$2 trillion got wiped off software stocks as the delusion of universal AI winners finally collided with reality
The stock market had a reckoning last week when investors suddenly remembered that not every company will win in an AI-driven future. Software stocks got absolutely wrecked. Legal, IT, consulting, and logistics companies all suffered massive losses as the reality set in: artificial intelligence doesn’t automatically make every business better. It might actually replace what some of them do. According to JPMorgan, roughly $2 trillion got wiped off software market caps alone. That’s not a correction. That’s a $2 trillion admission that the market had been wildly optimistic about something nobody actually understands yet.
- $2 trillion got wiped off software stocks as the delusion of universal AI winners finally collided with reality
- Deutsche Bank’s Jim Reid basically called this inevitable
- But here’s where it gets really weird: Reid thinks the panic might be overdone
- Ed Yardeni from Yardeni Research described AI as “speed skating on ice,”
Deutsche Bank’s Jim Reid basically called this inevitable
For months, he told clients that nobody actually knows who the long-term winners and losers of AI will be. Yet in October just four months ago markets were pricing in a world where almost every tech company would come out ahead. That’s not analysis. That’s delusion. Now that “more realistic differentiation” is finally emerging within tech, the repricing is rippling into the broader economy with scary speed. Reid said it best: “Over recent weeks we’ve seen a more realistic differentiation emerge within tech but that repricing is now rippling into the broader economy with surprising speed.”
Even JPMorgan’s CEO Jamie Dimon, who’s basically the finance industry’s dad, is calling out the bubble. He told people at the Fortune Most Powerful Women Summit last year: “You should be using it” (AI). But then he added the important caveat that back in 1996, the internet was real but it looked like a bubble too. The difference, according to Dimon, is understanding the distinction between AI and generative AI. Both are important, but one is overhyped relative to the other. And here’s the kicker: “some asset prices are high, in some form of bubble territory.” That’s not speculation. That’s a megabank CEO saying the market has gotten unrealistic.
What’s interesting is that Jeremy Siegel from Wharton actually thinks the market panic is asking the right questions. Writing for WisdomTree, Siegel argued that investors demanding clarity on payback periods, competitive dynamics, and sustainable competitive advantages is exactly what should happen. “When companies talk about $200 billion in capital expenditures, markets should scrutinize payback periods, competitive dynamics, and whether durable moats can be built in an environment where technology is evolving at breakneck speed.” Translation: companies are throwing obscene amounts of money without being able to prove the investment will pay off. The market is finally demanding proof.
But here’s where it gets really weird: Reid thinks the panic might be overdone
The repricing of “old economy” sectors feels excessive to him. The real problem is that by the end of this year, investors still won’t have enough evidence to identify structural winners and losers with confidence. That means everyone’s just guessing. Optimistic guesses, pessimistic guesses all guesses. “As such big sentiment swings will continue to be the order of the day,” Reid said. Translation: expect chaos because nobody actually knows what happens next.
Ed Yardeni from Yardeni Research described AI as “speed skating on ice,”
which is actually a perfect metaphor. it can write its own code. That code eats old code. New AI obsoletes old. The pace of obsolescence is moving at “warp speed.” Investors are selling anything that might get disrupted by AI because the disruption is happening faster than anyone predicted. It’s a self-feeding cycle where AI improves so fast that yesterday’s winner becomes today’s dinosaur.
The reality is that the market went from one extreme (AI fixes everything) to another (AI destroys everything) in about six months. Neither extreme is probably true. The actual truth is somewhere uncomfortable in the middle: AI will create massive winners and destroy significant portions of existing industries. But identifying which is which requires clarity that doesn’t exist yet.
That’s why the ice is thin, the skating is fast, and everyone’s nervous about falling through.
