Good morning, investors. It’s not often a viral thought-experiment essay can move markets but that’s how jittery investors are at this stage.

Today we’re breaking down the new AI framework that Wall Street has suddenly embraced.

Flipping AI narratives

Artificial intelligence went from Wall Street’s favorite theme to the latest systemic risk.

Two months ago, AI momentum was so robust that skeptics couldn’t help but compare it to the dot-com bubble. That view has since flipped. In the eyes of the market, the technology is improving so rapidly that it’s set to render entire industries obsolete. 

Consensus has swung from “historic bubble” to “existential anti-bubble” effectively overnight.

Monday’s trading session offered a snapshot of this shift.

A viral report from Citrini Research laying out a bear case for an AI-dominated economy catalyzed a sell-off in legacy software and payment stocks including ServiceNow, DoorDash, Mastercard, Visa and Apollo, among others.

Investors — who this year have been prone to knee-jerk reactions — are leaning into fears that AI agents and autonomous tools will disintermediate platforms, compress margins and automate high-fee services. 

Again, unlike the sell-offs in the second half of 2025, this jolt stems from the promise of the technology, not its failure. 

More and more investors are positioning for a “SaaSpocalypse” outcome, where AI replaces software, destroys seat-based pricing models and eliminates white-collar work.  

Indeed, if AI agents can write code, generate content, reconcile payments, manage marketplaces and transact with other agents, there isn’t much left for human middlemen.

“AI went from the reason for the bull market to the reason for a bear,” veteran investor Michael Gayed told me during our conversation on Full Signal February 5.

The same force that not long ago justified record stock market valuations is now forcing investors to confront more troubling second-order effects like rising unemployment, margin compression and disruptions to the social fabric. 

“It’s bullish until it’s not,” Gayed said.

“Until it’s the reason for companies no longer being around or people being laid off.”

The market is behaving as if the next leg of the AI trade is a macro liability. 

Should Citrini’s bearish scenario play out, AI will boost productivity and increase corporate efficiency, rewarding asset owners and shareholders while hollowing out swaths of services, software and the labor market. 

That said, markets rarely move in straight lines and even the best forecasters are often wrong.

AI adoption could take longer than expected. Regulators could intervene and slow down Silicon Valley. Incumbents could figure out how to integrate AI without becoming obsolete.

History, too, suggests technological revolutions tend to be iterative rather than instantaneous. 

While the internet bubble did pop, it reshaped the global economy and catalyzed startups and innovation. The same may prove true with AI.

There is also the question of valuations.

If AI truly is a net positive for productivity and economic output, then its benefits should eventually broaden beyond today’s narrow leadership. 

In fact, margin gains should show up most dramatically for small and mid-sized companies.

In all likelihood, the latest market sell-off is an overreaction. 

It’s an equal and opposite response to last year’s concerns that AI was a bubble. 

The only certainty today is that the pendulum is sure to swing again. 

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💥 US-Iran conflict remains a macro risk. Protests are rekindling across Iran and the US military has built a presence in the region. Iranians are divided on whether foreign military intervention could catalyze stability or a more volatile situation. (WSJ)

🏦 Scott Bessent is monitoring private credit markets. The Treasury Secretary said his team is concerned about what’s happening with Blue Owl Capital: “If there is something rotten, it is not going to be handed to the individual investors.” (Yahoo Finance)

📊 Congress is weighing its role in tariff decisions. Lawmakers continue to debate opposition to executive decisions, and it could emerge as a leading issue for midterm elections and drive further market volatility. (CNBC)

🗓 February 24, 1995: Baring’s bank received a fax from Nick Leeson, a fugitive trader, apologizing for the losses he accrued that eventually brought down the two-century old bank. This event was turned into the film Rogue Trader.

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