The SaaS-Pocalypse, Bitcoin Crash and Why Understanding Palantir is Now Important for Both of Them

In my home base of Brooklyn. Uh, we've got a lot to go through. Uh, I just want to basically start with, uh, for those of you who've been reaching out and have been patient. The paywall will start on 22V this week. There'll be a variety of different choices for people. The goal at the end of the day is both to help you with AI, but also to help you from a trading perspective and hopefully give you some insights that are more regular and more detailed than what you get on the video. Uh, where I'm trying in a matter of 45 minutes to just take you through kind of the week, but also get you the themes and the secular moves that I think are happening.

The reason this week is an important one is because a lot happened this week. We had the PMI breaking above 50 finally. We had SAS going into a complete panic and leading to fears over contagion. And I had a lot of people sending me stuff as I, uh, posted in X. I will always post more in X when I'm receiving things and when I think people are kind of losing their mind. Uh, this is going to be a 10-year process, guys. Uh, we did a lot in, let's say, a week in terms of the SAS side, but what we haven't yet done is just the recognition of the $90 trillion infrastructure in number seven and what's coming, the race for critical minerals. There's a new theme that I'm going to focus on a lot. Uh, number four, Palunteer, what All-In talked about in SAS late, the drop that happened late last night. I listened to it this morning. It's Saturday. Uh, Elon's interview, same thing. And then preparing for the edge. These are all trades and themes which I think you want to be on top of with me because, like I've said before, I don't think the sell-side can cover this. I don't think they have the capability of it. Uh, and that's because AI is like electricity. It is affecting things outside of the traditional silos in the same way that people are trying to pick SAS and trying to stick with silos. There are no silos in a world of AI. There are no silos with, uh, 60 IQs and Einstein IQs for AI across every single vertical that you can think of.

We're going to start with Bitcoin. Um, so the line up top there, which is 250,000, um, that's where I thought it was going to be at the end of last year. Yesterday, um, it was 76% below where I thought it would be at the end of last year. So, I've been wrong. The other two lines there are where I've been buying the last, uh, year, partly for myself, partly in terms of setting up a strategic Bitcoin reserve for my children, which I've talked about with Anthony Pompiano many times. Uh, so I've been wrong and it's not felt good. This is the biggest part of my net worth at this point. Um, and it's gone wrong. So the question is, has anything changed for me?

Well, the first thing I want to do is give some kudos. Uh, I've shown John Ro and I've talked about the fact that John Ro and I had different views on Bitcoin and I'll say for this year, but regardless of for this year, what has been true. John put this out, um, last year, uh, at the end of the year and basically said his target on the downside was 60,000. Well, we hit 60,000. So, if you guys are not following John Rog, John and I do a lot of work together. Um, we are on the same page on literally almost everything for this year. We've known each other for over 25 years at this point. Uh, we've been in the same business. We've both been from the macro side. The great thing is when John and I align, I think there is a tremendous amount of upside. I'll be highlighting again. I use him on all the ideas that I send out through 22V. I just wanted to bring it up and give him credit. If you're not listening to him, if you're not signing up for his work, I think you're making a big mistake. He has been all over this stuff. And I think this world that we're in is meant for John Rog. So I think you should be spending more time.

Um, there's not only bearish sentiment in terms of the crypto community, which I've talked about and written about many times about how bearish people are, but when you get in stuff like this, um, buying Bitcoin is like buying air. Too many people are brainwashed by non-rigorous and unquestioning actors dressed up as the business media, social media, investment strategists trying to sell you garbage at inflated prices. It is why I call BS to them so frequently. You enjoy your Bitcoin.

So, the great thing about this is I don't, I don't give a crap about what Doug Cass says. I mean, people that are bearish on things when they've just fallen, good for them. Kudos. I'm sure they were bearish at one and 1,000 and 10,000. Uh, this is not a personal thing against him and what he posts. But I do think we've reached a point where when it's beaten down in the ground, I not only want to see the crypto side bearish. I want to start seeing the people who are perma bearish on it, another one, Michael Bur, um, come out and start talking about how things are going to go bankrupt and what's going to go on. So hopefully between John Row calling for 60,000, everyone coming to pound out, me being, uh, completely wrong and trying to appease the gods and not only say I was wrong, but explicitly say I was wrong and something I'm buying for my kids and just saying to myself, I do like me. I think I'm going to be okay with this one. I really do like it. In fact, I wrote this piece.

Now, the interesting thing I want you to pay attention, this was written December 8th. This is my view of Bitcoin. I'm not in this for trading on a monthly basis. I don't care whether it's 170,000 right now or 50,000. My belief is on what I think is happening from a macro basis from the disruption of AI. And because most people, and especially the two I just referenced, have called AI a bubble continuously on the upside, faded things like Micron and Nvidia and everything else. I have full faith that when the AI agentic world accelerates, which is what is happening right now, people start to recognize how the crypto utility phase starts to accelerate. So I wrote this paper. If you haven't read it, it all gets through why I believe in this from a macro basis and it hasn't changed.

But that was on December 8th. At the same time on December 8th, I wrote this: Vibe coding is a chat moment for code. Why the great software rerating of 2025 to 2030 has already begun. The reason I wanted to bring this up is not to pat myself on the back for at least getting the software side. The key thing in this is the software rerating of 2025 to 2030 has already begun. My belief is that this would be a five-year multiple compression that the street would continue to try and buy SAS. There'd be these little bounces and there'd never be this dramatic shift in like a day. That's kind of what happened with Amazon. That's kind of what happened to a degree with the energy side until crude fell violently from fracking. When technology disrupts something, usually you don't build it in and rerate everything off the bat. Maybe it was because software's, you know, price to free cash flow is so high. I don't really know. I'm surprised at how much it's fallen, but it also happened at the beginning of the year.

The reason I bring this up is I fully expected and know that Bitcoin is part of what I talk about all the time, which is the reason I think the dollar is going to be weak is because we had a monopoly on code in the United States and that monopoly is now gone. Coding is now ubiquitous. Software companies are forever changed and most of them will die. Some of them will survive. You can, I'm going to go through some of the ones that I believe should be surviving now. But when you have a fall like this, and I want to highlight this is December 8th. I did not expect when it was sitting just off the all-time highs to see a complete plunge like we're in Liberation Day. In fact, this is far worse than Liberation Day. So, this is a fairly historic move, how quick it is. Now, Bitcoin is built on code. So, as Jim Bianco said, it's programmable money. Yes, it should trade like software stocks, but not forever. It should trade like agentic software stocks in my opinion.

So, AI fears pummel software stocks. Is it illogical panic or a SAS apocalypse? This is all based on many, many things released by Anthropic over the course of the last two months. And I want to reemphasize that the reason I wrote the December 8th piece is because on November 29th, Opus 4.5 was released and everything changed overnight. The clawed moment has been the disaster. I've written multiple pieces about it. I've done every video, shown the things that I've been able to build. You've seen the things in X. For anyone that fades this at this point that hasn't built their own app, you have no right to say anything about it because you don't know what you're talking about. I don't care if you work for Goldman, Morgan, or a hedge fund. If you believe that you can, that you understand the part of being able to build apps, the agentic side that is spreading, if you haven't bought a Mac Mini, I think you should go spend some time on critical minerals. That's just my suggestion. Find something that is definitely going to work as opposed to going through and figuring out software companies like Salesforce, like Adobe, and try to figure out whether they're all of a sudden people are going to change. There will be survivors and there will be companies that last for a long time. Hell, I'm sure Morgan Stanley still has, uh, mainframes from IBM from the 1970s. They did when I was there. It doesn't mean they'll get rid of everything, but I do think you're underestimating how fast this is going to go.

Anthropic's AI agents spark panic over future of Indian IT services. This is not a US thing. This has been global. To put this in perspective, this is the IGV software ETF relative to the NDX. Let's now strip out the growth component to some degree. This is the 30-day rate of change. This is unlike anything we've seen. Doubting it. This, you can't even find anything in terms of this. When we start, when the Fed started to raise rates and we started to reprice long-duration assets based on inflation going higher, you didn't see anything like this. This is unprecedented and it leads me to believe that we've probably seen the worst of it.

Now, here's the overlay of IGV with the VC. This is the, uh, Thompson Reuters Venture Capital Index. That is the white line. The orange line is IGV. I want to bring this up because this is where I always knew this was the case, but I didn't think this would go this fast. So remember, when you're going through what happened in venture, you have to remember what happened in 2021. 2021 was a massive venture world. Everyone was coming out of stuck at home. We had SAS startups everywhere. And yes, crypto had a huge boom as well. The crypto boom that led to FTX and everything else occurred during the 2020 to 2021 period. This is an overlay of Bitcoin to that venture index. And I brought it up. It's obviously the same because it tracks with IGV. Here is the total number, just to put in perspective, of global VC that occurred in 2021 and 2022 combined. Those two years, I mean, you're basically as big as the four prior years, but you can go back. It's a huge majority of 2015 to 2020. Here is the crypto VC. So again, in 2021, crypto and SAS were together and SAS is a huge part of the VC world. I bring that up because there's no way to separate that Bitcoin is related and crypto is related.

So, one of the reasons in my opinion, as I've said, that crypto is going through its post.com bubble year. The three-year performance through the end of June 2025, this is from Cambridge Associates for Venture, was zero. Here's NASDAQ. So, again, the three-year returns, and again, these are annualized returns. So you're dealing with something that right now, crypto or VC has been in trouble and that's the overhang for me for a lot of what's going in the crypto space. You also have to remember in April 2023 or in March of 2023, we had Silicon Valley Bank go under. That was a similar situation. Massive dollars went into the startups. Massive dollars went into Silicon Valley Bank. It was supposed to take down the VC world. It didn't because they got bailed out. This is just the overhang because what happened in November of 2022 was ChatGPT came. So now you got the other disruption. So you not only had the bubble that was built, you not only had the rates that went higher in the VC world go through the Silicon Valley Bank, you had ChatGPT and then you had all these AI startups that were going from zero to a billion dollars, uh, in ARR so quickly that it started sucking up all the money. So it should not be a question as to how Bitcoin is directly related. The question is now I've been looking for a catalyst. A lot of time what catalysts come from are just falling and getting everyone out. Uh, I do believe that Bitcoin is the most liquid hedge for those people that are in private investments, of which the VC world has a lot of issues because private equity is under pressure, private credit is under pressure and you've seen last year with the endowments, the liquidity side. So I think this liquidity, private market issue, commercial real estate, residential real estate, all of it is under pressure. Liquidity matters and what Bitcoin is, is the most liquid hedge for private SAS if you don't want to do the public companies. But this is the relationship. I think you've lost kind of hope on the SAS trade. It took everything down. This was my belief is that the only way Bitcoin can get to a million is that it needs to be the only growth engine that is not disrupted from AI. It needs to watch everyone else get disrupted. That is what Michael Saylor talked about. That is why he started the Bitcoin side. Wasn't because of the government. It wasn't some magic bean thing. He was getting disrupted from Microsoft and he talked about the fact that he was losing from the government and he was losing from Microsoft.

Claude Code is the inflection point. If you haven't read the SemiAnalysis piece, I highly recommend reading it and just going through it. I think they, uh, maybe get a little too excited about certain things, but this stuff I agree with. Agents will be the primary method of how organic intelligence interacts with the artificial intelligence. But Claude Code is also the demonstration of the reverse, how showing agents interact with humans. Again, as agents go up, you're going to see massive growth in stablecoin usage, which we saw in January, which will be the last slide I show. It means the utility function of crypto is happening. The financial rails are going. We're still waiting for the Clarity Act. Um, it's about 50/50 to get through before the end of the year. We already have the Genius Act. I don't think you can stop what's happening. But again, I think the massive bull phase for Bitcoin has nothing to do at the end of the day solely with the financial guardrails. It has to do with the disruption of all businesses built on code and eventually all businesses in general.

Here's a chart showing the GitHub commits over time. This is just their illustration of how Claude Code changed everything in terms of people like me going to GitHub. I have personally gone to GitHub about two times before this date trying to do something. I have now built multiple apps multiple times going to GitHub directly from Claude. So this is no shock that this should be going on. The price of intelligence is collapsing. Assure just signed a deal to train 30,000 professionals on Claude. The competitive landscape. I talk about this all the time. I don't know how people can look at Microsoft and not be worried that I'm someone that is AI native. I use five different models all day long. I have, I do them on my ThinkPad. I have Microsoft Office on it. I never, repeat, never use Copilot. Never. So, I don't know how people aren't worried about this. Um, why does a company need to standardize Salesforce if an agent is just going to query data on leads on your behalf? Salesforce is a form and workflow wrapper. The fact that I've had so many arguments still to this day with people on CRM and Salesforce when I ran businesses for 30 years and have had them come in and pitch for about the last 10 and always ask questions on why I can't customize certain things and how much of a workload it is and now realizing what's coming and I will show you some of that because it's becoming more commonplace and I'm going to do a paper this week on it for 22V. Goldman Sachs is tapping Anthropic's AI model to automate accounting compliance rules embedded in Anthropic engineers. You don't need all the details on this. You just need to know this is happening. Introducing OpenAI Frontier. There's a lot of things that happened this week that you probably weren't even aware of. Um, pretty straightforward in terms of how dangerous this is to your systems of record. I keep hearing, well, the systems of record. Look how far down the line it is. Where do you think the value is on this? What are these guys trying to disrupt? There's agents along here. There's the enterprise. There's all this stuff. I completely agree with this whole thing. What does this visual say about traditional enterprise SAS companies? All you have to do is go take it in, copy it, and let an unbiased group that just sits in any of the LLMs tell you. This visual signals a strategic shift where OpenAI positions itself as the orchestration layer, the brain, sitting directly above traditional SAS companies, which are relegated to being the data substrate, the records. So, they don't go out of business. But the question is how do they grow and are they just becoming some elaborate database that is protected for traditional SAS center companies that function as system of records? Uh, the architect carries several critical implications. So again, they're not taking these things to zero. They've just taken the price to free cash flow down to levels that's more representative. We've seen this act before with retail mall stocks when Amazon was disrupting. We saw it with energy companies as well as fracking went through. On the All-In podcast, I mentioned it. They have a thing on is SAS dead. I just want to go through one thing on it. Uh, I took the transcript from it and I said, run the hedge fund analyst skill. I've shown you guys what this is. This is some of the things that, uh, I do for 22V for people in terms of working on this stuff so they can do this. Specifically on the part of this transcript where Jason Calcanis talks about creating Ultron. He's describing how their workload will be done with data gathering and skills for each employee. So I run the skill just on that part. It gives me this eight-page PM research memo. The enterprise agentic stack project Ultron and the reorganization of knowledge work. I'm telling you guys, if you don't use this stuff, you're missing out.

Here's the visual. I had Gemini build for me. Show me the visual of what he's talking about. Okay, Ultron's in the middle and then you've got your APIs that you're connected to in terms of reading. So, you're getting all your information that way. Even talked about if they were to say, "We're not going to let you use our APIs," then I would get rid of all these things. Now, again, Jason is startup, so I want you to separate startup from enterprise. The startup side, I don't see where those companies that are AI will ever use Salesforce. So they're losing the growth of small businesses becoming big businesses. Just my guess. Um, I'm sure $300 billion companies. Yes. But the question is how many of those will ever exist? Are there going to be moats around them? I don't believe so. So there's another issue that comes. If you never get to the point where you're a five-year business and your business gets disrupted after one year, which is what Cursor is starting to see in their side, you're separating enterprise from AI native startups. I don't think the startups will ever use it. And for the enterprise side, I think we're going to get into what I think is happening. Is this what Palantir does?

So, for those of you who've doubted Palantir, it's a defense company. In their most recent earnings reports, there was a shift that happened. So, I asked this, I had it run on this and basically it said yes, this is effectively where it is except one little point. Palantir's on the top with Ultron. So, again, you can go read this. I'm going to go do a report on this. Palantir reported record revenue this week, 1.4 billion, up 70% year-over-year. But here's the critical important. US commercial revenue, here's the government, 570, up 66%. Commercial revenue, exactly what we're talking about in terms of the agentic side picking up and companies now going, "Oh, I'd rather build the Ultron model." 130% year-over-year, 28% quarter over quarter. I'm, I'm just gonna tell you guys if you're not focused on this from that basis, Palantir got knocked down significantly this week. Um, I think it was $70 off the peak, so 35% fall. It actually got to a level where I bought it. Um, and again, I started doing research on it as we went through over the last two months for SAS, figuring that eventually the chart would fall down. I'd shown the chart. I thought it was going to go, uh, someone reached out next thinking that last week I was negative on Palantir. I wasn't negative on it, but when you have a panic going on in software and the charts are horrible, you want to see it get to a level where it makes sense. And down around 130 to 125, it started to make sense. At 100, in my opinion, they're going to make more than a dollar this year. It becomes a gimme when you've got earnings growing at over, uh, 130% in terms of revenue for their top line relative to the commercial side. So I took this, took this and said, is this similar? Yes, this OpenAI frontier diagram is remarkably similar to the Ultron Palantir model. So you're getting the way it goes. All three models represent a shift from software as a service to agents as a service instead of human manually moving data between siloed apps. The frontier, the reason this is important is Palantir is an AI company. Salesforce is not an AI company. Can they become an AI company? Sure, maybe that'll work for them. I think you're betting on a pivot and I think the uncertainty on it means you need to have a lower multiple.

So all that's happened in SAS, as I showed, their stocks had not fallen. Their multiples had compressed somewhat, but as Brad Gersonner went through in the All-In podcast and he highlighted, it's still expensive. If the uncertainty in five years, and he, I think he said it well, if price to cash flow is still at 15, 15 years from now, are they going to be able to still be in business? I don't know. Um, you just don't know. IGV relative to the NDX 30-day rate of change. This is a post I put. I have no intention of picking a bottom in software, so don't read this the wrong way. This was on Wednesday, but I do think when fears of systemic financial risk from a group, ex-Microsoft, that honestly is not that big. So when I said that, you're dealing with about 5.something trillion dollars in the S&P 1500, uh, software. You take out Microsoft, you're dealing with 2.something. If you take out the Cyber Group and the Palantir, which I think will be fine during this, uh, you're left with about $2 trillion. For people to think that this is a contagion is insane, especially when at $2 trillion, you're finally getting that number down to around energy and materials combined. Yes, that's right. Energy and materials are about 5% of the S&P. Let's assume $60 trillion, 55 trillion at least, ex-Microsoft, you're dealing with a group that's about the same size as energy, materials. So if that's the rotation, that's the risk you're playing. You're getting in front of that and I think that's a mistake. Software has a shock, software liquidity. It started to get into private credit. I knew when I heard this, I was like, well, this is ridiculous. Um, once the hottest bet on Wall Street, private credit is starting to crack. Private credit stocks crash. I mean, guys, yes, it has an impact, but here's the number that Bloomberg came out with. When I see software is dead all over X, I mean, there's software is dead everywhere after four months of selling. It's just not news anymore. It wasn't news really in December that the multiple got called out on the rerating, but now we've had a sharp fall like it's going to go out of business today. I do think people are underestimating how fast this will continue. But I think the stocks have done enough damage in the near term to where you could see short covering and you'll still see mutual funds rotate and people that are a little bit slower moving, uh, moving out as people sell US and they buy international. That is very negative on software as well because most of the weightings are software. This rotation, this unwind of the passive investment or the MSCI World where 72% is the US is going to be continuous for a decade, guys, as the money rotates into materials and into places like Brazil, as I'll talk about, and into manufacturing in Germany.

Distressed software loans swell by $18 billion. Whoa. $18 billion. Google backs up $185 billion in spending with receipts. I mean, they raised their capex by more than $70 billion. So take it as four times this number. But this is a news headline and this one people view as a negative as well. So this is a negative and this is a negative. This is when I think people may have gotten a little too negative. Blue was collapsing this week. The whole private equity world was. So he gets interviewed on, or he gets interviewed on CNBC and basically jokes about how it is good. Um, but he said this on the earnings call. We don't have red flags. In point of fact, we don't have yellow flags even. We actually have largely green flags. The tech portfolio continues to be the most pristine amongst all of our portfolios, amongst all of our subsectors. So again, I think people, I think people treated this as a panic because they're creating narrative after price, which is what normally goes on. The narrative is now software is dead. If you've written a piece this week titled "Software is Dead," I literally come on, you're doing this after some of the charts I've already shown. It's just not worth it. It is going to be up under competition. But this is not new news at this point. This started when Andrej Karpathy created the word vibe coding last year. That's when we started to see this multiple compression start. Claude Code kind of made it more likely that this is going to happen. And then when you get into the beginning of the year and people haven't made the shift because they thought they could buy software, but then every single report is saying that this is an issue. I can see where mutual funds are like, whoa, whoa, whoa, whoa. Okay, we're starting off the year. Let's rebalance and go through. And everyone just chose the same year. And then you get into hedge fund unwinds and you're into this.

As a reminder, the Palantir earnings, you should go through. Uh, this is what I'm going to be writing more about. I'm going to do a deep report on Palantir, less specific about the company, more about the technology and the way people need to think about this, in my opinion, that they haven't, because this is going to feed into the edge and the on-premise enterprise. This is a huge, huge, huge dollar-making scenario. This is part of the $90 trillion that Jensen Huang is talking about, the $6 trillion that is going to be on the data capex side. That is old news and I think that's going to cost people money this year. You want to remain in the semis. You want to remain in the places that are going to be part of the $90 trillion over the next decade. That will also involve copper and silver and all of the components of the commodities that have gone higher. But software needs to be rerated because it is a massive part. When you combine software with the Mag 7, guys, you're dealing with a situation of weightings that is just enormous relative to the other side. This is not something that can be done overnight. And if we continue to see it happen at this speed, and remember you're talking to someone who said he thought the Russell 2000 would be up over 50 to 60% this year while the Mag 7 is flat. If that occurs, we could be taking down quant strategies. We could be taking down hedge funds because I don't know how you can rotate that fast if it happens this year over five years. I get it. But remember, I started this off saying I like me and the John Candy reference. I was wrong on Bitcoin because I got caught in the software trade. If you're caught in the software trade, I don't know how quickly this is going to go, but I think it can go faster than we all realize because all it's going to take is some earnings reports from Salesforce.com that suggest that topline revenue is now slowing and I think you're going to have an issue. We're not there and everything has been fine so far, but I'm worried about this year in terms of how quickly this goes. So again, Palantir, you should spend the time on it, um, because they're part of that Ultron thing that I said. I'm not going to spend more time on it, but I will say this. This was from their earnings call and this was from a testimonial from a client. Every other software must, and so this is a client saying this. Every other software must justify its existence. And so far, they haven't been able to. 97% of our employees use Foundry every day. Foundry is our operating system. Not only we're getting rid of our third-party software, we've replaced their functionality and then beaten them to the new features all within one year because of the ontology. Ontology is basically the brain. So again, remember this is happening faster and everything with AI goes at one-tenth the time. So it is possible that what we saw with Amazon will happen this year alone. So be very careful and that's why I said I'm not trying to pick a bottom in software, but I do think we've done enough.

But on Friday, I thought it was interesting that Palantir was up, Bitcoin was up, Salesforce and Adobe were basically flat. Continue to watch that dynamic because I think you're going to start to see the things that were thrown out with the bathwater separate. If software continues to go lower, then I think Bitcoin and Palantir will have another leg lower and we'll get to lower levels until we've been through the forced liquidation. If it's a forced liquidation, it's going to be a bigger issue. Software PE, we're back down, believe it or not, to lower than when the iPhone came out. That's how fast this has been. Big tech combined to spend $650 billion this year. I want to remind all of the people that wrote the AI bubble piece and the fact that they will not spend this. There will eventually be a spending change. $650 billion is what came out. And for you saying they're never going to get their revenues, revenue growth. Microsoft 17% year-over-year. Revenue growth 18% year-over-year for Alphabet. Meta 24%. Amazon 14%. This is the revenue side. And again, this is with capacity constraints and RPOs for Microsoft, which is their issue. Um, you've got capacity constraints for Alphabet. You've got capacity constraints for Amazon. I personally think these companies are going to have a really hard time getting the numbers because their revenues are growing. But the problem is the data center buildout to me is going to be an issue. It's going to be bottlenecked at some point this year. The rise of AI agents to forever change the way work is done will lead to a break in correlations with investments and assets built on code. So far, SAS has hit everything, including crypto and agentic winners like Palantir. They need AI agents to be winners while SAS suffers. Today, Palantir and Bitcoin are up. This is what I was talking about with looking for changes.

Recap for the week. All that going on. The S&P was down 10 basis points. Fourth week in a row of less than 1% move. The VIX barely budged. I don't have it there, but obviously we've had a higher VIX in single name equities. I think that divergence is going to be there all year. I expect that the VIX EQ, which is up around 40, uh, will remain at high levels while the VIX will remain around 20. And I think you're going to see spikes in the VIX EQ, uh, all year, uh, for a variety of reasons. Q's down 2%. Mag 7 down 4.7%, biggest move since Liberation Day. Uh, Russell up 2%. Small caps, baby. Oo, this is kind of important. Seven, only 7% of small caps reported in through, uh, through Tuesday, but 79% had beaten estimates on track for the best beat rate performance ever. We'll see what happens, but I think small caps are there. You can't see it on this chart because my head is in the way. I'm not going to move it, but you guys know the drill. This is the equal weight ETF. Made new all-time highs this week and it made it on the day that the world was panicked. I put, I sent this out, um, to the Salesforce at 22V. If you guys want to get these warnings, just reach out to the 22V Salesforce. If you didn't get this, Colin and Max can help you out. But I sent this to them, uh, on Wednesday morning. And as a reminder, this is my turbulence model. It has 100 different assets in there and it's meant to warn me when we start seeing shaking, but the headline index is not moving. So before the S&P dropped 100 and some odd points, uh, I got a signal and this was the first signal I'd gotten. So again, four days elevated, the covariance matrix was shaking. It's like a tremor report to it. It's like my HRV stuff that I do in Substack. HRV is a warning for cancer. It's a warning for heart things. Uh, if you guys aren't reading my Substack and you want to remain alive forever, or at least have a higher probability, HRV is a metric that will tell you ahead of time if there's something going wrong. It will tell you the second that your immune system is going. That's what this thing is. That's why it's called the immune system. It's meant to highlight things when a problem isn't doing and then it gives recommendations. Um, it was showing up in the AI side, but also in the other assets. The alarming thing, you can see that the S&P has been kind of going sideways now for three months. So this warning to me, and even though we've gone back up, we haven't taken out the highs yet. I don't think we're out of this yet. That's why I'd be very careful with the software. We have a lot of disruption that's happening. I am, and I have stuck my nose into Bitcoin again. So I stopped from 92, uh, after I said publicly that if we close three days above 92, I thought that would be the bottom. Uh, the bottom tended to be 40% lower. And again, John Rog was right. I was wrong.

Here's what happened in the sectors for the week. This is just for the week. So the S&P 1500 down 10 basis points. Staples up big. Discretionary, which is mainly Amazon and Tesla. Uh, and then all of the tech, basically this is the Mag 7, guys. And this is the industrials, energy, materials, growth, good. Tech, bad. Building $90 trillion, good. Spending $6 trillion, no revenues, bad. Deal with it. S&P, this is the weightings. So again, I'm going to highlight this. Energy 3.3%, materials 2%. You come back in five years, these numbers are going to be significantly higher. These are going to be significantly lower. If your portfolios, you know, if you run a fund or run a firm and 70% of your money is in growth, I think the growth better shift to these companies and you better find it. Call me up. I'm happy to help on some of these things. But, uh, growth versus value, this is the two-week chart. I'm sorry, this is the one-week chart. Down 7.89%. The reason I want to show this, so it got whacked here during the belief that we were going into a depression and then it got whacked here when the Fed started to aggressively raise rates and we had to reprice long-duration assets. Well, this is with rates not going higher. This is from a disruption from AI and it comes at a time where growth had outperformed value for a long, long time. Um, this is when growth really started to outperform value in a big way because this is when we had the iPhone. I've done presentations where I went, Singularity University, right around here. I just want to remind you at this point when I wrote a paper called "Adapt or Die" related to what was happening with software and that GDP would no longer be a relevant statistic. We'd never have another cycle, employment, recession. The size of the Mag 7 was 1.5 trillion. Before this whole thing started last week, it was up at 22 trillion. That's how you made your alpha. That's how everyone in the world made their alpha. There's no other way to make alpha. If you look at VCs since 2013 over this period, they underperformed the NDX. This has been a public equity story. And now I'm telling you my viewpoint is that they are done as the multiples they have and the multiples have to come down. Great companies, the models are fantastic. I use them every day. You've got some problems with Microsoft. You've got some other problems with things, but I just don't think they're going to outperform. So I know Dan Ives and everyone has all these people continuing in these things. I have a very different viewpoint on this and I think it's going to be an issue. Uh, this is the growth versus value on a 7-day rate of change, the worst in 25 years. This is the Morgan Stanley one, which has a sector tilt towards it, but still, you're to get it in perspective. Year to date, this is where we are. The S&P 1500 is up 2%, even though the S&P is unchanged for the year. This is because the Russell is up. Software down 18.5%. Energy up 19%. This is why I give you the proxy trade of Chevron versus Salesforce.com that has worked out exceptionally well, now up over 60% year to date. ISM, look what we got, guys. So my PMI calls that I was saying beginning in August when I wrote a paper saying PMIs will break above 50. We rocketed above 50. People still don't seem to believe it. We are going higher and as I've said, we are headed back up towards 60 as part of this over the course of the next three to five years. Wouldn't surprise me if we get up close to it before the end of this year, especially now that we've kind of got the launching. And whether it was because the one big beautiful bill depreciation bonus side has kicked in, which is why these guys have raised their capex numbers so big, I don't really know, but let's just see what happens. The main point is this is a big important thing from a quant basis because historically it leads to big things. The monthly number was up 4.7. Aside from this here coming out of COVID, there is nothing. You got to go back to 1995, 30 plus years, to see a jump that big. Wasn't just the headline. New orders also highest since 2012, coming out of the Mario Draghi line in the sand. Here's what happens historically to momentum when this transfer. Now, I'm not expecting that kind of a momentum unwind, uh, because we didn't have a run-up. We've actually been already declining while the PMIs were there. And that's because a lot of this had to do with, in my opinion, now semis are up big. You've got the materials up big because they went up so fast that they're already in the momentum side because of how quick. I think factors are going to be very difficult to use, but I think momentum in this is going to have a hard time as this goes with the software names in the Mag 7. So, I think you have to be wary of it. I do think the things that had been working are going to be more challenging, but we're going to have a broadening out. I think size will continue to go that direction. I think growth versus value is still going to go that direction. Uh, remember the trigger point I wrote the paper on the PMIs back here. I've been showing this chart. This is DRAM prices. This is the semi. This is really what's been driving this. But this is also what started the IGV fall. Meaning it really started to unwind once we started to get the reality that DRAM prices were going up and this was a hardware shift. This is that in this point in here, IGV versus NDX. So, I wanted to just show that that this collapse here is directly related to how fast we've seen these charts go. There's semis versus IGV. So, everyone that kept trying to pick the top in this, well, you got that one size wrong. Uh, here is my favorite that I've pitched, which is the equal weight semis. This is more the analog names and everything related to IGV that has gone into hyperspace now. This has Pterodine. This has Lattis Semiconductor. A whole bunch of names which have gone up. I've highlighted Corning as an optical fiber trade and I showed last week when it moved back down to towards 100, uh, that this is, you know, the same thing to me as Samsung and you should expect this thing to go up violently. Plus, when we do the upgrade cycle for autos, for trucks, for phones, for computers, the glass screens that are necessary, we are going to have a full-blown AI demand cycle with a lot. And then humanoids recording ain't going to stop. That is the optical fiber side from the meta transaction. You're still going to have the glass side. There's Pterodine. I've highlighted that. These are all names that I've highlighted. The only reason I'm highlighting them again is because when I did my work, I was shocked at where they were sitting, knowing what was coming. The reason hopefully you guys watch this is that it is very difficult for a semi-analyst to do this unless they spend time on the demand side of AI. There is no way to do this if everyone thinks there's a bubble in AI. And that's why everyone got memory wrong. That's why they got all this stuff wrong because they were doubting the demand side. They were doubting the capex side. They thought there was a bubble. They've seen this before. Everyone got that wrong. They are not ready for this one now.

Salesforce.com versus Chevron. Very early stages. We are still in the very early innings of this. Um, the two-week rate of change of the MS value factor, which I'm not showing here, you can go to the expost, is the highest since the dot-com bubble. So value ripped higher over the last two weeks. The value bounce from the dot-com bubble lasted for six years as commodities in the China trade dominated. The sector shifts so far this year are the same as the seven years back. So what I wanted to highlight was here's what happened over the seven years out of the dot-com bubble and into the China infrastructure story. You had tech communication services down violently. The S&P was unchanged during the seven years. The energy sector was up violently. Materials, go through the list. Here's what we have going on right now so far this year. It's the same trade. So again, I bring this up because the AI infrastructure.

Trade is big tech spend. We're going to spend 650 billion. I don't think it's good for the Mag 7. I don't think it's good for them, but I do think it's good for the semis and for the people and for the cooling side and for all the stuff we've talked about on power.

Nvidia did another presentation this week with the salt. Now they agreed that to build the physical AI to power 90 trillion industry shift in the phase of AI based re-industrialization the biggest opportunity lies where the information and physical worlds meet totaling 90 trillion from that was from Jensen. We are living in an era of unprecedented acceleration and this massive wave led by AI is completely changing manufacturing processes from the head of the salt.

So again, I wouldn't care about these, but you're seeing the charts. The charts are telling you something historic is happening. And people look at the charts and they go, "This can't go." But in the case of Micron, again, the PE finishing this week is under 10 off this year's earnings. This year's like, forget it. I We're going through this pace that we've never seen earnings grow this fast because we've never seen these kinds of dollars, $90 trillion over a decade. Go read how much China was. We're we're dealing with stuff. We don't have enough copper. We don't have enough silver for this.

I just wanted to remind you that if you go back and look what is in the world is causing the retail meltdown of 2017. This is the Amazon story. So this SAS thing, there were people that wanted to buy the retailers back then. The exact same thing. They want to buy SAS. People never never able to see the technology and the damage. They think old incumbents can reinvent themselves with the new technology. They all tried to do it. Has Walmart been able to find a way over the 15 years to be able to have an online presence? Yes. Does it compete with Amazon on that? Not even close. But they have a business that has survived in terms of the brickandmortar.

This is also from February of 17 from McKenzie on what happened to resources, what happened to energy post the fracking side. Truflation less than 1% this week. Truflation is a real thing. Like I I hate to tell people that want to doubt it. Um it is a real thing. I I put it in the same camp as the ADP. It's not like it's completely useless. It may not move the market. There may not be anything that ever trades off of it, but there's information in there that's real. Um it is correlated historically.

So there's a huge divergence going on. And again, until gas at the pump goes higher, I think people should be more worried about disinflation. and eventually deflation than they are inflation. But the majority of people and I was at a conference are worried about inflation. They expect I forget what the I'm going to say close to 90% expected the inflation to be above 3%. Um most inflation numbers right now are below three. So everyone's expecting inflation to go higher. The jobs market, most economists are still saying AI is not the disruptive force. I I literally don't even know what to say to people anymore on this stuff in terms of this.

If you want to get more up to speed and listen to two very, very smart guys on this rotation, I gave you last week, episode one, Smarter Markets. This one starts off phenomenal. Um Jeff Curry, uh, you know, people always um give commodity guys crap because these are long cycles, so they're predicting them and sometimes they're, you know, early or sometimes they're they're just wrong because they're in a commodity space. I think the way Jeff started this out, uh, very very good. He's he's a historian and I'm just going to put Jeff argues this cycle is different because asset light hyperscalers like Amazon and Google are now putting steel in the ground. That should put pressure on their equity multiples as they start to look like asset heavy commodity producers producers. He flags a potential rerating window in 26 and 27 and notes compute prices falling even as capex surges. Everything I just showed you is exactly that.

Now he's talking about what's happening, but I think this is important. You can go read through all the other things. The AI race is about energy and materials. Completely agree. They require dozens of metals, not just coppers. And true hoarding is unobservable. Okay? And I want you to remember that just because the price of silver goes from 12 back down to 70, there's going to be a lot of swing trading in this. For you traders out there who want to trade things, the river is flowing with the metals. Um, it's flowing with the metals. They're going to trade volatile, but if you can catch the swings, there's a lot of money to be made on it.

Google earnings came out. Felix uh put this out, and again, I've talked about this as well, but I think the end main thing here is to look that as these companies expand their capex violently, their buybacks have to suffer. So the forecast in terms of buybacks going down, but remember also we're talking about a race of bringing IPOs to the market in the growth category, trillions. Why do you want to be long stuff that has trillions of supply, isn't going to be buying back, and is spending trillions of dollars on commodities where there's going to be bottlenecks, where they already have RPOS, which are basically like liabilities that they may never get because, as Alon Mus Elon Musk will talk about, we're going to have an edge acceleration at some point here, and it may just completely make the training models less important.

Trump launches 12 billion mineral stockpile to counter China. Craig Tinddale, Adam to your um to your expose. China may look to stockpile more copper as part of its. So in response, Trump's doing stockpiling. China's doing stockpiling. China is restricting any exports of silver. Uh I mentioned last week that I was aware that governments were looking into stockpiling critical minerals. Less a week later, the US and China announced their intentions to ramp up stockpiling. Do these other countries do it soon? That's the whole thing with commodities is that they're a global thing. Everyone needs them. What the world sees as an irrational Trump and government might be better interpreted as US critical mineral supply chains are in far worse shape than the Western consensus realizes. Investing critical minerals of which silver, copper are included. Yes, this is not just rare earth. Critical minerals.

Oh, the US and Brazil did a deal. Remember I showed you guys EWZ last week. Brazil holds the second largest reserves. This week, the US DFC announced 6 565 million finest rare earth extraction. Brazil is a sleeping giant of minerals and I wrote a paper on this this week. For those of you on the um payw wall, assuming it is launch Tuesday, which is again what I'm being told, uh you can get access to this and start to read some of the stories on it and I will be coming out with more specific names. But in the case of Brazil, uh I believe the currency, the bonds and the equities will be in lock step this year and commodities will be in lock step as well. That is a powerful situation for Brazil even though it's an election year and chaos can ensue during election.

Uh Art Burman put this thing out on the gas turbine lead times. Uh I would read it again. We are not done with this whole thing yet.

So Elon Musk interview cheeky pint with uh one of the Collison brothers. I think it's Patrick uh and Dwaresh. Again, I say it all the time. That's three hours. You got to listen. This is the main points. I'm going to try to give you kind of the the I could talk about the data centers. All of the hedge fund people that told me Elon Musk cannot build satellites in space should go listen to this. He's now saying 30 months uh it'll be happening. Can you imagine building that many data centers? He's talking about the hyperscalers, that many power plants. Those who have lived in software land don't realize they're about to have a hard lesson in hardware. I I you need to listen to this because he's basically saying this is really hard to do and to believe that these are going to happen, that you're going to get them all done, that there won't be issues, that there won't be problems. AI is about to slam into a hardware wall, which is why space becomes the escape valve.

Um, hyperscalers are building the brain faster than the body can use it. Training spend is still necessary, but it's no longer the binding constraint on AI value creation. I could not agree more. Um, where these things have gotten to, we are now at arguably 140 IQ and accelerating by the end of this year. What does that mean? And if we grow at the same pace we have over the course of the last three years since chat GPT was launched. You're dealing with above 160. You're getting recursive self-improvement. You're getting all of this stuff already. The compounding of this to use Moors to use Ray Kerszswwell's singularity. It's going to accelerate. So the question is is this money is the models getting bigger going to work? Hyperscalers assume bigger model more value more training more defensibility for remote. What Elon is talking about training is frontloaded. Inference and deployment is where value compounds. That's what we're seeing now. It's about inference. This is why Nvidia had to diversify and they did the Grock deal back at the end of the year. They need to be part of the inference and the deployment into the embodied AI.

Go back to what we talked about. 6 trillion verse 90 trillion. 90 trillion is related to the inference and the deployment. That's that's where the value is 90 trillion. the six trillion if you're sitting in the the the vertvs in the the GE vernovas and all that okay that's great but they got to focus on the edge now we got to be involved so you have to do your homework on the edge and where the edge is going to work the on premise the Cisco the routers the there's so many other companies Qualcomm that are going to benefit from this as we do the roll out which is starting this year training is centralizing deployment is decentralizing so this gets back into the decentralization theme. This gets into something very very important. Edge a edge AI is a way to route around the power bottleneck.

I'm not going to go through reading all this. You have to listen to itself. But edge AI turns cars into rolling data centers, robots into mobile inference nodes, factories, embedded intelligence. This is capital efficiency, not just technology. Basically, building these gigantic data centers, these massive things, and then sending it from the cloud is not going to work for the 90 trillion. So they need it for the models and they need it for the race. They need it to cure cancer. They need it for all of these things because we need to get to that point. But the central AI is a capital goods regime. That's why AI stops looking like SAS and starts looking like the industrial infra infrastructure. This is about getting AI at the edge into these things.

So he's basically talking about, you know, longduration debt is now becoming riskier as interest rates volatile because you've locked in terms that may not reflect future reality. Longduration capex becomes riskier when technology is evolving exponentially. And this again gets into if you're making long-term capex. You're assuming you're going to get the RPOS and you're also assuming that there won't be disruptions coming along the lines in terms of capex. You have to listen to Elon and understand why he's doing SpaceX and cap and XAI. It's really important for this buildout.

So, one more edge AI bear case playing out. I put out a long thread on X last weekend because I had listened to and written I done a video on Gavin Baker worrying about the scariest bear case for AI infrastructure less than two months ago and it's happening out now and that's because I listened to the all podcast. So, this is the thing if you want to go listen to Gavin Baker talking about on invest like the best. He highlighted this. He actually liked the X thread. It was five half a million people read it. Baker's framework edgei scary space case basically talking about when you get to the point that you can have open source on your computer where you can actually get around using the models that you're paying for and actually have them in there and the all-in podcast started to talk about this with Claudebot and again this stuff moves too fast we've talked about co-work cla code we've talked about all of these different things related But Claudebot was the story that eventually turned into Maltbot and eventually Molt book.

Um, so basically all you need to do is read this. Jason goes through his experience with Claudebot. It's an AI personal assistant. And then they talk about Kimmy 2.5 and the open- source AI breakthrough. Basically being able to reduce cost by 90%. So he talks about how he used this connected to Claude, but that it was costing him a lot of money to have the AI agent run full-time. So think of it as electricity. So then you get into Kimmy K2.5 which is an open- source model which you can connect and reduce your cost by 90%. It's a Chinese model so you take it for what it is. But they talked about how you're one terms of service update away from everything breaking with closed models. When anthropic briefly restricted clawbot usage it proved exactly this vulnerability accelerated the shift to local open source alternatives.

So that's what ends up happening is if if you get to the point that you don't want to use claude and you want to use these open source, the question is are they good enough? And the answer is they're pretty much Kimmy 2.5 is right around claude. So you're getting to the point where the open source is there. So what this means for way where AI stands today phase one the form factor evolution David Sax said AI has mainly come in a form factor of a chatbot. So chatbot, if you guys have only used it like a Google search as a chatbot, you're already missing out. The next phase is when we start getting into open source models and we start getting into AI agents. That's where we are. That's where we're going right now.

Um phase three is when you get to the decentralization Mac Studios with M series. I've talked about the fact that I ordered two Mac minis and a Mac Studio because I'm going to run this stuff. I don't want it on this laptop, which is my ThinkPad, sorry, my Mac. I also don't want it on my ThinkPad which I use with 22V and do most of my work but I do want to use and have AI agents work but I want it to be cheap. So I want it to be a Chinese model sitting on an open source uh on a framework that is completely secure so I don't have to deal with it. That's why the Mac minis are selling and that's why the studios are selling.

Please talk about the risk to the hyperscalers from this reality of moving off. The inference revenue cliff is really the big thing. The entire hyperscaler narrow has been built on a core assumption. AI inference at scale requires centralized data center infrastructure. They're highlighting you don't need that. And again, it's moving so quickly. And if their models, the Chinese models keep up, and you have to think about it, that was a shock last year with DeepSeek. The models have continued to keep up. They're not as good, but all it's going to take is a US model to get there because when a US model gets there, then you're going to have all of these things occur. So I just wanted to go through open source is attacking all four. The question is when are we going to get a US open- source model that is good because are AI are large enterprises like in the US the S&P 1500 likely to use an open source Chinese model or is it more likely for small businesses and entrepreneurs with budgets?

Yeah, certainly no. And that's what Dario Modi talked about. He said he's not losing anything to theirs. So the large enterprises, again, you have to separate this. Large enterprises, AI native startups that are running on a tight budget, not trying to make trillions of dollars to defend. If you're trying to build a business and get up to two million, three million, and you're an entrepreneur, basically what I'm doing, I absolutely want to use an open source model, but I'm also paying for the five models at the highest level. So I have an employee that's $12,000 a year. Um, I like using all five all day long. I like getting their different views. So everything is getting cheaper and cheaper and if they were to raise prices which they're not going to be able to then everyone would shift to open source if the models are close enough. So if an American open source catches up then it gets worse and I would say that is the next thing to look for as a disruption.

Um so entrepreneurs and small businesses are using it today. Mid-market and tech firms this is basically using the open- source model. um you're going to see smaller companies that are going to that are going to do it. They're going to be able to compete on that basis. Large enterprises are the ones that are will eventually get off and go to open source. And then the government and defense even longer. So the more secure and the more you have to protect and this is very much a Bitcoin story. Uh as Michael Ser said, you don't find Bitcoin, it finds you. You don't find open source, it finds you. Small entrepreneurs and businesses trying to grow, they care more about revenues than they care about expenses as much as they do revenues. in this case mid-markets to compete if they're realizing how expensive it's going to be to bring Palunteer on they're going to have to go the open source model and go a different direction so again I think that's the way to look at this um the pace is going fast the RPO is liability framework forward revenue val is a bullish signal predictable growth but it's a very negative thing in all these uncertainties that are coming down the road if you don't know what moltbook is go read this um I think it's fascinating what's happening.

It is important to understand especially as crypto people I tied this back to Axi infiniti uh which is a phenomenal economic story a disruption that happened basically with crypto but with the form of humans now it's going to be AI agents and you can see where this is going to have huge repercussions if you're doubting AI still and you think it's still just a chatbot this interview at a closed meeting at the Institute of Advanced Study that's in Princeton that's where Einstein and all of the the the Manhattan Project Brains worked. If you remember watching the movie, uh top physicists agree AI can now do up to 90% of their work and may soon push discovery beyond human understanding. They all went into this being completely skeptical. That's how far we've gotten. That even the smartest people on the planet, the astrophysicists, people don't seem to think Elon Musk is in that group even though he has more rockets than anyone. But these are truly the top physicists basically saying the work can be done.

I'm going to end with this. Stable coin volume sets a historic record $10 trillion. AI agents are starting. Transactions are going to go up. The internet network effects in terms of crypto are going to happen. The financial guard rails are necessary. Fade crypto with your own at your own risk. SAS is connected to crypto because of 2021. We've now taken things down as soon as SAS stabilizes or you see a breaking correlation between Bitcoin and SAS. I believe that will be the trigger point and the catalyst will just be the technical side. John Rog had called 60,000. I'm sure he still thinks there might go lower. Most technicians at this point wouldn't be calling a bottom, but we'll see how the bounce lasts.

That's it for me this week. There's a lot to go through. Again, the launch is this week. Um, any of you want more help on the demo side and learning how to use the tools and come up with ideas, great. I will try to get a Palunteer piece done um on the importance of that Ultron theme and what it means and the different names that are associated with that buildout. Uh, but that's it for this week. Thanks guys.