BONUS: Proof That AI Stocks Could Crash 80%?  ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

March 16, 2026 AI Cannibalization and Software Skepticism BONUS: Proof That AI Stocks Could Crash 80%? First message from our friends at InvestorPlace Media (Sponsor) Proof That AI Stocks Could Crash 80%? Dear reader, Please look at the chart below and tell me if you see the similarities between the dotcom bust and what's going on with AI stocks? That's a big reason why Jim Rickards, the famous economist who correctly predicted both the housing crash in 2008... And the Covid crash in 2020... Is now warning Americans to prepare for an imminent AI meltdown. Jim believes this could play out just like the dotcom bust in the early 2000s. As the main supplier of internet infrastructure... Cisco was the "Nvidia of the internet." When the dotcom bubble popped... Shares crashed 90%... And spent the next 25 years trying to recover. Can you afford to suffer that kind of devastating loss and wait two decades to recover? If you said "no," I urge you to... Click here to get the details because Jim is also sharing the five steps you need to take to prepare. Regards, Matt Insley Publisher, Paradigm Press FEATURED ARTICLE AI Cannibalization and Software Skepticism Adobe did not create the software panic. It just gave the market a fresh excuse to talk about it. That matters, because the Adobe selloff was never really just about Adobe. It was about a much uglier question hanging over the whole sector: What if AI is not only helping software companies… but quietly cannibalizing them? That is the tension now running through the market. Adobe shares dropped after the company announced that longtime CEO Shantanu Narayen would step down once a successor is appointed, even though the business still delivered a quarterly beat. Reuters reported that the leadership transition intensified existing investor worries that Adobe was already "on the wrong side" of the early AI winners-and-losers divide. And the Adobe move landed in a market already scarred by what Reuters dubbed "Software-mageddon"—a selloff that wiped roughly $1 trillion from software and services stocks after investors started worrying that new AI agents, plugins, and automation layers could attack the revenue streams of established software vendors. So this is the real Cheap Investor question now: Are software giants being genuinely disrupted… or are investors simply repricing them because AI infrastructure has become the market's new favorite toy? That is a very different debate from "Adobe missed a quarter." And it deserves a much deeper look. Scoreboard: what actually happened Let's start with the hard numbers. Adobe reported Q1 FY2026 revenue of $6.40 billion, up 12% year over year, with non-GAAP EPS of $6.06 and annualized recurring revenue of $26.06 billion exiting the quarter. Adobe also reported record Q1 cash flow of $2.96 billion. Those are not weak numbers. And yet the stock still got hit. The finance tool currently shows Adobe at about $249.32, with a market cap of roughly $151.3 billion and a trailing P/E of 21.75x. Reuters reported the stock fell after Narayen's transition announcement added to worries about Adobe's ability to defend its franchise in the face of AI-driven competition. So the scoreboard looks like this: Adobe beat on revenue and earnings. Adobe still has a huge recurring-revenue base. The stock sold off anyway. Investors are no longer judging software companies only on what they earned last quarter. They are judging whether their old moats still work in an AI-first world. That is the whole market problem in one snapshot. The real reason the market is nervous The panic is not just that AI may make software better. The panic is that AI may make parts of software less necessary. That sounds subtle, but it is a massive distinction. In the old software model, vendors got paid for structured workflow, access, seat licenses, and deeply embedded features. In the emerging AI model, a growing share of user value may come from an orchestration layer, agent, or copiloted interface that sits above traditional software and compresses the need for premium workflows underneath. Reuters said investors have been especially rattled by AI tools that appear capable of automating high-value knowledge work that many enterprise vendors historically monetized through subscriptions. That is the cannibalization fear. Not merely that Adobe, Salesforce, ServiceNow, or Atlassian need to add AI. But that AI might reduce the pricing power of the very products they used to sell at premium margins. This is why the Adobe selloff matters symbolically. Adobe is not some weak speculative SaaS name. It is one of the most iconic software franchises of the modern era. If investors are nervous about its moat, then they are implicitly nervous about everyone else's too. The software rout already started before Adobe Adobe is just the latest headline. The bigger move started in February. Reuters reported that software and services stocks lost about $1 trillion in market value in a week-long slump after the market began seriously debating whether AI automation could undermine software business models. One Reuters report tied the panic to Anthropic's release of a legal plug-in and other AI tools that made investors rethink how much value traditional software layers really retain when agents can do more directly. That panic got worse when investors realized something else: At the exact same time software moats were being questioned, Big Tech was committing enormous sums to AI infrastructure. Reuters reported that Alphabet, Amazon, Meta, and Microsoft are expected to collectively invest about $650 billion in AI-related infrastructure in 2026, up sharply from about $410 billion in 2025. Another Reuters report earlier in February put the 2026 AI capex splurge around $600 billion, and explicitly said investors were increasingly uneasy about what that meant both for hyperscaler profitability and for software valuations. That is where the "budget drain" narrative comes from. If enterprise and hyperscale customers are spending extraordinary amounts on: GPUs networking data centers inference infrastructure model deployment agent orchestration …then some investors fear traditional software budgets will either slow, consolidate, or face higher scrutiny. That does not mean software spending disappears. It means software may have to fight harder for every dollar. Adobe is the perfect case study Adobe is useful here because it sits exactly on the line between "incumbent moat" and "AI vulnerability." On one hand, Adobe remains a very strong business. Its Q1 FY2026 results included: $6.40 billion in revenue 12% year-over-year growth $26.06 billion in ARR $6.06 non-GAAP EPS $2.96 billion in operating cash flow. Those are not decaying-business numbers. On the other hand, Adobe also sits in a part of software where AI-native competition feels psychologically immediate. Image generation, video editing, creative workflow, and content production are exactly the categories where users can imagine a future with lower barriers to entry, lower friction, and lower willingness to pay for legacy suites. That does not mean Adobe loses. But it does mean Adobe has to prove that AI becomes an upsell and retention engine—not a feature that turns expensive software into a commodity. And that is exactly why the CEO transition hurt more than it normally would. Narayen's departure is being read not only as a leadership change, but as a strategic-timing risk in the middle of the most important product-cycle transition Adobe has faced in years. What the market is really debating There are actually two different debates happening at once, and investors keep mashing them together. Debate 1: Are software moats eroding? This is the direct disruption argument. If AI agents and copilots can automate higher-order tasks, summarize workflows, create content, draft code, process documents, or answer business queries directly, then some traditional software vendors may lose the exclusivity of their interface. The market is asking whether the old moat—workflow depth, embedded seats, and proprietary UI—still matters as much when the user experience shifts upward to the model layer. Debate 2: Is infrastructure spend crowding out software spend? This is the capital-allocation argument. Even if software remains essential, the budget mix may be changing. When hyperscalers and enterprises redirect huge dollars toward AI infrastructure, inference capacity, and compute-heavy deployment, software growth may face slower approvals, longer payback scrutiny, or consolidation pressure. Reuters' coverage of the $600 billion–$650 billion 2026 AI capex wave is central here. The market increasingly worries that the hottest part of the AI stack is upstream—in compute, not applications. Those are related but distinct concerns. One is existential. The other is cyclical. And right now, the market is pricing a little bit of both. A unique perspective: software may not be dying — it may be compressing Here is where I think the market is too simplistic. The bearish case says AI replaces software. The bullish case says AI enhances software. The more likely reality is messier: AI compresses the number of software layers that can earn premium pricing. That is not the same as wiping out software. It means the winners are likely to be vendors that can do one of three things: Own the workflow deeply enough that AI strengthens switching costs. Own proprietary data, distribution, or compliance layers that an agent cannot easily replace. Capture the orchestration layer itself, so that the AI experience becomes their interface rather than someone else's. Adobe is trying to be the first and third kind at once. Other vendors are trying variations of the same strategy. That is why Reuters later reported that software companies have been actively trying to fight back against the "AI kills software" narrative on earnings calls, arguing that AI can deepen use cases and improve monetization rather than destroy it. So the market may be directionally right that software will look different. But it may be too early to conclude that all software moats are breaking equally. The valuation reset is already meaningful Now let's talk about price, because that is where Cheap Investor readers live. Adobe currently trades at about 21.75x trailing earnings with a market cap near $151.3 billion. For a software business with: double-digit revenue growth, massive recurring revenue, huge cash generation, and one of the strongest brands in enterprise creativity, that is no longer a nosebleed valuation. And Adobe is not alone. The broader software selloff has already pulled multiples lower across the sector as investors priced in disruption risk. Reuters reported that the rout created a flush in positioning and led some strategists to argue that the market may have overdone worst-case AI disruption assumptions, especially for higher-quality software names. That is the important nuance. This sector is not still priced for perfection. It is now priced for skepticism. And skepticism is where value sometimes begins. Is it cheap? Now the part that matters. The software sector is not broadly "cheap cheap." But parts of it are finally becoming "expectations-reset cheap." Adobe is a good example. At 21.75x trailing earnings, it is not a distressed asset. But it is also no longer priced like a flawless compounder immune to platform shifts. So whether Adobe—or software more broadly—is cheap comes down to one question: Are the current fears cyclical and overextended, or structural and still underpriced? The bullish Cheap Investor view The market may be overestimating near-term disruption and underestimating how sticky enterprise workflows remain. High-quality software businesses still have: entrenched customer relationships recurring revenue strong balance sheets cash flow to invest in AI and enough scale to acquire, integrate, or out-build challengers. The bearish Cheap Investor view The market may be underestimating how fast AI agents can commoditize user-facing value and how much enterprise budgets will prioritize infrastructure and model deployment before paying up again for premium application layers. The $600 billion–$650 billion AI capex wave is not theoretical—it is already in motion. My honest verdict: Software is not a blind bargain. But the selloff has finally created a real debate instead of a momentum trade. That is progress. Bull / Base / Bear Bull case The market has overshot the disruption narrative. AI becomes an enhancement layer for quality software vendors rather than a destroyer of their economics. Adobe and peers keep growing ARR, integrate AI into workflows, and defend pricing better than feared. In that scenario, today's lower multiples look too harsh for businesses still generating real cash and recurring revenue. Base case Software growth persists, but valuations remain compressed while investors wait for proof that AI is accretive rather than cannibalistic. Budgets become more scrutinized, but not abandoned. Winners and losers separate more sharply. In this scenario, quality names recover selectively, while weaker or less differentiated vendors stay under pressure. Bear case AI agents compress software pricing faster than expected, infrastructure spend continues draining wallet share, and the market decides the sector deserves structurally lower multiples. Adobe's drop would then look like an early symptom, not an overreaction. Action plan for bargain hunters This is not the moment to buy "software" as one trade. That would be lazy. This is the moment to separate: true workflow owners from shallow feature vendors, cash-flow-rich incumbents from story stocks, AI integrators from businesses at risk of being bypassed by the interface shift. For conservative investors, the best move is to focus on quality balance sheets, durable ARR, and proof that customers still pay for the underlying workflow even after AI gets layered in. Adobe qualifies for study on that basis. For moderate investors, this looks like a scale-in sector, not a hero trade. One-third on reset valuations, one-third after the next round of earnings clarifies whether AI monetization is working, and one-third only if the broader software tape stabilizes. For aggressive investors, the better trade may be relative: own higher-quality software names that have already de-rated, while avoiding or hedging vendors whose value proposition is easiest for AI to compress. Cheap Investor checklist Here are the things I would track over the next quarter: Adobe ARR growth, currently $26.06 billion exiting Q1 FY2026. Adobe cash flow, currently $2.96 billion in Q1, because strong cash generation buys time. Software-sector valuation resets after the roughly $1 trillion rout. AI infrastructure capex, especially whether the $650 billion hyperscaler figure holds or rises. Evidence of real AI monetization from incumbents, not just product demos. Enterprise budget commentary on whether AI spending is additive or substitutive. Leadership clarity at Adobe, because succession timing matters more in a strategic reset. Whether "agent" use cases deepen workflows or bypass them across the sector. Debt-market appetite for software, since Reuters noted tougher scrutiny for software borrowers amid AI disruption fears. Relative performance of software versus AI infrastructure, because that spread tells you where the market still believes the value is being created. Bottom line Adobe's drop matters because it reopened a sector-wide question the market was already struggling with: Are software companies being disrupted by AI… or simply repriced while the market falls in love with infrastructure? The honest answer is probably both. Some software layers will get commoditized. Some workflows will get stronger. Some budgets will shift toward compute and inference before they flow back into applications. That does not mean software moats are gone. It means they are being tested, and the market is finally pricing that test. For Cheap Investor readers, that is not a reason to panic. It is a reason to get more selective. Because when a sector moves from "priced for perfect" to "priced for doubt," that is usually when the real work—and the real opportunity—begins. Disclaimer: This editorial is for informational purposes only and should not be considered investment advice. Always conduct independent research before making financial decisions. IMPORTANT NOTICE AND DISCLAIMER Investing Media Solutions, LLC ("IMS"), the owner of this website (the "Website"), cannot guarantee the accuracy or completeness of the information contained in any article, email, newsletter, or other publication posted on or viewed in connection with this website (the "Publications"). The author or authors of those Publications are solely responsible for their contents. 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