Software stocks got crushed. Did they have it coming?

The episode opens with discussion of a February market panic triggered by research suggesting AI could collapse the existing economy, which sparked a $1 trillion selloff in software stocks. The specific catalyst was both the Citrini Research report and the launch of Claude Cowork, an AI coding tool that impressed developers with its capability to speed up coding work significantly. This led to the "Sasspocalypse"—a massive decline in SaaS (Software-as-a-Service) companies like Adobe, Intuit, Workday, ServiceNow, Salesforce, and Oracle, which are now trading at 40% or even one-third of recent highs with PE ratios comparable to banks or cyclical industries, despite continuing revenue growth.

Rob Armstrong and Katie Martin argue the market reaction appears overdone because switching from established enterprise software systems is extremely difficult in practice. These platforms hold mission-critical data, integrate with regulatory compliance systems, and require massive organizational knowledge to operate. The switching costs are so high that companies cannot simply replace Oracle or Salesforce with an AI tool. The hosts note that similar predictions about database software being obsolete 20 years ago proved completely wrong, with Oracle remaining dominant.

However, the conversation acknowledges legitimate reasons for the stock weakness: AI might capture the innovation layer and user interface improvements built on top of the core data layer that SaaS companies provide. Alternatively, AI enthusiasm itself may be wildly overdone.

The discussion then broadens to systemic risk. The Bank of England's financial stability report warns that concentration risk in AI stocks is extreme—AI-related companies now account for approximately 50% of the S&P 500 (up from 25% in 2022), which itself represents about half the global equity market. The central bank sketches a scenario where AI stocks drop 45% over six quarters, though the hosts note that market declines of one-third are historically not uncommon and are something investors should plan for anyway. The fundamental problem is that while everyone knows bubbles inflate and deflate, the timing and specifics remain unknowable, making it difficult for investors to act on warnings.

The segment concludes with Long/Short picks: Armstrong goes long on Keith Snyder, a CFRA analyst with a sell rating on SpaceX, simply because contrarian views are rare on Wall Street where consensus ratings are overwhelmingly bullish. Martin shorts benchmark manipulation by egg producers who colluded to falsify egg price data, which distorted inflation readings during a period when egg prices were already volatile due to avian flu.