionals in science, law, insurance, finance, and risk assessment. AI, in this context, can either enhance this value-adding process or simply make the information more accessible for clients.
Engström also highlighted Relx's strategic flexibility. The company is free to engage in limited licensing agreements with AI firms if it chooses and can continue to develop its own "workflow" products. However, it has no intention of relinquishing its unique, proprietary information, which forms the bedrock of its business value.
This communication did elicit a modest 2% bounce in the share price, which is certainly a positive sign. However, it still suggests that the market harbors significant anxieties about the future trajectory of AI and whether Relx's so-called "competitive moat" – the unique advantages that protect its market share – is as robust as analysts believe. A significant part of this unease stems from the fear of the unknown.
But here's where it gets controversial... If Relx genuinely believes, as its CEO stated, that growth is sustainable "for many years to come," and its shares are trading at half their value from a year ago, then the path forward seems clear: aggressively continue with share buybacks. The current £2.25 billion buyback program, an increase from £1.5 billion, represents 6% of the company's total equity. If this pace is maintained for a few years, it could significantly boost earnings per share, provided, of course, that the company's growth projections hold true.
And this is the part most people miss... A similar strategy of increased buybacks is reportedly being advocated by activist investor Elliott Management for LSEG, where the AI-related concerns and counter-arguments echo those surrounding Relx. If a company is truly confident in its long-term prospects, then a substantial buyback program is not just a financial maneuver; it's a powerful statement of that confidence.
What do you think? Is the market overreacting to the "Claude crash," or are these genuine threats to established data giants like Relx? Should companies like Relx be doubling down on buybacks, or is there a more nuanced strategy needed to navigate the AI revolution? Share your thoughts in the comments below – we'd love to hear your perspective!
