Here's a puzzle that should make every investor's head hurt: AI stocks are crashing because AI is overhyped. And software stocks are crashing because AI is going to disrupt them.
Both narratives can't be true at the same time. Yet somehow, Wall Street is selling both stories simultaneously.
Let's break down the contradictions:
Narrative #1: AI is a bubble
Companies like Google, Meta, Microsoft, and Amazon are all down 20%+ from recent highs. The reason? Investors are panicking about massive AI spending ($200 billion from Amazon alone) without seeing proportional revenue.
The market is saying: "These companies are wasting money on AI infrastructure that might not pay off. It's the fiber-optic cable boom all over again."
Narrative #2: AI is going to disrupt everything
Meanwhile, software companies like Salesforce, Adobe, ServiceNow, and Intuit are also getting crushed. The reason? Fear that AI will let anyone build software, eliminating the need for expensive enterprise platforms.
The market is saying: "AI is so powerful it's going to make traditional software obsolete."
So which is it? Is AI overhyped garbage, or is it a revolutionary force? It can't be both.
What's actually happening: Fear-driven contradictions
Here's my read on this mess: The market isn't being rational—it's being scared. When investors panic, they don't need consistent narratives. They just need reasons to sell.
Think about it: If AI really is powerful enough to disrupt Salesforce, then why would Google's AI investments be worthless? If Google's AI spending is a waste, then why would Adobe be threatened?
The truth is probably somewhere in the middle:
1. AI will be transformative, but not overnight. It's going to take years for these investments to pay off.
2. Some companies will waste billions on AI. Just like the dot-com era, not every big bet will work out.
3. Established software companies have moats. You can't just "AI" your way to replacing decades of enterprise integrations and workflows.
4. The market is overreacting in both directions. AI isn't worthless, and it's not going to eliminate every software company overnight.
What should investors do?
First, recognize this for what it is: panic masquerading as analysis. Wall Street loves to create narratives that justify sell-offs, even when those narratives contradict each other.
Second, look at the actual numbers. Companies like Microsoft and Google are still printing cash. Their earnings aren't collapsing—their valuations are getting compressed because of fear.
Third, ask yourself: Do I believe AI is real and valuable? If yes, then someone is going to profit from it. Probably the companies building the infrastructure and the companies integrating it into existing workflows.
The bottom line: Markets don't have to make sense in the short term. They just have to scare enough people into selling. The AI paradox isn't about fundamentals—it's about fear. And fear, as always, creates opportunities for investors willing to think past the contradictions.
