Here's the Only Way to Navigate This AI Fractured Market
Investors are struggling to adjust to the destruction and opportunity created by AI. This is who will prevail.
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The biggest mistake you can make in the market right now is treating AI as a monolith that is either negative or positive. None of the usual market prognosticators predicted how the industry would mature and change and impact the stock market. Both the bubble bears and the new era bulls were partially right and partially wrong.
Our job now is to sort it out and identify the stocks most likely to be the biggest beneficiaries of what is happening. The action on Thursday made it pretty clear that we can't trust Nvidia (NVDA) , the dominant AI chipmaker, to remain a market leader even when it posts record-setting earnings. The biggest beneficiaries of AI are still in their infancy and the market is still trying to figure out who will pay the heaviest price as the evolution continues.
The Mag 7 Trade Is Over
AI was never a black-and-white, good-or-bad thing, but the market spent the last two years pricing it that way, buying the Magnificent Seven (MAGS) as a monolithic bet on an AI future that would lift all boats in the group equally. That trade is over. What is replacing it is messier, more complicated, and far more interesting and potentially profitable for anyone willing to do the work.
The news on Thursday night made the point. Block (XYZ) , the payments company behind Square and Cash App, announced it is cutting 40% of its workforce. CEO Jack Dorsey was direct about the reason. "Intelligence tools have changed what it means to build and run a company," he wrote to shareholders.
Dorsey said something shifted for him in December when he realized how capable AI models had become. He faced a choice between cutting gradually over months or years or being honest and acting now. He chose the latter. The stock surged more than 20% in after-hours trading as he handed out layoff notices.
He believes that within the next year, many other companies will reach the same conclusion and make similar structural changes. Investors will now be looking carefully to determine which stocks will benefit and which will be punished.
The SaaS Model Has a Problem
One immediate concern is the SaaS model. Software companies that sell licenses on a per-seat basis are staring at a real structural headwind. Fewer employees means fewer seats. Microsoft (MSFT) and Salesforce (CRM) built their business models around selling licenses to human workers. If those workers are being replaced the math gets difficult quickly.
Block is not an isolated case. Salesforce cut 4,000 customer support roles last year citing AI. Pinterest (PINS) is cutting 15% of its workforce for the same reason. Each announcement makes the next one more likely as competitive forces build.
But the Story Is More Complicated Than That
This story is far more complicated than creative destruction. Earlier this week Anthropic showcased updates to Claude Cowork, an enterprise AI tool that automates work tasks across a wide range of applications. Salesforce was prominently featured in the presentation, along with integrations with Google (GOOGL) apps, DocuSign (DOCU) , LegalZoom, and others.
Salesforce shares rallied on the news and brought a host of other software names with it. The (IGV) software index ETF, which had been down more than 20% on the year through last Friday, is now up about 7% since Monday's close.
So which is it? Is AI destroying the software industry or saving it? The answer is both, depending entirely on the company and how aggressively it adapts.
The market is trying to price that distinction in real time, but it's getting it wrong in both directions. The Block news will stoke fears again this morning. The Anthropic presentation reminded investors that software companies willing to embed AI deeply into their products may actually benefit from the disruption rather than become its victims.
The battle is not ending soon, and it is the central investment question we face in the months ahead.
The Indexes Won't Help You Here
This is why the indexes have become nearly useless as a navigation tool. The S&P 500 and the Nasdaq tell you almost nothing about what is actually happening beneath the surface. Nvidia posts the greatest semiconductor quarter in history and drops 4%. Block cuts half its workforce and jumps 20%. The winners and losers are being sorted at the individual-company level, not the sector level, and certainly not the index level.
The only way to navigate this market effectively is to be a stock picker. Not a theme buyer or an index trader, but someone willing to do the work. Understanding which companies are using AI to cut costs and expand margins. Understanding which companies are vulnerable to having their business model disrupted. Understanding which companies are being unfairly punished simply because they are collateral damage in a confused and volatile tape.
My Trading Game Plan
There is significant uncertainty right now, but that also means significant opportunity. The investors who do well in this environment will be the ones who stop asking whether AI is good or bad for the market and start asking which specific companies are positioned to win and which ones are already losing.
My game plan is to be patient and move slowly while technical conditions develop and investors start to gravitate toward certain stocks as potential winners. What I want to do is find the names that will break out and become leaders in this new environment. That is not going to happen overnight. We need to understand the dynamics that are developing and which companies are doing the best job of adapting.
We have another unsettled start on Friday morning, with issues such as Iran, central bank action in China, the Producer Price Index, and earnings from Berkshire Hathaway (BRK.A) adding to the uncertainty.
At the time of publication, Rev Shark had no positions in any securities mentioned.
