AI Cost Inflection Point

I found a great video made by Chris Nour today about AI token price increase and its implication for software stock valuations, and I think it can be valuable for you:

Some evidence start to appear indicating the current rapid AI adoption may not be sustainable as token price increases:

• Uber burned through its entire year of AI budget in 4 months

• Microsoft canceled Claude code license due to high cost

I believe this is just the start of this trend as AI model providers such as OpenAI and Anthropics are currently bleeding money, and they will have to continuously increase token prices. If companies start to scale back AI adoption, they would have to hire more employees to compensate for the lost AI productivity, which will increase software vendors' seat-based revenue. If they continue to adopt AI, software companies ($CRM ( ▼ 6.33% )  $ADBE ( ▼ 3.92% ) ) will still benefits from token based pricing. Either way, I personally think the thesis of a software rebound is getting stronger.

A potential slowing AI adoption could also have strong negative impact on high flying hardware and memory stocks, which I consider expensive and highly risky.

For my personal portfolio, I plan to start trimming a bit more of my Google position as the combination of high valuation (40+ adjusted P/E ratio excluding investment gains), high weighting (24% of portfolio) and increasing AI cost risks making it a less attractive long term investment compared to many software companies currently trading at significant discount compared to their intrinsic values. I plan to use the proceeds to add to my ADBE and CRM positions.

I hope this is helpful, and I plan to send you more information like this once in a while as I continue to observe the market on a daily basis. If you have any feedbacks or suggestions, please feel free to message me on Blossom Social.

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