Dan Ives: This is the most disconnected trade I’ve seen in my career
Speakers
Summary
- The market is currently gripped by an "AI ghost trade," operating under the false assumption that raw Large Language Models (LLMs) will cause the demise of traditional software companies.
- Dan Ives views the recent tech sell-off as the most disconnected trade of his career, presenting a generational buying opportunity for software incumbents.
- The true enterprise value of AI does not lie in the LLMs themselves, but rather in the proprietary data and existing software stacks that companies use to harness and monetize these models.
- Despite options traders heavily betting on downside risk for mega-cap tech, underlying CapEx spending on AI infrastructure remains robust and is expected to drive the sector to new all-time highs.
- Macroeconomic headwinds, such as higher gas prices and consumer sentiment shifts, are viewed as contained and unlikely to derail massive enterprise spending on AI modernization.
Trade Ideas
"It's the view that these LLMs or anything that comes out is going to be the demise of software... I think Palantir has been a great example of it. I think Oracle... Salesforce ServiceNow... I think this is going to continue to be a generational buying opportunity for the winners." The market is pricing in an "AI ghost trade," assuming standalone LLMs will make traditional SaaS obsolete. In reality, raw LLMs lack enterprise utility without proprietary data and integrated workflows. Incumbent software providers own the data and the customer relationships, meaning they will successfully monetize AI features rather than be replaced by them. LONG. The current sector bottoming is based on a fictional narrative, offering a rare chance to buy dominant enterprise software companies at a discount before their AI modernization fully reflects in earnings. If enterprises actually begin abandoning traditional software stacks to build custom, in-house solutions directly on top of raw LLMs (like Anthropic or OpenAI), these incumbents could lose pricing power and market share.
"I think Microsoft is probably one of the most disconnected stocks that I've seen relative to the sell off." The options market is heavily discounting mega-cap tech due to fears of AI disruption and short-term macro headwinds. However, massive enterprise CapEx is flowing directly into AI infrastructure, which disproportionately benefits Microsoft's established enterprise stack and cloud computing services. LONG. The options market's downside bias has created an artificial discount on a company that is fundamentally positioned to capture the bulk of the AI infrastructure spending multiplier. A severe macroeconomic downturn or sustained inflation (e.g., energy prices) could force enterprises to cut the very CapEx budgets that Microsoft relies on for its AI growth narrative.
