Last wk, SPX/Nas/R2K +0.5%/+0.8%/-1.5% w/ oil -4%. But a hawkish Warsh on Friday led to a bear flattening of the yield curve. Despite $NVDA guide of 70% CY27 rev growth vs consensus of 47%, SOX Index -2.3% while software $IGV +5.9% on solid earnings. In general, many AI investors have been bullish on semiconductors and bearish on software on the belief that AI will displace many point solution software companies. This is why the SOX index is up 62% YTD and IGV is still only up 4% YTD versus the S&P +13%. Situational Awareness was the poster child for this type of positioning. But since the unwinding of the Momentum trade which started on 6/22 (I wrote about these concerns on 6/20), IGV has rallied 25% while the SOX Index has declined 22% through 8/28. For perspective, the Morgan Stanley Momentum index (momentum long performance minus momentum short performance) from 6/22-8/28 is down 36% while their more concentrated TMT index is down 54%. But a bullish twist on AI for the software sector introduced recently is that AI agents will access software tools ~10-100x more often than humans. On 8/6, $TEAM, which was in the bucket of software names widely considered at risk of being replaced by AI, rallied 35% the next day in reaction to solid earnings & outlook. Then on 8/13, $WDAY rallied 18% on the news that private equity firm Silverlake might be pursuing an acquisition which I wrote probably put a floor underneath software. Workday was also supposed to be in the AI crosshairs and private equity has higher bars to clear given their use of leverage and holding period than a typical investor. Then on 8/26, $CRM reported solid results, guidance and a deal with Anthropic (in which they also first invested in May of 2023.) The stock was up 23% in reaction the next day. This seemed to be a strong counterpoint to the SaaS-pocalypse worries. This strategic alliance allows users to execute actions natively inside Claude without needing to open traditional software screens. Salesforce also seems to be changing how they charge customers with fees more related to customer use and benefits to their business. Then on 8/27, Workday reported results which were good enough but arguably acquisition prospects drove more of the stock reaction of +6% the next day from the slightly down opening price. Historically, system of record, security and gaming software have been the only three areas I have liked within software. I now wonder whether the fundamental implications of Atlassian, Workday and Salesforce are supportive of the technical reactions in the software stocks as a group as agentic AI continues to ramp. So how do I square this with my concerns that the rapidly escalating amounts spent on AI by corporations has to come from somewhere? Annualized revenue run-rates for Anthropic and OpenAI have ramped from $29B to start the year to $105B just 7 months later. Software spending globally excluding AI was roughly $1 trillion in 2025. But IT services at $1.7 trillion is a bigger category which I believe still has risk. And finally, knowledge worker compensation is an even bigger category where disruption would be even less noticeable at an estimated $35-50 trillion in 2025 or roughly 30% of the global workforce. Looking forward, the deal on Friday for Venezuelan oil fields that hold the largest crude reserves in the world at 17-18% should get us off to a positive start to the week with declining oil prices. But a bit further out: 1) “Don’t Fight the Fed” given I believe a hike is likely on 9/16 because the 10/28 mtg is right before mid-terms, 2) September has the poorest seasonality of all months, 3) there is even worse seasonality than normal during mid-term election years (see prior posts for more detail) and 4) recent bipartisan pushback against datacenter expansion (one of the few things both sides seem to agree on though I believe this is wrong and hope it will change with more education) puts pressure on the AI infrastructure names. As Warren Buffett says, the market has to keep pitching but you do not need to swing.