Macro View On Software & Hyperscaler Pain

=== SUMMARY === - The selloff in software is not a systemic risk but rather an intra-market rotation. Profits are expected to shift from software vendors ("leeches") to their "real economy" customers who will benefit from lower costs, potentially driven by AI disruption. - The massive shift by hyperscalers from stock buybacks to CAPEX is a powerful, underappreciated macro stimulus. This corporate "dissaving" will boost real economic activity and growth, putting upward pressure on bond yields and favoring equities over bonds. === TRADE IDEAS === IDEA [1] TICKER: Software Sector / Non-Tech Sectors DIRECTION: SHORT / LONG SPEAKER: author THESIS: 1. THE FACT: The author frames software companies as "leeches" on the profits of "real world" businesses and suggests the market is repricing this relationship. 2. THE BRIDGE: This creates a relative value opportunity. As software's pricing power wanes (potentially accelerated by AI), capital and profits will rotate from the software sector to the traditional, non-tech businesses that are the primary consumers of that software. 3. THE VERDICT: Execute a pairs trade: short a basket of B2B software stocks and go long a basket of "real economy" non-tech companies poised to benefit from margin expansion via lower software costs. TIMEFRAME: medium-term IDEA [2] TICKER: S&P 500 / US Treasuries DIRECTION: LONG / SHORT SPEAKER: author THESIS: 1. THE FACT: Hyperscalers are set to deploy hundreds of billions in CAPEX, shifting from financial engineering (buybacks) to direct investment in the real economy. 2. THE BRIDGE: This massive injection of spending and borrowing by corporations is a form of "dissaving" that acts as a powerful economic stimulus, leading to stronger growth and upward pressure on bond yields. 3. THE VERDICT: Position for a pro-growth, inflationary environment by being long broad equities (which benefit from stronger economic activity) and short duration government bonds (which suffer from rising yields). TIMEFRAME:

The article argues that the recent software selloff is primarily an intra-market rotation rather than a broad economic drag, with the bigger macro story being hyperscalers shifting cash from buybacks to massive capex investments. This surge in capex acts like dissaving, injecting cash into the real economy and likely favoring stocks over bonds ahead due to stronger growth and higher yields. Credit risks are seen as modest, especially compared to historical crises. • Software selloffs are driven by B2B sales models being viewed as 'leeches' on other companies' cash flows, with market pricing reflecting reduced future success. • The market is experiencing a rotation rather than a rout, exacerbated by stretched positions but not a significant drag on the overall economy. • Hyperscalers are shifting from stock buybacks to massive capex investments (around $600 billion), reducing savings and injecting cash into economic activity. • This capex surge will lead to stronger growth and upward pressure on bond yields, similar to household dissaving. • Reduced buybacks may negatively impact specific equities, but the macro effect of increased economic activity is more important for aggregate markets. • Credit risks in tech and private credit are modest, with orders of magnitude smaller than during the 2008 financial crisis, preventing systemic concerns.