The Market Paradox - AI / Software

**Why Everything Is Selling Off?!** This is a question I see everywhere. People come up with some truly... unique reasons why. The most confounding feature of the current market environment is the simultaneous selloff in both AI infrastructure/hyperscaler stocks and the software/financial stocks that AI threatens to disrupt. The iShares Software ETF ($IGV) is down 24.6% YTD while NVDA has dropped 9-13% from recent highs. Salesforce ($CRM) has lost 40% over the past year. Even Nebius ($NBIS) reported earnings and saw immediate selling pressure. The market is pricing in two mutually exclusive narratives at the same time and I believe both are wrong. **Software Armageddon Narrative** Largely triggered by Anthropic's Claude Cowork release, a wave of selling hit software stocks across the board. The thesis: AI agents can now automate legal work, document analysis, coding, and enterprise workflows. This will eliminate the need for thousands of $10k+ SaaS licenses. Salesforce has become a bit of a posterchild for this, but names like ServiceNow ($NOW) are right beside it. Personally, I think the disruption risk to software margins is real, but the magnitude of the selloff far exceeds any reasonable downside scenario. Enterprise software transitions take years, not weeks, and the companies being sold are the same ones deploying AI the most aggressively. **AI Stocks are Also Selling Off?!** Here is the paradox. if AI is powerful enough to disrupt every industry, why are the companies building AI infra also declining? Three factors explain this: 1. The DeepSeek effect: essentially, frontier-capable models can be trained for a fraction of the prior costs. If cheaper models emerge, the foundation of the $602bn CapEx thesis [https://www.cnbc.com/2026/02/12/top-hyperscalers-to-boost-ai-capex-to-600-billion-stocks-that-benefit.html](https://www.cnbc.com/2026/02/12/top-hyperscalers-to-boost-ai-capex-to-600-billion-stocks-that-benefit.html) weakens. 2. 2026 has really become a "show me" year so far. It seems that investors now demand proof that the CapEx is generating returns. 3. Simple multiple compression: Semis are transitioning from "AI growth story" pricing to "prove fundamentals" pricing, a natural de-rating that occurs in every technology cycle. **My Take:** The market is making a classic category error in that its treating a rotation as a destruction event. The "AI Paradox" where we simultaneously price in software disruption AND infrastructure overbuilding is internally contradictory. If AI is powerful enough to destroy software businesses, then the demand for AI compute is by definition enormous and validates the CapEx spending. If the CapEx thesis is wrong, then AI is not powerful enough to threaten software incumbents. Both CANNOT BE TRUE simultaneously. AI infrastructure demand is structural (validated across several recent earnings) but the market is repricing the TIMELINE. The market is demanding near-term proof of returns rather than paying for long-term potential. This is healthy. This is not destructive. The opportunity lies in owning the names where demand is most visable and valuations are most compressed.