The Great Tech Dislocation – and What Happens Next VIEW IN BROWSER This week gave us plenty of economic data to chew on. Retail sales slowed in December. Existing home sales plunged 8.4% in January. And the latest jobs report showed 130,000 new jobs added, which blew the lid off of expectations for only 55,000 jobs. And on Friday, the latest Consumer Price Index (CPI) reading showed that prices increased 0.2% in January, or 2.4% on an annual basis. That’s less than economists were expecting – and down from an annual reading of 2.7% last month. Now, under normal circumstances, I would spend today breaking all of that down for you. I would tell you why the Federal Reserve had better hurry up and start cutting key interest rates, because the real estate market is one of the key cogs in the economy that simply isn’t working right now. I’d also talk about how folks simply can’t afford homes right now – especially young people. Not at these rates, not at these prices. I would tell you how the jobs report isn’t as rosy as it might seem – that nearly two-thirds of those impressive job gains came from healthcare alone. And how that explains why people feel so down on the economy, when the GDP numbers tell us otherwise. But the reality is that none of this is what really moved markets this week. What moved markets in the ongoing wipeout in software stocks – and broader fears of AI-driven disruption across multiple sectors. So, in today’s Market 360, I want to walk you through what really happened this week… why the selloff is less about extinction and more about rotation… which companies could genuinely face pressure… and where capital is likely moving next as the AI Revolution shifts from Stage 1 to Stage 2. What Actually Triggered the Rotation It all started with a single blog post. On Friday, January 30, Anthropic quietly announced a plug-in for its Claude Cowork feature that could “speed up contract review, NDA triage, and compliance workflows for in-house legal teams.” That was enough. Within hours, Wall Street latched onto a new narrative: AI is about to eat the software industry. Software-as-a-service names were hit across the board since then. Microsoft Corporation (MSFT) is down by nearly 7%. Salesforce.com, Inc. (CRM) has lost 10%. Intuit, Inc. (INTU), the company behind TurboTax and QuickBooks software, is down nearly 20%. I could go on... Project management platforms, HR software firms, legal research companies and financial services names were dumped indiscriminately. Why? The fear is that AI agents will replace what these companies do. Need legal research? Ask a chatbot. Need a credit check? Let Gemini handle it. Need workflow automation? Why pay a SaaS (software as a service) provider? That’s the narrative. And it spread fast. | Recommended Link | | | | The U.S. government just started building a vast critical mineral stockpile. It’s known as Project Vault – and the White House has already pledged $10 billion to fund it. And it could send these five stocks soaring. |  | | Why Selloffs Spread Now, many of these high-flying software stocks already had stretched valuations. Expectations were elevated. When the Anthropic headline hit, it gave investors a reason – any reason – to take profits. Then the algorithms kicked in. For the past two weeks, the “AI fear trade” has been methodically working its way through sectors, leaving carnage in its wake. First software, then insurance, wealth management, private credit and real estate. Interestingly, the latest victim on Thursday was the transportation sector. News broke that a tiny company – that, up until recently, sold karaoke equipment – claimed that its AI platform helped customers triple or quadruple their freight volume. That sparked concerns that AI could upend the trucking and logistics companies – causing those stocks to sell off broadly. The fact is, when quant models detect a theme shift, they don’t debate whether it makes sense. This is not unusual, either. It’s how rotations begin. Now, let’s be clear. Some software companies – as well as other firms – could face real pressure because of the AI Revolution. If a firm offers a generic service that can easily be replicated by a large language model, markets will reprice that risk. But most SaaS firms operate in specialized niches. They provide compliance layers, integrations, service teams and industry-specific tools that enterprises depend on. Frontier AI model builders are not structured to replace this. I should also add that NVIDIA Corporation (NVDA) CEO Jensen Huang succinctly stated, “There’s this notion that the software industry is in decline and will be replaced by AI. It is the most illogical thing in the world, and time will prove itself.” I couldn’t have said it better. AI is a tool. It is not an obliteration machine. Instead, what we are seeing is a transition – from Stage 1 to Stage 2 of the AI boom. Stage 1 Is Ending. Stage 2 Is Emerging Stage 1 of the AI boom was about the obvious winners – the mega-cap platforms and frontier model builders. Stage 2 is different. Stage 2 is about the infrastructure layer. The power systems. The networking. The chips. The specialized firms that make the ecosystem function. Right now, the real economic activity is happening in the Stage 2 layer. In fact, it’s been that way for a while now. And the thing is, it’s not slowing down. In fact, just four major Big Tech firms – Amazon.com, Inc. (AMZN), Alphabet Inc. (GOOG), Meta Platforms, Inc. (META), and Microsoft – are projected to spend between $600 billion and $700 billion in 2026, primarily to fuel their artificial intelligence (AI) infrastructure. In total, we’re talking about a multi-trillion-dollar buildout. And the market is starting to reward the names that are actually building with all this money, not the ones spending it. Look no further than what’s happened to our Breakthrough Stocks holdings this earnings season as proof. We’ve had 12 Buy List companies announce quarterly results so far, with 11 posting positive earnings surprises. Our average earnings surprise is nearly 28%. What’s even more exciting is the fact that most of these earnings winners rallied strongly in the wake of their quarterly results – with gains of 16%, 29%, 25%, and 20%, respectively, in the past two weeks following their earnings releases. Many of these names are tied to the data center buildout. And as the AI boom continues to accelerate, I suspect there will be plenty more gains ahead. The Inflection Point... This week wasn’t about economic data. It was about a crowded trade starting to unwind as investors began to rethink which companies deserve their capital. And I don’t think we’ve seen the last of it, either. Expectations remain extremely high around certain bellwether tech names. When expectations are stretched, even a small disappointment can trigger an outsized reaction. That’s why I believe we are entering what I call an AI Dislocation – a moment where expectations, narrative, valuation and real fundamentals collide. For some stocks, it won’t be pretty. But for other under-the-radar names – like the small-to-mid-cap names we target in Breakthrough Stocks, it will be their time to shine. Now, I believe an inflection point could arrive as soon as February 25, and that’s why I’ve prepared a free broadcast about the AI Dislocation that you need to see. In it, I explain: - Why this week’s tech rotation fits the pattern I’ve been warning about
- Which types of companies are most exposed if expectations reset
- And the specific category of AI infrastructure firms I believe are positioned to benefit from Stage 2.
I hate to break it to you, but the easy-money phase of the AI boom is over. So, if you want to be positioned before the next move unfolds – instead of reacting after it happens – make sure you watch my AI Dislocation broadcast right now. Sincerely, | .png)
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