SaaS-Pocalypse Accelerates With Google On Deck, Uber Reports

Good morning investors,

Software stocks are in freefall. Anthropic launched a legal productivity tool Tuesday that triggered double digit declines across the sector, accelerating a selloff that has already made software the worst performing corner of the S&P 500 this year. The nine worst performers in the index are all software and related services names, down 25% or more.

Meanwhile, Walmart crossed $1 trillion in market cap, trading at 49 times earnings like a tech stock rather than a retailer. The divergence at play is striking. Companies deploying AI productively are being rewarded while those at risk of AI disruption are getting crushed. The Nasdaq fell 1.4% Tuesday, the S&P 500 dropped 0.8%, and the Dow shed 0.3%. Alphabet reports tonight with expectations sky high after its Gemini 3 model prompted OpenAI to declare a "code red."

S&P 500 ($SPY ( ▼ 1.55% )) futures up 0.16%, Dow ($DIA ( ▼ 1.33% )) futures gaining 147 points, and Nasdaq ($QQQ ( ▼ 2.03% )) futures roughly flat after Tuesday's tech led selloff.

AMD ($AMD ( ▼ 3.58% )) dropped 9% in premarket after its Q1 guidance underwhelmed despite beating Q4 estimates. Chipotle ($CMG ( ▼ 3.71% )) fell nearly 6% after reporting its fourth consecutive quarter of declining traffic with flat same store sales guidance for 2026. Uber slid more than 8% after guiding Q1 profit below expectations as margin investments weigh on near term results.

ADP employment data arrives this morning with economists expecting 48,000 jobs added in January, stepping in as the primary labor market read with official government data delayed by the shutdown.

For years, software companies watched giants like Google chip away at their moats. Instead of directing searches to weather apps, Google just gave you the weather. Instead of clicking through to websites, you got the answer directly. AI has morphed this trend into something potentially existential.

Tuesday's trigger was Anthropic's new legal productivity tool, which immediately market corrected multiple legal software firms into double digit declines. ServiceNow and Salesforce each dropped nearly 7%. SAP extended its post earnings slide. Private credit stocks exposed to software financing also fell on contagion fears.

"SaaS," once the defining business model of Silicon Valley, is now being called the "SaaS-pocalypse" by some traders. The software industry sits at a crossroads as AI competition, evaporating competitive moats, and the rise of AI-generated code alter the entire sector's trajectory. The big question is who can harness AI rather than get trampled by it.

The market is no longer giving credit for AI potential. It's rewarding deployment and punishing vulnerability. That's why Palantir can surge 8% on earnings while legacy software names crater on the same day.

I don't think software is dead, and their AI response to their own products will define the winners and losers.

Walmart crossed $1 trillion in market cap Tuesday, reflecting Wall Street's willingness to value the retailer less as a traditional brick and mortar chain and more as a technology driven enterprise.

The numbers are remarkable. Walmart took 62 years to reach $500 billion in market value, then added the next $500 billion in roughly two years. At $1 trillion, the company trades at 49.3 times trailing earnings, a multiple that sounds more like a high growth tech stock than a consumer staples name.

AI sits at the core of that trajectory. Machine learning now guides inventory tracking, pricing decisions, delivery routes, and customer service across Walmart's vast physical footprint. That makes Walmart one of the few mega caps that has moved beyond AI experimentation into active deployment and monetization. At its scale, incremental productivity gains through automation, reduced logistics costs, or workforce optimization move the needle in outsized ways.

Walmart has managed to gain market share and increase profits even as consumers become increasingly price sensitive. Partnerships with Google's Gemini and OpenAI's ChatGPT highlight the retailer's efforts to stay at the forefront of new AI consumer use cases. How does a consumer staples company generate a tech like valuation? Pitch yourself as one, then execute.

AMD delivered a clean Q4 beat with EPS of $1.53 versus $1.32 expected and revenue of $10.27 billion versus $9.67 billion forecast, up 34% year over year. Data center revenue reached $5.4 billion, up 39% year over year, supported by EPYC CPUs and Instinct AI GPUs.

But the stock sold off 9% because investors focused on what comes next rather than what just happened. Q1 guidance of approximately $9.8 billion was above the $9.38 billion consensus but disappointed analysts positioned for stronger upside given the scale of AI infrastructure spending underway.

AMD also disclosed $390 million in China revenue from MI308 AI chips after the Trump administration approved export licenses, an important data point but one that wasn't in Street models. When you account for that windfall, the beat was far less substantial than it appeared.

The sell off wasn't about execution. It was about expectations. In a market dominated by Nvidia's scale and momentum, investors demand accelerating guidance from every AI adjacent name. AMD is executing well, gaining share, and firmly positioned as the clear number two player in AI compute. But in this environment, the bar is set by Nvidia, not consensus. Until AMD shows faster AI revenue inflection or materially stronger forward guidance, the stock will remain sensitive to expectations rather than fundamentals.

Chipotle beat Q4 estimates with adjusted EPS of $0.25 versus $0.24 expected and revenue of $2.98 billion versus $2.96 billion forecast. But comparable sales fell 2.5%, marking the fourth straight quarter of declines, and traffic dropped 3.2%.

Management acknowledged that consumers across income cohorts are pulling back, with the sharpest shift among lower income diners. That pressure translated into a full year 2025 same store sales decline of 1.7%.

The 2026 outlook drove the stock down as much as 11% after hours. Chipotle is guiding to flat same store sales growth, a cautious signal that demand challenges won't fade quickly. Rather than leaning on promotions, the company is focused on operational improvements and menu innovation like "protein cups" aimed at driving incremental visits outside traditional meal occasions. The strategy protects margins but limits near term traffic levers.

Chipotle's financial execution remains solid, but traffic is the story that matters. With four consecutive quarters of declining visits and a flat outlook for 2026, investors are being asked to stay patient. Until traffic stabilizes, earnings beats alone won't change the narrative.

Uber missed Q4 estimates with adjusted EPS of $0.71 versus $0.79 expected and guided Q1 EPS of $0.65 to $0.72 versus $0.76 expected, sending shares down more than 8% in premarket.

The company is deliberately moderating margin growth after demonstrating its business model can generate profits at scale. Investments in affordability and low-cost product offerings drove 22% growth in trips during Q4 but weighed on near-term margins.

Gross bookings of $54.14 billion rose 22% with revenue up 20% to $14.37 billion. Q1 gross bookings guidance of $52 billion to $53.5 billion exceeded the $51.16 billion expected. CEO Dara Khosrowshahi said improving pricing conditions and lower insurance costs should support faster U.S. growth and margin expansion this year.

CFO Prashanth Mahendra-Rajah is stepping down, with Balaji Krishnamurthy, a former Goldman Sachs executive, taking the role. Uber is positioning itself as a key facilitator for autonomous ride services, partnering with Waymo and Lucid to integrate robotaxis alongside human drivers.

Alphabet reports Q4 results after the close with expectations elevated after the stock surged 25% since last earnings. Analysts expect revenue to climb more than 15% to $111.4 billion and EPS to rise to $2.65 from $2.15 a year ago.

Google Cloud is the focus, with revenue projected to jump more than 35% to $16.2 billion. The company has momentum from its Gemini 3 model, which outperformed competing models and prompted OpenAI to declare a "code red," as well as the landmark deal with Apple.

Google's being a full-stack AI provider that begun selling TPU chips externally rather than reserving them solely for internal use, has positioned them ahead of the rest.

Wall Street expects broader advertising strength, as evidenced by Meta's strong results, plus growing Gemini 3 adoption and AI chip demand. The stock could move 5% in either direction following results.

Elon Musk announced SpaceX will merge with xAI in a deal valuing the combined private enterprise at $1.25 trillion. The rationale involves satellite-based internet and a future where data centers get power and cooling from space.

Optimists see the merger as supercharging Musk's rocket company ahead of its widely expected IPO. Skeptics see self-dealing, using one profitable company with a compelling story to swallow an unprofitable one with expensive AI ambitions.

But buying into the Musk trade has been lucrative. Months ahead of a potential historic IPO, SpaceX has spruced itself up, becoming an even more diversified investment vehicle. If you don't believe in Tesla's vehicles, invest in SpaceX. If you're looking for exposure to the AI startup trade, Musk will soon have you covered.

The timing is strategic. This is like staging a home before it goes on the market. And the audience isn't just retail investors, it's OpenAI and Anthropic, who must now watch Musk's integrated AI space communications empire prepare to access public markets at massive scale.

The market is separating AI winners from AI casualties with increasing speed and violence. Anthropic launches a legal tool, and legal software stocks crater within hours. Walmart deploys AI across logistics, and the company adds $500 billion in market cap in two years. The differentiation is no longer theoretical.

Software's structural challenge is real. When AI can perform tasks that previously required specialized software, the value proposition of that software erodes. Not every SaaS company will survive this transition. The ones that do will be those embedding AI into their products rather than competing against it.

AMD's selloff despite a clean beat shows how unforgiving this market has become for anything less than accelerating AI momentum. Nvidia sets the benchmark, and everyone else is measured against it. Being the clear number two player isn't enough when investors are paying for number one.

Tonight's Alphabet report will test whether the Gemini 3 momentum translates to financial acceleration. Cloud growth of 35%+ would validate the AI chip strategy and Apple partnership. Any deceleration will face the same scrutiny that punished Microsoft.

The volatility I've been warning about continues manifesting across sectors. Software carnage, precious metals correction, Big Tech divergence, and consumer traffic weakness all in the same week. This is the chop that produces opportunity for disciplined investors willing to look past the noise.

As always, feel free to reach out with questions about positioning.

Dan Sheehan

[email protected]

This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.