carl kirstead

Rising enterprise AI spend is crowding out traditional software and IT services budgets, and investors now price in the threat that improving AI models will let customers build custom alternatives to ancillary SaaS applications, pressuring growth and multiples for application software.

Semiconductor stocks benefit from upward estimate revisions and DRAM/memory cost inflation driving revenue upside, whereas hyperscalers see free cash flow estimates decline as CapEx rises, creating a valuation divergence that may narrow over coming quarters.

As model markets become more competitive with cheaper alternatives, frontier labs such as OpenAI and Anthropic will push up the stack into productivity and application software, directly challenging incumbent software vendors and creating strategic conflict.

Enterprises are throttling back on expensive frontier model usage as token costs exceed budgets, shifting to smaller or open-source models; this near-term headwind for frontier labs and infrastructure could reverse if falling per-token costs spur dramatically higher aggregate AI adoption.