First of all, I only plan to write this column when I truly have thoughts worth sharing. I have no desire to contribute to information pollution and clutter your already overflowing inboxes. Currently, our daily experience of the modern world is filled with endless words, gizmos, feeds and forwards — most of which we don’t need. It’s cluttering our minds with crap. So consume and create with care.
We currently live in times of instability. Society, markets, technology, politics, diplomatic relations, careers, you name it. It’s all sorts of volatile.
The Index of Consumer Sentiment, published by University of Michigan, is at an all-time low. That’s not a surprise, considering everything is just kind of expensive.
Yesterday, $300 billion was wiped out in a single day from the markets. Many well-known stocks crashed 10-20% or more. Wall Street propelled S&P 500 from a low of around $3600 after the big 2022 market correction to almost $7000 in early 2026, driven by the talk of AI. Last Thursday, Microsoft’s stock alone shed $357 billion in market value in a single day. Put that in perspective to $300 billion being the 2025 capital expenditure of Amazon, Alphabet, Meta and Microsoft combined.
Earlier, software was "eating the world” as some VCs repeatedly said and now Wall Street views software as the thing that's being eaten.
Ben Thompson pondered in Stratechery yesterday: "the most obvious bear case for any software company: why pay for software when you can just ask AI to write your own application, perfectly suited to your needs? Is software going to be a total commodity and a non-viable business model in the future?”.
But, as he points out, “writing an app is a commitment to a never-ending journey.” That's a truth. When companies spend thousands or millions in software subscriptions, they’re not buying software. They’re buying commitment. They're buying customer service, maintenance, reliance, and trust from people focused and committed on solving that problem.
Put vibecoding in the backdrop. Non-coders are building "vibecoded" apps in droves using fairly affordable LLM tokens available to anyone, with the barrier as low as simply typing or dictating what kind of software you want. Don’t know a thing about coding? Not a problem. Don’t have any opinion on good design? That’s ok. An online blogger from Germany noted that software, thanks to AI, is becoming like fast fashion.
This rapid adoption of AI among consumers and enterprise allows giants like Nvidia, Microsoft, Meta and others to invest hundreds of billions into AI infrastructure with the hopes that it will pay off many times over.
But, one has to simply look to history to see how overhyped cycles play out. In 2000, massive investments in fiber-optic cable overestimated consumer adoption and contributed to excess capacity that demand simply didn’t meet, leading to one large business failure after another.
Here’s Michael Burry who shut down the public side of his investment fund Scion a few months ago (and took bear positions against Nvidia and Palantir) penning a post a little while ago looking back on 1999. It’s worth a read. Yes, the same Michael Burry played by Christian Bale in the movie about the housing bubble, The Big Short. Now, he focuses mainly on writing through his Substack that over 200k people subscribe to. Interesting times.
So, are we in a time like 2000? No one can tell you that with conviction. Veteran asset manager and "permabear” Jeremy Grantham comes close in a letter published a few days ago.
As GMO’s report notes, many of the graphs of today, whether it is the percentage of the US stock market trading at over 10x price/sales or other key benchmarks of price-to-earnings ratios, of which the most well-known one is CAPE (cyclically-adjusted price-to-earnings multiple) are now looking at levels pretty close to those around the largest wealth destructions in history. CAPE was at 32.6 shortly before the 1929 crash, right before the onset of The Great Depression. CAPE reached 43.5 in early 2000 right around the dot-com crash. At the height of the recent bubble in 2021 before the big market crash of 2022, CAPE was 38.6. Today, CAPE is at 40 again.
Yet, listen to the earnings calls of any of the giants riding high on the AI boom, and you’ll often hear the CEOs say that the risk of not investing is greater than the risk of losses from the investments. But what’s behind the valuations of these AI stocks is circular financing. Nvidia invests in OpenAI so OpenAI can buy Nvidia chips. OpenAI drives Microsoft’s Azure revenue by while Microsoft owns 27% of OpenAI. Amazon invests in Anthropic while Anthropic, the maker of Claude Code, drives AWS revenue.
Here the reality though: we don’t live in a world of infinite capital. The music eventually stops.
We also don’t live in a world of infinite attention. Attention is precious.
And graphs don’t lie. History does repeat itself. Good sense prevails in the end.
The words of John Templeton remind that “this time it’s different” is the most slippery slope you can stand on for long-term value investing.
In times of instability, it’s more important than ever to push back on the hype and exercise good sense in decisions, lifestyle, products and design that will pay dividends for the long-term after all this ruckus quiets down.
—Siddharth
