The Doomsday AI Article That Sparked a Panic | Last Call
TL;DR
Hosts Matt and Jack, along with options strategist Brent Kachuba, analyze the market panic sparked by a viral AI doomsday article (the 'Catrini piece'), explaining why this 'manufactured story from the future' served as a contrarian sentiment indicator for software stocks while emphasizing the need for probabilistic scenario planning over binary AI predictions.
📉 The Viral AI Doomsday Narrative 3 insights
Fiction treated as forecast
The 'Catrini' article explicitly labeled itself as a 'manufactured story from the future' and science fiction bear case exercise, yet triggered formal responses from Fed Governor Waller, Citadel, and Jeremy Seagull.
Article marked a potential bottom
The piece published precisely as software stocks (IGV) hit key technical support levels, suggesting the narrative panic may have marked a local sentiment extreme rather than the start of a crash.
Range-bound market reality
Despite the doomsday narrative, the S&P 500 has traded sideways between 6,800-7,000 for months with no actual fear-driven put buying detected in options data.
📊 Options Market Insights 3 insights
Put/call ratio contrarian signal
Viral charts highlighting extreme put/call ratios in software stocks actually coincided with historical market bottoms, not tops, indicating capitulation rather than impending doom.
Differentiation within software
Options pricing reveals a bifurcated market where names like Adobe and Autodesk show varying volatility profiles, contradicting the idea of blanket AI-driven software destruction.
Corporate buybacks contradict doom
Salesforce announced a $50 billion buyback program, suggesting major software companies do not view AI as an immediate existential threat requiring defensive cash hoarding.
🎯 Framework for AI Uncertainty 3 insights
Probabilistic scenario planning
Investors must map multiple base, bull, and bear cases rather than betting on single outcomes, as AI represents unprecedented uncertainty regarding labor replacement versus enhancement.
Inflationary buildout, disinflationary outcome
Current AI infrastructure spending creates near-term inflationary pressure, but successful deployment could trigger long-term 'Ghost GDP' deflation as productivity potentially soars.
Risk means more things can happen
Extreme bear cases serve as valuable stress tests for portfolio construction but should not drive tactical positioning given the wide distribution of potential AI outcomes.
Bottom Line
Use extreme AI doomsday scenarios as risk management tools to stress-test portfolio resilience, but maintain exposure across a range of probabilistic outcomes rather than positioning for binary predictions.
More from Excess Returns
View all
We Asked GMO’s Head of Asset Allocation Why This Bubble is Easy — But Investors Will Get it Wrong
GMO's Ben Inker argues the current AI-driven US stock bubble is "easy" to navigate because investors can rotate to fairly priced international assets while maintaining normal risk levels, unlike the "hard" bubbles of 2007 and 2021 when all risk assets were simultaneously overvalued.
Expensive Market. Record Issuance. Can the Story Still Hold It Up? | 6 Things We Learned This Week
Valuation expert Aswath Damodaran, IPO strategist Andy Constan, and value investor Tobias Carlisle discuss how to value story-driven companies like SpaceX, why issuers intentionally underprice IPOs, and why investors should avoid market timing despite extreme overvaluation by targeting undervalued segments like small-cap value.
The $2 Trillion Question | Tobias Carlisle on SpaceX, the AI Buildout, and the Rotation No One Sees
Tobias Carlisle warns that the market is at historic valuation extremes comparable to the dot-com bubble, but argues investors should rotate into deeply undervalued small and micro-cap value stocks rather than exit entirely, as early indicators suggest a potential decade-long rotation away from large-cap growth; meanwhile, he cautions that the massive AI infrastructure buildout risks following historical boom-bust patterns where value accrues to consumers, not creators.
The Trillion-Dollar Gap | We Asked Aswath Damodaran What SpaceX Is Really Worth
Finance professor Aswath Damodaran analyzes SpaceX's $2.7 trillion valuation, finding that while the space launch and Starlink businesses hold real competitive advantages, the AI division's projected $26 trillion market relies on terrible unit economics and a contradictory strategy of renting data centers to direct competitors.