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Why software stocks are getting pummelled

185 points by petethomas 9mo ago

ciconia 9mo ago
https://archive.ph/37Hwn https://archive.ph/37Hwn
dheera 9mo ago
It always amuses me because the people complaining about stocks going down are always the same people who are causing them to go down. Losing money was a choice that those people collectively made. They could have chosen to act differently, in light of the optimistic long-term future.
- dasil003 9mo ago
  No doubt! Collective action is a solved problem! Why do people do things other than the obvious Right Things we can all agree on? Must be some kind of mass psychosis…
bnchrch 9mo ago
QQQ is up 20% over the last year. GOOG is up 70% over the last year. "Pummelled" seems extremely sensational...
- airstrike 9mo ago
  GOOG is now also an AI company, so not exactly a fair comp as it doesn't fit neatly into the "software" bucket MSFT is only up 3% over the last year
- jen729w 9mo ago
  You didn't read the article. The first graph plots Workday, Salesforce, SAP, and ServiceNow. Google isn't mentioned.
  - bnchrch 9mo ago
    Maybe they shouldve said ERP stocks are getting "pummelled"
    - nateglims 9mo ago
      It basically does > The value of listed American enterprise-software companies is down by 10% over the past year.
- cess11 9mo ago
  Some 7-15% down in a trading day is a lot for an established corporation. I consider Salesforce dropping 7% without some obvious trigger to be at least somewhat newsworthy, and from the first sentences in the article I get the impression that The Economist is sitting on more examples like that. A lot of people are tense about the AI venture ouroboros and what it might mean for future software, especially people with money and little to no experience actually deploying software. Edit: At the time I saw some memes claiming that roughly 1.5 trillion dollars in market value had evaporated, which if true is not a small sum.
- bagacrap 9mo ago
  Google makes very little money selling enterprise software
llmslave 9mo ago
Software will be easy to create, which will kill moats and margins on existing products. The game is up for pure saas. Smart money started pricing this in one year ago
- skissane 9mo ago
  For a lot of SaaS firms, a big part of their value is the domain knowledge and best practices encoded in the software. Current AIs often do a bad job of that. Sure, they know a lot of it. But they also get a lot of it wrong, and can’t tell the difference between genuinely good advice, and advice that sounds good but is practically worthless or even harmful. (Of course I’m biased since I work for a SaaS firm. But I’m talking about them in general, not just my current employer.)
  - llmslave 9mo ago
    ai will know the domain knowledge
    - skissane 9mo ago
      I'm not sure how realistic it is to expect AIs to get detailed hands-on domain knowledge. A lot of this stuff humans learn by doing and by experience. AI models don't learn anything by doing and experience. A model vendor can't possibly encode all that experience into their training data, and even if they try, the problem is a lot of it will be vertical-specific, country/region-specific, and it is forever changing. SaaS firms have professional services and sales consulting teams who are constantly talking to customers about their actual business problems, and they feed that accumulated wisdom back to product management and data science, who in turn help engineering encode it into the product. From what I've personally seen in SaaS AI agent development – if you try to build an AI agent to give customers advice in a particular business domain, you need to do a huge amount of work validating the answer quality with actual domain experts, and adjusting the prompts / RAG documents / tool design / etc to make sure it is giving genuinely useful advice. It is really easy to build a system which generates output which sounds superficially good, but an actual domain expert will consider wrong or worthless.
lateforwork 9mo ago
> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.
- tossandthrow 9mo ago
  That would justify a good multiple of 5 to 10. Not 30 or above as for high growth companies.
  - louiereederson 9mo ago
    multiple of what? there is maybe one software company trading above 30x revenue - palantir. many companies growing at 20% trade at single digit revenue multiples.
    - jmalicki 9mo ago
      Unqualified it almost always means earnings (profits).
      - louiereederson 9mo ago
        that is really not the case in software, people commonly go between EV/S and EV/FCF for high growth names. also earnings could mean: GAAP earnings, non-GAAP earnings, ebitda, ebita, FCF, FCF ex share based comp.
- airstrike 9mo ago
  yes but investors don't know that or for a more charitable comment, I think the issue people struggle with right now is how much of non-AI software will be replaced by AI-native versions. and it's not even a 1:1 mapping. we may see 5 different small companies replaced by a single AI interface. all TBD, but there's merit to avoiding that risk right now if you can just allocate to NVDA and GOOG instead
poulpy123 9mo ago
Maybe just maybe, the markets are not as rational as these people think they are
- jeroenhd 9mo ago
  Reminds me of that time when Nintendo's stock exploded after the launch of Pokemon go, only for traders to discover a few hours later that Niantic actually owned the game and correct the situation.
  - zamadatix 9mo ago
    Nintendo is one of the three 1/3 owners in The Pokemon Company and an early investor in Niantic. I'd be curious how much was actually confusion as to who is making money vs just a normal hype cycle. I'd also be curious how much the game itself made the various owners vs what Nintendo made on the general interest in other Pokemon games/merchandise from the launch. At the very least, the stock looks to have shot up for most of the launch month with the peak not occuring until July 18th and the stock still being significantly higher at the end of the month https://finance.yahoo.com/quote/NTDOY/history/?period1=1467331200&period2=1469923200 https://finance.yahoo.com/quote/NTDOY/history/?period1=14673... I think the funniest bit of pure confusions was "Zoom Technologies (ZOOM)" being mistaken for "Zoom Video (ZM)" at the start of the pandemic to the point the SEC halted its trading on concerns around the confusion being the only reasonable driver. https://markets.businessinsider.com/news/stocks/zoom-technologies-stock-halted-sec-confusion-with-zoom-video-coronavirus-2020-3-1029036453 https://markets.businessinsider.com/news/stocks/zoom-technol...
    - jeroenhd 9mo ago
      I was referring to the day Nintendo stock fell 17% after they published a notice on their website (outside of trading hours) that they did not in fact make Pokemon Go: https://www.theguardian.com/technology/2016/jul/25/pokemon-go-nintendo-shares-tokyo-stock-exchange-niantic https://www.theguardian.com/technology/2016/jul/25/pokemon-g... The Zoom story is even crazier. The idea of the SEC needing to step in because traders were absolute idiots throwing their money away is laughable. Let the traders burn their cash if they're too stupid to Google a stock's name, I say. Let them prove that the markets are intelligently driven and not just gambling for those under the influence of cocaine on the job.
iamleppert 9mo ago
Meanwhile, in the real world, as a software developer who uses every possible AI coding agent I can get my hands on, I still have to watch it like a hawk. The problem is one of trust. There are some things it does well, but its often times impossible to tell when it will make some mistake. So you have to treat every piece of code produced as suspect and with skepticism. If I could have automated my job by now and been on a beach, I would have done it. Instead of writing code by hand, I now largely converse with LLMs, but I still have to be present and watching them and verifying their outputs.
- eknkc 9mo ago
  Yeah but just look at what happened within the last 2 years. I was not convinced about the AI revolution but I bet in another 2 years, we won't be looking at the output..
  - polotics 9mo ago
    Not so sure, there are indiosyncracies now within the various models, I suspect all this is the result of RLHF, and they cause side.effects. I'm not sure that more attention-is-all-you-need is necessarily going to give us another step change, maybe more general intelligence, but not more focus. Possibly also we soon end up with grokked AI's on all side: pushing their agenda whatever you asked... Gemini: "no this won't work with Cloudflare, I created your GCP account, there you go" OpenAI: "I am certain you really wanted me to do all these other tasks and I have done them, you should upgrade your tokens plan" etc (you know how to fill in for DeepSeek and Grok already, right)
  - falloutx 9mo ago
    Tech can always hit a plateau, here's to hoping anthropic & openAI run out of money.
- headcanon 9mo ago
  I've been coming around to the view that the time spent code-reviewing LLM output is better spent creating evaluation/testing rigs for the product you are building. If you're able to highlight errors in tests (unit, e2e, etc.) and send the detailed error back to the LLM, it will generally do a pretty good job of correcting itself. Its a hill-climbing system, you just have to build the hill.
grwbx 9mo ago
What an odd article that is just designed to hype the software creation aspect, which doesn't really affect MAGAF. MSFT went down because of overexposure in AI and because it is clear that people do not want it. AI weariness is a thing, and if people go off the Internet or advertisers question whether humans or AI swarms are "watching" their ads it is over for the big players. Trying to salvage the situation by hyping the relatively small code generation (theft) aspect is quite a poor analysis.
- likium 9mo ago
  HN crowd did not like AI coding until it got better. How much of the AI hate is because of poor implementation?
  - falloutx 9mo ago
    I guess you can classify over-implementation as poor implementation.
- nonethewiser 9mo ago
  Yeah the article doesn't make a lot of sense to me. Guess whose writing software with AI? Software companies. They mention sites like Base44 and Lovable. Sure, if tons of business was rotating out of software into no code AI solutions the article would have a point. But has a large portion of market cap moved out of AI into a few little no-code startups? Is Salesforce, Service Now, and SAP being replaced with no code applications? No. Absolutely not. These are small, niche companies. It does not explain a large downward movement in an entire industry.
  - bagacrap 9mo ago
    FTA: > dedicated software companies [...] are better at using AI to write code Obviously public market capital cannot rotate into private companies (startups). However it has rotated into non-tech companies, i.e. the firms this article says some believe will benefit from cheaper alternatives/disruptors.
- 9mo ago
flerchin 9mo ago
Is the pummeling in the room with us right now? YoY looks phenomenal in my portfolio.
- dmoy 9mo ago
  This article I think is about a very specific subset of software stocks. If you're holding say a total market index fund, or s&p500, or even qqq or many tech index funds, this would get hidden by the so-far very good growth on other tech stocks.
- TSiege 9mo ago
  I'd look at things beyond the magnificent seven. Economists and traders have noticed that the SP 500 now has a K shape similar to our class wealth distribution. https://fortune.com/2025/11/10/markets-k-shaped-economy-apollo-winners-losers-wealth-ai/ https://fortune.com/2025/11/10/markets-k-shaped-economy-apol...
_pdp_ 9mo ago
I was one of the nay sayers but right now I am convinced. That being said, it still requires some engineering background to come up with interesting ideas and solutions with the help of LLMs but even that might be replaced.
- luke5441 9mo ago
  So you disagree with the article? Could you explain your reasoning?
wtp1saac 9mo ago
Certainly no investor, but my own feelings: AI replacing vendors feels like a strange risk, though I'm not sure if vendors view things through a technical lens. Security concerns and service maintenance alone, IMO, makes writing internal software a large proposition - one that I would want a trusted vendor if it wasn't a hobby project and I could just afford that. Particularly if that data being lost or broken would severely harm a business. There are also already frameworks in languages like Python that make putting up an internal website very, very simple. If you don't need production grade, you might have already had a pretty low barrier to entry, if you have the skills to figure out how to host the service you just vibe coded, you can probably figure out some basic django to throw data in its ORM, or find libraries that do the work for you. AI does feel in those technical ways to be an overstated risk, to me at least. Far more worrying to me is the breakdown of the USA and its role. We are going to have blocs of software and hardware entirely from competing geopolitical regions, which may not be able or authorized to communicate with one another. Any businesses in the USA with significant CA or EU marketshare right now will decline in value to the degree client companies choose, or are told, to stop using USA systems. (My own governor in California outright antagonized the Europeans at Davos calling them "pathetic" while telling them to get tough on Trump, which means in practice, stop using US, meaning yes California, tech goods and services. A lot of revenue from tech comes from overseas, and we are going to lose at least some portion of that. Particularly in California which already has budget problems with what revenue it's got. Stunning how even The Guardian treated those remarks as "tough" and not insane and self-destructive... sadly it's nothing compared to the worst of the US right now.) So, where do you throw investment right now? To the US where the marketshares will likely decline, and the political and trade environment is insanely uncertain, but there is momentum on AI and generally decent hardware design, and the existing software companies and knowledge? To the EU or Canada where maybe a nascent software industry will take hold, or perhaps American companies will relocate talent if the USA collapses into civil conflict? To China, if they end up becoming a hegemon, given their strength in hardware and their growing efforts to invest in software alternatives? I suppose I read markets don't react to "tensions," and maybe it is unprecedented to modern memory, but I think about these things more than AI.
- wtp1saac 9mo ago
  I would add: open source throws additional curveballs. The EU wants to push for open source, and that is admirable, but I wonder what the sustainable funding model would be, and how that could attract attention. I wonder about business models and ability to generate return on investment. I would think the saner solution is allowing proprietary companies, but imposing technical standards which companies collaborate on, enabling interoperation. Am I mistaken, that the EU is trying to do this with the DMA? I have heard general overtones, but I haven't looked at it very closely, and our media doesn't cover EU tech regulations in much detail in the US, though in a decent world it would, I wish it would.
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SimianSci 9mo ago
The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems. SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was harder to create will need to be justified.
- themafia 9mo ago
  > this much is clear to most people. There are more computers now than there ever have been. More people in more parts of the world have them than ever before. If you have this perspective you may just be locked in a first-world corporate nightmare that has stolen from you all vision and imagination.
  - KellyCriterion 9mo ago
    TRUE! Actually the world around is controlled already by computers ~ chips: Your car, your dishwasher, your metro, your holidayjettravel etc. And it becomes "worse": Billions and billions of chips ~ compusters are produced every year, the number is increasing. Billions of people will get access to the stuff that was around for us "since ever" for the first time in their whole life.
  - SimianSci 9mo ago
    Perhaps the it would be better described as "commodification" of software, which still gets my point across. Software is absolutely more ubiquitous than ever before, this I can agree upon. But now we have the tools to create more of it, and therefore software is less valuable simply as it is less rare. I dont mean to say that software is valueless, but rather that it enjoyed inflated value as the amount of capital and effort required to build a software product was much greater.
- nonethewiser 9mo ago
  I dont actually think it changes the economics of software as a service much. What's true for the small scale is true for the large scale. Sure, it's easier to build your own HR platform now but it's also easier to write and maintain it at scale with all your domain knowledge, legal infrastructure, etc. This seems true for inventory management, document signing, ecommerce, expensing, crm, training, accounting, etc. Why wouldn't the offerings from services providers get better and cheaper (relatively)? The stuff you do in-house is probably still going to tied deeply to your internal processes. Admin dashboards, special workflows integrating with different systems, etc.
larodi 9mo ago
No, they dont distrust AI, they now may start to distrust all the big service providers that are likelty to eventually be eradicated by AI now that everyone can prompt a browser. This perhaps will also finally kill Microsoft Access, which is the closest to AI doing the work instead of you for so long. Then all the do-it-yourself enterprise-grade systems became SAAS, so its right for SalesForce and friends to go fck themselves once in a lifetime for standing in the way of actual software ownership. I know, you are saying - they will adopt. Perhaps, while also cutting 40% (if not more) personnel during the pivot, and perhaps also by facing more challenges by faster moving competition. Like, look for a second - why didn't Google create what the perplexity newsfeed is, given they actually like did 10 years ago and then close to nobody was using it. The equilibrium seems super unstable. What happens if a smart kid devices way to compress this information 10x times faster. This immediately means neural chips stall. This volatility is something, not a joke. The second order effects may be unforseeable in an unparalleled way. Besides, the Luddites organize much better in 2026 given reddit etc.
mempko 9mo ago
This article crystallizes something I witnessed firsthand last week. Overheard a guy at a restaurant explaining how he builds phone apps with AI and no coding experience. When asked how he verifies the code works, he said he pastes it into a different AI to explain it. That's the "slopware" problem in action. The code compiles. It might even work. But there's no understanding of what it's actually doing, no ability to debug when it breaks in production, no awareness of the technical cruft accumulating with every prompt. That's a problem for people creating software for others and is a huge opportunity for software developers to take prototypes and build real stuff. Does anyone remember the RAD days of the 90s? On the flip side, for people making software to solve THEIR problems, they don't need to make anything production quality. Its for a single user, themselves! Maybe the LLMs are good enough now that people don't need to buy or subscribe to software that solves trivial problems as they can build their own solutions. Maybe the dream of smalltalk, hypercard, and even early web where anyone can use the computer of what it was meant for is finally here?
- christkv 9mo ago
  Thats fine Ill charge him 500 bucks an hour to fix it if it has success and he runs into not being able to maintain it
elorant 9mo ago
Because the bubble has began to burst.
raincole 9mo ago
take a look at 5-year trend It's just correction.
- Noaidi 9mo ago
  But it is not THE correction.
trgn 9mo ago
the crash is indiscriminate, which is really disheartening. even infra software is getting demolished, no llm is going to replace something like mongodb, but it's all traded under the same umbrella.
christkv 9mo ago
The cleanup needed after this by senior developers will be epic.
- falloutx 9mo ago
  Most of the these companies wont survive because of thier stupidity anyway.
- h4kunamata 9mo ago
  Needed?? It already started, freelancer developers are making a lot of money already. I remember watching a developer having to fix the company entire code because they went full AI and now nobody knows shit anymore. If you are a good senior developer indeed, now is the best time for you to become millionaire. Company after company can no longer fix things, they are bringing external developers to keep afloat. Remember the tweet popular last year with the AI bot deleting the production database setting the company back to zero??? So....
francisofascii 9mo ago
The iShares Expanded Tech-Software Sector ETF (IGV) seems to backup what the article is saying. It isolate software firms from the IT industry. It is down about 10% last week, and 20% down the past six months. The IT sector as a whole didn't lose much.
- FireBeyond 9mo ago
  I used to work for ServiceNow. Market Cap over doubled between 2021 and 2025. But since the start of 2025, it has lost all of that. 13% in the last week. 20% in the last month. Six months is definitely bleaker than those numbers, 37% down.
agentultra 9mo ago
... because they've been driven by years of bad leadership, monopolistic scheming, and investor speculation? AI is just the latest symptom, IMO. We normalized growth over revenue. Governments around the world have been pressured by Big Tech to dismantle anti-trust and regulation. We glorified shipping slop, suppressing unions, and pretending like programmers were temporarily embarrassed founders. The stocks are dropping because our system can't sustain these practices, IMO.
dzonga 9mo ago
investors are panicking. however those system of record apps - will outlast most "A.I" companies - since the effective data is within their systems
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gwbas1c 9mo ago
I wonder when a "virtual person" will be able to replace carefully-coded business software? IE, before software automates a business process, it's typically done by hand, by a real person. What if someone sells a "virtual person" that's capable of doing the job? What if that "virtual person" is harder to train than a real person, but orders of magnitudes easier than writing custom software or custom business rules? More importantly: What if the "virtual person" can explain the job they do much better than trying to read source code? That's very useful in ~30ish years when the "virtual person" understands the business process better than the people in the company, and someone is trying to update / streamline processes.
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paxys 9mo ago
Is it AI or just the market realizing that some of these companies were ridiculously overvalued to begin with. Here are the p/e ratios of companies mentioned in the article, after the said "pummeling": * ServiceNow - 70.66 * SAP - 28.70 * Salesforce - 28.15 * Workday - 73.16 * Microsoft - 26.53 So they range from "a bit high" to "still completely bonkers".
- margorczynski 9mo ago
  I would say that MS here is undervalued. They do not offer some small software package for a given business problem but the whole shebang - the OS, mail, calendar, office suite, IAM, cloud, etc. + support for each and the whole integration. You can't realistically replace that with some LLM solution (in the near-term at least) and they can use the AIs to reduce their costs which is mostly people.
  - TacticalCoder 9mo ago
    > I would say that MS here is undervalued. Windows 11 though...
    - its_magic 9mo ago
      Yeah, that one is a real gem. BeST wInD0Wz EvAr
  - roncesvalles 9mo ago
    Microsoft has consistently proven over the last five years that they have zero ability to execute. It's an astounding failure after failure to do anything right.
    - yuucc 9mo ago
      All my Microsoft friends constantly berate the state of their hiring pipelines. Sprinkle on a paltry comp and this is hardly surprising.
alexpotato 9mo ago
So one thing that hasn't changed is that the marginal cost of software is still effectively zero. That's where most of the money was being made b/c if you were a monopoly or oligopoly that each additional unit sold was an absolute increase in revenue and you spread out your fixed costs. What has changed most dramatically is the "fixed" cost of writing the software to begin with. Given that the costs were being spread out over so many units beforehand, it's not entirely clear to me how that changes a lot of the economics. For the comments about the "SaaS vs build your own", we can use a home services metaphor. Sure, I can do a lot of what my plumber does. But they do it faster, know all of the issues that go wrong with the work and I can pay them a yearly fee to check my boiler to make sure it doesn't fail etc. The time saved by calling the plumber can then be spent with kids, more work or a combo of the two.
- walkersnice 9mo ago
  I think the idea is that SAP/ServiceNow will be subject to more competition, if/when software is cheaper to write. Their lead has shrunk, and thus so has their value.
keithnz 9mo ago
Other than smaller SaaS companies who offer things easily replaceable, I don't think many of the bigger ones can be replaced by AI, if anything, it might make them better. For instance I can't see us replacing our ticket management/support software, hosting, manufacturing/sales/stock software, accounting software, etc but it would be great if we could leverage all those tools better via AI (some are already easy to leverage). The interesting thing I've noticed is software library authors could take a beating though. Quite a few libs in the .NET world have gone down the monetized paths, for all of the ones I've been using, I've just got AI to remove them and implement native solutions. But none of these are large listed companies.
jbjbjbjb 9mo ago
There’s only so much investable capital available, if it is going to hardware stocks it’s got to be coming from somewhere else. It’s just a substitution toward hardware tech stocks. Economics 101.
h4kunamata 9mo ago
Investors do not understand how coding works. Google "Project Genie" which allegedly can take your input and the AI will make it rain, drove investors into panic mode. They think that you can create GTA6 like that. It was the perfect storm: clueless investors + the whole AI bubble already bursting if you are following non-biased news.
AstroBen 9mo ago
If I were confident it were AI as the cause I'd be seriously tempted to buy right now Take Adobe for example: they're getting pummeled and there's no way it's due to AI No-one's building an in-house Photoshop clone to replace them AI also isn't letting any competitors in. Geez if it were as easy as cloning their product you'd have a mile high mountain of VC money to fund it even pre-AI Code has never been much of a barrier to entry
- bagacrap 9mo ago
  Do you have a theory what the cause is then? The market moves and pundits write a story to match. There is no telling whether it's right or wrong.
  - ashrotyne 9mo ago
    The gate opens. The gate closes. It does not "help".
lvl155 9mo ago
It’s not that AI will replace softwares. It’s that AI will replace people using softwares. Less workers means lower sales. There will be exceptions but a big chunk of B2B space is basically going away.
daxfohl 9mo ago
Whatever the reason, the result is probably more layoffs.
woodpanel 9mo ago
Or it could be just the good old cyclical stock market correction after years of entire segments of the indecies growth being purely driven by software. Of course such an angle would require much more research on behalf of the journalists for much less spotlight than what you would get for free by just singing to the tune of AI-doomerism.
aabajian 9mo ago
There are many stories on r/ClaudeCode of developers realizing the power of that particular model. Think of all the solo developer webapp/mobile "hot" startups (FB, Craigslist, Instagram, SnapChat, Pinterest, etc.). It is no joke that a seasoned developer can build similar apps with Claude in...days. Not just the app, but the entire infrastructure (e.g. scalable on AWS using Terraform). This includes setting up domain registration, Elastic IPs, provisions the instances, setting up keys/ELBs/email server/Twilio/etc. What is astonishing is how well Claude can plan. You write a spec, and it will give you an entire plan including ASCII UML diagrams, infrastructure changes, database updates, the code itself, user stories, and test cases. It will then do all the work, including "tricky" things like SSHing over a bastion to run the scripts that it wrote on an instance behind a VPC. The main obstacle now is the context window. If it were to increase 100x or so, Claude could probably manage an entire software company's codebase at scale. I'm sorry to say, but there's no way you could use Claude for a month or so without feeling, "We are going to need way fewer software engineers."
highfrequency 9mo ago
> Of course, ai will continue to improve. But it is also likely to get more expensive…Microsoft’s share price took a beating last week as investors winced at its enormous spending on the data centres underpinning the technology. Eventually these companies will need to demonstrate a return on all that investment, which is bound to mean higher prices. That’s not how it works, and I’m surprised this fallacy made it into the Economist. Commodity producers don’t get to choose the price they charge by wishful thinking and aspirational margins on their sunk costs. Variable cost determines price. If all the cloud companies spend trillions on GPUs, GPU rental price (and model inference cost) will continue going down. Indeed, cheaper and cheaper AI for the same level of performance has been even more consistent empirically than improvement in frontier model performance.
- heresie-dabord 9mo ago
  > I’m surprised this fallacy made it into the Economist. Fallacies in the Economist, you say without irony? From TFA: > Yet investors risk misdiagnosing the industry’s troubles. Oh, I think investors are asking, "where is the actual gain in capability and/or productivity?" Because they don't see it. And huge lay-offs don't prove it. > Of course, AI will continue to improve. This is begging the question. However, for the sake of argument, let's assume that AI continues to improve. The thing we call AI is a long way from improving robotics. It's most prevalent practical value right now is improved search and code/text information assistance. But these improvements themselves have proven to be far from perfect. The only monetisable path that we have seen in search and information assistance is advertising. The AI boom walks and quacks like a duck: a bubble, and a dawning generation of new facets of enshittification.

185 points by petethomas 9mo ago

https://archive.ph/37Hwn https://archive.ph/37Hwn

It always amuses me because the people complaining about stocks going down are always the same people who are causing them to go down. Losing money was a choice that those people collectively made. They could have chosen to act differently, in light of the optimistic long-term future.

dasil003 9mo ago
No doubt! Collective action is a solved problem! Why do people do things other than the obvious Right Things we can all agree on? Must be some kind of mass psychosis…

bnchrch 9mo ago

QQQ is up 20% over the last year. GOOG is up 70% over the last year. "Pummelled" seems extremely sensational...

airstrike 9mo ago
GOOG is now also an AI company, so not exactly a fair comp as it doesn't fit neatly into the "software" bucket MSFT is only up 3% over the last year
jen729w 9mo ago
You didn't read the article. The first graph plots Workday, Salesforce, SAP, and ServiceNow. Google isn't mentioned.
- bnchrch 9mo ago
  Maybe they shouldve said ERP stocks are getting "pummelled"
  - nateglims 9mo ago
    It basically does > The value of listed American enterprise-software companies is down by 10% over the past year.
cess11 9mo ago
Some 7-15% down in a trading day is a lot for an established corporation. I consider Salesforce dropping 7% without some obvious trigger to be at least somewhat newsworthy, and from the first sentences in the article I get the impression that The Economist is sitting on more examples like that. A lot of people are tense about the AI venture ouroboros and what it might mean for future software, especially people with money and little to no experience actually deploying software. Edit: At the time I saw some memes claiming that roughly 1.5 trillion dollars in market value had evaporated, which if true is not a small sum.
bagacrap 9mo ago
Google makes very little money selling enterprise software

llmslave 9mo ago

Software will be easy to create, which will kill moats and margins on existing products. The game is up for pure saas. Smart money started pricing this in one year ago

skissane 9mo ago
For a lot of SaaS firms, a big part of their value is the domain knowledge and best practices encoded in the software. Current AIs often do a bad job of that. Sure, they know a lot of it. But they also get a lot of it wrong, and can’t tell the difference between genuinely good advice, and advice that sounds good but is practically worthless or even harmful. (Of course I’m biased since I work for a SaaS firm. But I’m talking about them in general, not just my current employer.)
- llmslave 9mo ago
  ai will know the domain knowledge
  - skissane 9mo ago
    I'm not sure how realistic it is to expect AIs to get detailed hands-on domain knowledge. A lot of this stuff humans learn by doing and by experience. AI models don't learn anything by doing and experience. A model vendor can't possibly encode all that experience into their training data, and even if they try, the problem is a lot of it will be vertical-specific, country/region-specific, and it is forever changing. SaaS firms have professional services and sales consulting teams who are constantly talking to customers about their actual business problems, and they feed that accumulated wisdom back to product management and data science, who in turn help engineering encode it into the product. From what I've personally seen in SaaS AI agent development – if you try to build an AI agent to give customers advice in a particular business domain, you need to do a huge amount of work validating the answer quality with actual domain experts, and adjusting the prompts / RAG documents / tool design / etc to make sure it is giving genuinely useful advice. It is really easy to build a system which generates output which sounds superficially good, but an actual domain expert will consider wrong or worthless.

lateforwork 9mo ago

> The fear is that these [AI] tools are allowing companies to create much of the software they need themselves. AI-generated code still requires software engineers to build, test, debug, deploy, secure, monitor, be on-call, support, handle incidents, and so on. That's very expensive. It is much cheaper to pay a small monthly fee to a SaaS company.

tossandthrow 9mo ago
That would justify a good multiple of 5 to 10. Not 30 or above as for high growth companies.
- louiereederson 9mo ago
  multiple of what? there is maybe one software company trading above 30x revenue - palantir. many companies growing at 20% trade at single digit revenue multiples.
  - jmalicki 9mo ago
    Unqualified it almost always means earnings (profits).
    - louiereederson 9mo ago
      that is really not the case in software, people commonly go between EV/S and EV/FCF for high growth names. also earnings could mean: GAAP earnings, non-GAAP earnings, ebitda, ebita, FCF, FCF ex share based comp.
airstrike 9mo ago
yes but investors don't know that or for a more charitable comment, I think the issue people struggle with right now is how much of non-AI software will be replaced by AI-native versions. and it's not even a 1:1 mapping. we may see 5 different small companies replaced by a single AI interface. all TBD, but there's merit to avoiding that risk right now if you can just allocate to NVDA and GOOG instead

poulpy123 9mo ago

Maybe just maybe, the markets are not as rational as these people think they are

jeroenhd 9mo ago
Reminds me of that time when Nintendo's stock exploded after the launch of Pokemon go, only for traders to discover a few hours later that Niantic actually owned the game and correct the situation.
- zamadatix 9mo ago
  Nintendo is one of the three 1/3 owners in The Pokemon Company and an early investor in Niantic. I'd be curious how much was actually confusion as to who is making money vs just a normal hype cycle. I'd also be curious how much the game itself made the various owners vs what Nintendo made on the general interest in other Pokemon games/merchandise from the launch. At the very least, the stock looks to have shot up for most of the launch month with the peak not occuring until July 18th and the stock still being significantly higher at the end of the month https://finance.yahoo.com/quote/NTDOY/history/?period1=1467331200&period2=1469923200 https://finance.yahoo.com/quote/NTDOY/history/?period1=14673... I think the funniest bit of pure confusions was "Zoom Technologies (ZOOM)" being mistaken for "Zoom Video (ZM)" at the start of the pandemic to the point the SEC halted its trading on concerns around the confusion being the only reasonable driver. https://markets.businessinsider.com/news/stocks/zoom-technologies-stock-halted-sec-confusion-with-zoom-video-coronavirus-2020-3-1029036453 https://markets.businessinsider.com/news/stocks/zoom-technol...
  - jeroenhd 9mo ago
    I was referring to the day Nintendo stock fell 17% after they published a notice on their website (outside of trading hours) that they did not in fact make Pokemon Go: https://www.theguardian.com/technology/2016/jul/25/pokemon-go-nintendo-shares-tokyo-stock-exchange-niantic https://www.theguardian.com/technology/2016/jul/25/pokemon-g... The Zoom story is even crazier. The idea of the SEC needing to step in because traders were absolute idiots throwing their money away is laughable. Let the traders burn their cash if they're too stupid to Google a stock's name, I say. Let them prove that the markets are intelligently driven and not just gambling for those under the influence of cocaine on the job.

iamleppert 9mo ago

Meanwhile, in the real world, as a software developer who uses every possible AI coding agent I can get my hands on, I still have to watch it like a hawk. The problem is one of trust. There are some things it does well, but its often times impossible to tell when it will make some mistake. So you have to treat every piece of code produced as suspect and with skepticism. If I could have automated my job by now and been on a beach, I would have done it. Instead of writing code by hand, I now largely converse with LLMs, but I still have to be present and watching them and verifying their outputs.

eknkc 9mo ago
Yeah but just look at what happened within the last 2 years. I was not convinced about the AI revolution but I bet in another 2 years, we won't be looking at the output..
- polotics 9mo ago
  Not so sure, there are indiosyncracies now within the various models, I suspect all this is the result of RLHF, and they cause side.effects. I'm not sure that more attention-is-all-you-need is necessarily going to give us another step change, maybe more general intelligence, but not more focus. Possibly also we soon end up with grokked AI's on all side: pushing their agenda whatever you asked... Gemini: "no this won't work with Cloudflare, I created your GCP account, there you go" OpenAI: "I am certain you really wanted me to do all these other tasks and I have done them, you should upgrade your tokens plan" etc (you know how to fill in for DeepSeek and Grok already, right)
- falloutx 9mo ago
  Tech can always hit a plateau, here's to hoping anthropic & openAI run out of money.
headcanon 9mo ago
I've been coming around to the view that the time spent code-reviewing LLM output is better spent creating evaluation/testing rigs for the product you are building. If you're able to highlight errors in tests (unit, e2e, etc.) and send the detailed error back to the LLM, it will generally do a pretty good job of correcting itself. Its a hill-climbing system, you just have to build the hill.

grwbx 9mo ago

What an odd article that is just designed to hype the software creation aspect, which doesn't really affect MAGAF. MSFT went down because of overexposure in AI and because it is clear that people do not want it. AI weariness is a thing, and if people go off the Internet or advertisers question whether humans or AI swarms are "watching" their ads it is over for the big players. Trying to salvage the situation by hyping the relatively small code generation (theft) aspect is quite a poor analysis.

likium 9mo ago
HN crowd did not like AI coding until it got better. How much of the AI hate is because of poor implementation?
- falloutx 9mo ago
  I guess you can classify over-implementation as poor implementation.
nonethewiser 9mo ago
Yeah the article doesn't make a lot of sense to me. Guess whose writing software with AI? Software companies. They mention sites like Base44 and Lovable. Sure, if tons of business was rotating out of software into no code AI solutions the article would have a point. But has a large portion of market cap moved out of AI into a few little no-code startups? Is Salesforce, Service Now, and SAP being replaced with no code applications? No. Absolutely not. These are small, niche companies. It does not explain a large downward movement in an entire industry.
- bagacrap 9mo ago
  FTA: > dedicated software companies [...] are better at using AI to write code Obviously public market capital cannot rotate into private companies (startups). However it has rotated into non-tech companies, i.e. the firms this article says some believe will benefit from cheaper alternatives/disruptors.
9mo ago

flerchin 9mo ago

Is the pummeling in the room with us right now? YoY looks phenomenal in my portfolio.

dmoy 9mo ago
This article I think is about a very specific subset of software stocks. If you're holding say a total market index fund, or s&p500, or even qqq or many tech index funds, this would get hidden by the so-far very good growth on other tech stocks.
TSiege 9mo ago
I'd look at things beyond the magnificent seven. Economists and traders have noticed that the SP 500 now has a K shape similar to our class wealth distribution. https://fortune.com/2025/11/10/markets-k-shaped-economy-apollo-winners-losers-wealth-ai/ https://fortune.com/2025/11/10/markets-k-shaped-economy-apol...

_pdp_ 9mo ago

I was one of the nay sayers but right now I am convinced. That being said, it still requires some engineering background to come up with interesting ideas and solutions with the help of LLMs but even that might be replaced.

luke5441 9mo ago
So you disagree with the article? Could you explain your reasoning?

wtp1saac 9mo ago

Certainly no investor, but my own feelings: AI replacing vendors feels like a strange risk, though I'm not sure if vendors view things through a technical lens. Security concerns and service maintenance alone, IMO, makes writing internal software a large proposition - one that I would want a trusted vendor if it wasn't a hobby project and I could just afford that. Particularly if that data being lost or broken would severely harm a business. There are also already frameworks in languages like Python that make putting up an internal website very, very simple. If you don't need production grade, you might have already had a pretty low barrier to entry, if you have the skills to figure out how to host the service you just vibe coded, you can probably figure out some basic django to throw data in its ORM, or find libraries that do the work for you. AI does feel in those technical ways to be an overstated risk, to me at least. Far more worrying to me is the breakdown of the USA and its role. We are going to have blocs of software and hardware entirely from competing geopolitical regions, which may not be able or authorized to communicate with one another. Any businesses in the USA with significant CA or EU marketshare right now will decline in value to the degree client companies choose, or are told, to stop using USA systems. (My own governor in California outright antagonized the Europeans at Davos calling them "pathetic" while telling them to get tough on Trump, which means in practice, stop using US, meaning yes California, tech goods and services. A lot of revenue from tech comes from overseas, and we are going to lose at least some portion of that. Particularly in California which already has budget problems with what revenue it's got. Stunning how even The Guardian treated those remarks as "tough" and not insane and self-destructive... sadly it's nothing compared to the worst of the US right now.) So, where do you throw investment right now? To the US where the marketshares will likely decline, and the political and trade environment is insanely uncertain, but there is momentum on AI and generally decent hardware design, and the existing software companies and knowledge? To the EU or Canada where maybe a nascent software industry will take hold, or perhaps American companies will relocate talent if the USA collapses into civil conflict? To China, if they end up becoming a hegemon, given their strength in hardware and their growing efforts to invest in software alternatives? I suppose I read markets don't react to "tensions," and maybe it is unprecedented to modern memory, but I think about these things more than AI.

wtp1saac 9mo ago
I would add: open source throws additional curveballs. The EU wants to push for open source, and that is admirable, but I wonder what the sustainable funding model would be, and how that could attract attention. I wonder about business models and ability to generate return on investment. I would think the saner solution is allowing proprietary companies, but imposing technical standards which companies collaborate on, enabling interoperation. Am I mistaken, that the EU is trying to do this with the DMA? I have heard general overtones, but I haven't looked at it very closely, and our media doesn't cover EU tech regulations in much detail in the US, though in a decent world it would, I wish it would.

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SimianSci 9mo ago

The Value of software is going down, this much is clear to most people. It will continue to demand proper engineering for its creation and operation. But AI will lead to an increase of unique one-of-a-kind systems created by very small teams. And the world will increasingly rely on these unique systems. SaaS companies need to start reading the writting on the wall, their massive valuations enjoyed when software was harder to create will need to be justified.

themafia 9mo ago
> this much is clear to most people. There are more computers now than there ever have been. More people in more parts of the world have them than ever before. If you have this perspective you may just be locked in a first-world corporate nightmare that has stolen from you all vision and imagination.
- KellyCriterion 9mo ago
  TRUE! Actually the world around is controlled already by computers ~ chips: Your car, your dishwasher, your metro, your holidayjettravel etc. And it becomes "worse": Billions and billions of chips ~ compusters are produced every year, the number is increasing. Billions of people will get access to the stuff that was around for us "since ever" for the first time in their whole life.
- SimianSci 9mo ago
  Perhaps the it would be better described as "commodification" of software, which still gets my point across. Software is absolutely more ubiquitous than ever before, this I can agree upon. But now we have the tools to create more of it, and therefore software is less valuable simply as it is less rare. I dont mean to say that software is valueless, but rather that it enjoyed inflated value as the amount of capital and effort required to build a software product was much greater.
nonethewiser 9mo ago
I dont actually think it changes the economics of software as a service much. What's true for the small scale is true for the large scale. Sure, it's easier to build your own HR platform now but it's also easier to write and maintain it at scale with all your domain knowledge, legal infrastructure, etc. This seems true for inventory management, document signing, ecommerce, expensing, crm, training, accounting, etc. Why wouldn't the offerings from services providers get better and cheaper (relatively)? The stuff you do in-house is probably still going to tied deeply to your internal processes. Admin dashboards, special workflows integrating with different systems, etc.

larodi 9mo ago

No, they dont distrust AI, they now may start to distrust all the big service providers that are likelty to eventually be eradicated by AI now that everyone can prompt a browser. This perhaps will also finally kill Microsoft Access, which is the closest to AI doing the work instead of you for so long. Then all the do-it-yourself enterprise-grade systems became SAAS, so its right for SalesForce and friends to go fck themselves once in a lifetime for standing in the way of actual software ownership. I know, you are saying - they will adopt. Perhaps, while also cutting 40% (if not more) personnel during the pivot, and perhaps also by facing more challenges by faster moving competition. Like, look for a second - why didn't Google create what the perplexity newsfeed is, given they actually like did 10 years ago and then close to nobody was using it. The equilibrium seems super unstable. What happens if a smart kid devices way to compress this information 10x times faster. This immediately means neural chips stall. This volatility is something, not a joke. The second order effects may be unforseeable in an unparalleled way. Besides, the Luddites organize much better in 2026 given reddit etc.

mempko 9mo ago

This article crystallizes something I witnessed firsthand last week. Overheard a guy at a restaurant explaining how he builds phone apps with AI and no coding experience. When asked how he verifies the code works, he said he pastes it into a different AI to explain it. That's the "slopware" problem in action. The code compiles. It might even work. But there's no understanding of what it's actually doing, no ability to debug when it breaks in production, no awareness of the technical cruft accumulating with every prompt. That's a problem for people creating software for others and is a huge opportunity for software developers to take prototypes and build real stuff. Does anyone remember the RAD days of the 90s? On the flip side, for people making software to solve THEIR problems, they don't need to make anything production quality. Its for a single user, themselves! Maybe the LLMs are good enough now that people don't need to buy or subscribe to software that solves trivial problems as they can build their own solutions. Maybe the dream of smalltalk, hypercard, and even early web where anyone can use the computer of what it was meant for is finally here?

christkv 9mo ago
Thats fine Ill charge him 500 bucks an hour to fix it if it has success and he runs into not being able to maintain it

elorant 9mo ago

Because the bubble has began to burst.

raincole 9mo ago

take a look at 5-year trend It's just correction.

Noaidi 9mo ago
But it is not THE correction.

trgn 9mo ago

the crash is indiscriminate, which is really disheartening. even infra software is getting demolished, no llm is going to replace something like mongodb, but it's all traded under the same umbrella.

christkv 9mo ago

The cleanup needed after this by senior developers will be epic.

falloutx 9mo ago
Most of the these companies wont survive because of thier stupidity anyway.
h4kunamata 9mo ago
Needed?? It already started, freelancer developers are making a lot of money already. I remember watching a developer having to fix the company entire code because they went full AI and now nobody knows shit anymore. If you are a good senior developer indeed, now is the best time for you to become millionaire. Company after company can no longer fix things, they are bringing external developers to keep afloat. Remember the tweet popular last year with the AI bot deleting the production database setting the company back to zero??? So....

francisofascii 9mo ago

The iShares Expanded Tech-Software Sector ETF (IGV) seems to backup what the article is saying. It isolate software firms from the IT industry. It is down about 10% last week, and 20% down the past six months. The IT sector as a whole didn't lose much.

FireBeyond 9mo ago
I used to work for ServiceNow. Market Cap over doubled between 2021 and 2025. But since the start of 2025, it has lost all of that. 13% in the last week. 20% in the last month. Six months is definitely bleaker than those numbers, 37% down.

agentultra 9mo ago

... because they've been driven by years of bad leadership, monopolistic scheming, and investor speculation? AI is just the latest symptom, IMO. We normalized growth over revenue. Governments around the world have been pressured by Big Tech to dismantle anti-trust and regulation. We glorified shipping slop, suppressing unions, and pretending like programmers were temporarily embarrassed founders. The stocks are dropping because our system can't sustain these practices, IMO.

dzonga 9mo ago

investors are panicking. however those system of record apps - will outlast most "A.I" companies - since the effective data is within their systems

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gwbas1c 9mo ago

I wonder when a "virtual person" will be able to replace carefully-coded business software? IE, before software automates a business process, it's typically done by hand, by a real person. What if someone sells a "virtual person" that's capable of doing the job? What if that "virtual person" is harder to train than a real person, but orders of magnitudes easier than writing custom software or custom business rules? More importantly: What if the "virtual person" can explain the job they do much better than trying to read source code? That's very useful in ~30ish years when the "virtual person" understands the business process better than the people in the company, and someone is trying to update / streamline processes.

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paxys 9mo ago

Is it AI or just the market realizing that some of these companies were ridiculously overvalued to begin with. Here are the p/e ratios of companies mentioned in the article, after the said "pummeling": * ServiceNow - 70.66 * SAP - 28.70 * Salesforce - 28.15 * Workday - 73.16 * Microsoft - 26.53 So they range from "a bit high" to "still completely bonkers".

margorczynski 9mo ago
I would say that MS here is undervalued. They do not offer some small software package for a given business problem but the whole shebang - the OS, mail, calendar, office suite, IAM, cloud, etc. + support for each and the whole integration. You can't realistically replace that with some LLM solution (in the near-term at least) and they can use the AIs to reduce their costs which is mostly people.
- TacticalCoder 9mo ago
  > I would say that MS here is undervalued. Windows 11 though...
  - its_magic 9mo ago
    Yeah, that one is a real gem. BeST wInD0Wz EvAr
- roncesvalles 9mo ago
  Microsoft has consistently proven over the last five years that they have zero ability to execute. It's an astounding failure after failure to do anything right.
  - yuucc 9mo ago
    All my Microsoft friends constantly berate the state of their hiring pipelines. Sprinkle on a paltry comp and this is hardly surprising.

alexpotato 9mo ago

So one thing that hasn't changed is that the marginal cost of software is still effectively zero. That's where most of the money was being made b/c if you were a monopoly or oligopoly that each additional unit sold was an absolute increase in revenue and you spread out your fixed costs. What has changed most dramatically is the "fixed" cost of writing the software to begin with. Given that the costs were being spread out over so many units beforehand, it's not entirely clear to me how that changes a lot of the economics. For the comments about the "SaaS vs build your own", we can use a home services metaphor. Sure, I can do a lot of what my plumber does. But they do it faster, know all of the issues that go wrong with the work and I can pay them a yearly fee to check my boiler to make sure it doesn't fail etc. The time saved by calling the plumber can then be spent with kids, more work or a combo of the two.

walkersnice 9mo ago
I think the idea is that SAP/ServiceNow will be subject to more competition, if/when software is cheaper to write. Their lead has shrunk, and thus so has their value.

keithnz 9mo ago

Other than smaller SaaS companies who offer things easily replaceable, I don't think many of the bigger ones can be replaced by AI, if anything, it might make them better. For instance I can't see us replacing our ticket management/support software, hosting, manufacturing/sales/stock software, accounting software, etc but it would be great if we could leverage all those tools better via AI (some are already easy to leverage). The interesting thing I've noticed is software library authors could take a beating though. Quite a few libs in the .NET world have gone down the monetized paths, for all of the ones I've been using, I've just got AI to remove them and implement native solutions. But none of these are large listed companies.

jbjbjbjb 9mo ago

There’s only so much investable capital available, if it is going to hardware stocks it’s got to be coming from somewhere else. It’s just a substitution toward hardware tech stocks. Economics 101.

h4kunamata 9mo ago

Investors do not understand how coding works. Google "Project Genie" which allegedly can take your input and the AI will make it rain, drove investors into panic mode. They think that you can create GTA6 like that. It was the perfect storm: clueless investors + the whole AI bubble already bursting if you are following non-biased news.

AstroBen 9mo ago

If I were confident it were AI as the cause I'd be seriously tempted to buy right now Take Adobe for example: they're getting pummeled and there's no way it's due to AI No-one's building an in-house Photoshop clone to replace them AI also isn't letting any competitors in. Geez if it were as easy as cloning their product you'd have a mile high mountain of VC money to fund it even pre-AI Code has never been much of a barrier to entry

bagacrap 9mo ago
Do you have a theory what the cause is then? The market moves and pundits write a story to match. There is no telling whether it's right or wrong.
- ashrotyne 9mo ago
  The gate opens. The gate closes. It does not "help".

lvl155 9mo ago

It’s not that AI will replace softwares. It’s that AI will replace people using softwares. Less workers means lower sales. There will be exceptions but a big chunk of B2B space is basically going away.

daxfohl 9mo ago

Whatever the reason, the result is probably more layoffs.

woodpanel 9mo ago

Or it could be just the good old cyclical stock market correction after years of entire segments of the indecies growth being purely driven by software. Of course such an angle would require much more research on behalf of the journalists for much less spotlight than what you would get for free by just singing to the tune of AI-doomerism.

aabajian 9mo ago

There are many stories on r/ClaudeCode of developers realizing the power of that particular model. Think of all the solo developer webapp/mobile "hot" startups (FB, Craigslist, Instagram, SnapChat, Pinterest, etc.). It is no joke that a seasoned developer can build similar apps with Claude in...days. Not just the app, but the entire infrastructure (e.g. scalable on AWS using Terraform). This includes setting up domain registration, Elastic IPs, provisions the instances, setting up keys/ELBs/email server/Twilio/etc. What is astonishing is how well Claude can plan. You write a spec, and it will give you an entire plan including ASCII UML diagrams, infrastructure changes, database updates, the code itself, user stories, and test cases. It will then do all the work, including "tricky" things like SSHing over a bastion to run the scripts that it wrote on an instance behind a VPC. The main obstacle now is the context window. If it were to increase 100x or so, Claude could probably manage an entire software company's codebase at scale. I'm sorry to say, but there's no way you could use Claude for a month or so without feeling, "We are going to need way fewer software engineers."

highfrequency 9mo ago

> Of course, ai will continue to improve. But it is also likely to get more expensive…Microsoft’s share price took a beating last week as investors winced at its enormous spending on the data centres underpinning the technology. Eventually these companies will need to demonstrate a return on all that investment, which is bound to mean higher prices. That’s not how it works, and I’m surprised this fallacy made it into the Economist. Commodity producers don’t get to choose the price they charge by wishful thinking and aspirational margins on their sunk costs. Variable cost determines price. If all the cloud companies spend trillions on GPUs, GPU rental price (and model inference cost) will continue going down. Indeed, cheaper and cheaper AI for the same level of performance has been even more consistent empirically than improvement in frontier model performance.

heresie-dabord 9mo ago
> I’m surprised this fallacy made it into the Economist. Fallacies in the Economist, you say without irony? From TFA: > Yet investors risk misdiagnosing the industry’s troubles. Oh, I think investors are asking, "where is the actual gain in capability and/or productivity?" Because they don't see it. And huge lay-offs don't prove it. > Of course, AI will continue to improve. This is begging the question. However, for the sake of argument, let's assume that AI continues to improve. The thing we call AI is a long way from improving robotics. It's most prevalent practical value right now is improved search and code/text information assistance. But these improvements themselves have proven to be far from perfect. The only monetisable path that we have seen in search and information assistance is advertising. The AI boom walks and quacks like a duck: a bubble, and a dawning generation of new facets of enshittification.