What Happened?

Shares of online legal service provider LegalZoom (NASDAQ: LZ) fell 19.3% in the afternoon session after the broader software and data services sector sold off as artificial intelligence firm Anthropic released an automation tool for lawyers. The news appeared to spark worries about how AI could disrupt the software industry. The sell-off was widespread, affecting several other companies in the sector.

The shares closed the day at $7.33, down 19.7% from previous close.

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What Is The Market Telling Us

LegalZoom’s shares are quite volatile and have had 15 moves greater than 5% over the last year. But moves this big are rare even for LegalZoom and indicate this news significantly impacted the market’s perception of the business.

The previous big move we wrote about was 6 days ago when the stock gained 5.1% on the news that S&P Dow Jones Indices announced the company will be added to the S&P SmallCap 600 index. This inclusion is a notable development for the online legal technology company. When a stock is added to a major index, investment funds that track that index are typically required to buy the company's shares to align their holdings. This action often created demand for the stock from institutional buyers. LegalZoom was set to replace Elme Communities, which was removed from the index due to ongoing liquidation activities. The changes were scheduled to take place before the start of trading on February 2, 2026.

LegalZoom is down 23.6% since the beginning of the year, and at $7.33 per share, it is trading 34.4% below its 52-week high of $11.18 from August 2025. Investors who bought $1,000 worth of LegalZoom’s shares at the IPO in June 2021 would now be looking at an investment worth $193.66.

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