How quickly we went from…

AI is a bubble; no one is going to use this

To…

OH MY GOD, AI is going to replace software!

TLDR; The Current Narrative

Apparently, Claude is so awesome that it will replace all software companies.

My Take:

What business owner is going to throw away operations-critical software at the drop of a hat—after decades of results, cooperation, and integration—for a “vibe-coded” solution?

My Answer:

None (of the smart ones).

The people pushing this narrative are truly out of touch with how the real world works.

Over time, will some software companies be displaced? Most likely; that is the nature of disruption. But will it happen this quickly, especially with AI having proven so little beyond top-of-mind use cases? I doubt it will occur at the rate the current slide in software valuations suggests.

The Slide in Cybersecurity is Officially Stupid

I often say the market isn’t stupid… but man, this is stupid. The stupidity — which had already achieved ludicrous levels when investors sold off MSFT (now >15% off its high) after it reported 38% Azure growth — has reached a new threshold as it spills over into cybersecurity.

Cybersecurity is officially the most oversold it has been since COVID. That doesn’t mean it can’t become more oversold, but we all know that earnings ultimately drive stock returns. AI isn’t going to kill cybersecurity earnings; it is going to accelerate them.

For the better part of the last 12 to 24 months, the consensus was that the advent of AI would lead to more frequent cyberattacks, thus increasing the need for cybersecurity products. I still believe in this thesis.

I guess a new narrative is forming: that customers of Crowdstrike or Palo Alto will create their own in-house solutions using AI. Are you actually convinced that companies that have — wisely — outsourced a mission-critical process to a specialist now want to become specialists themselves? Do they really want to allocate a meaningful amount of resources away from their primary business to do so?

If you answered “yes” and were selling today (particularly CRWD), understand that I was on the other side of that transaction in the bid.

It wasn’t a statement buy, but when your favorite stock gets taken the woodshed like this, you have to do something. These are opportunities to accumulate, not the time to jump ship.

While I may be wrong over the next few weeks or months, I have a feeling that whenever sanity returns to the software sector — and there is a lot of fear right now — I’ll be proven right in a big way.