For the first time, the high-multiple software industry faces a potential existential threat from AI. Even the possibility of disruption is enough to compress valuations, causing massive dispersion where indices look calm but underlying sectors are experiencing extreme rotation.

The recent software stock drawdown is not about poor current performance; many companies are still beating earnings. Instead, the market is pricing in a massive "terminal value risk" from AI, valuing companies as if they will decline in perpetuity, creating a historic disconnect between current fundamentals and long-term valuation.

The downturn in software stocks isn't tied to current earnings. Instead, investors are repricing the entire sector, removing the premium they once paid for its perceived safety and stable, long-term contracts, which are now threatened by AI disruption.

Many developers dismiss AI coding tools as a fad based on experiences with earlier, less capable versions. The rapid, non-linear progress means perceptions become dated in months, creating a massive capability gap between what skeptics believe and what current tools can actually do.

To predict AI's future impact on the broader economy, observe its current capabilities in software development. AI models are consistently about a year ahead in coding ability compared to other domains, providing a reliable preview of the automation coming to other knowledge-work sectors.

Leading engineers like OpenAI's Andre Karpathy describe recent AI tools not as incremental improvements but as the biggest workflow change in decades. The paradigm has shifted from humans writing code with AI help to AI writing code with human guidance.

The recent software stock wipeout wasn't driven by bubble fears, but by a growing conviction that AI can disintermediate traditional SaaS products. A single Anthropic legal plugin triggered a massive sell-off, showing tangible AI applications are now seen as direct threats to established companies, not just hype.

The recent $300B SaaS stock sell-off wasn't driven by current performance. Investors are repricing stocks based on deep uncertainty about whether legacy software companies or AI-native firms will capture the value of automating human labor in the next 3-5 years.

Casado, a lifelong developer, states he never would have guessed AI would become so proficient at coding. He identifies it as the single area where AI has surprised him most, suggesting a multi-trillion dollar market opportunity.