The AI “Extinguisher”

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Hello Peter Anthony Hovis,

The AI “Extinguisher”

The great sell-off has continued.

What began as a cautious morning quickly devolved into a frantic exit, with yesterday’s session leaving the Nasdaq 100 nursing its worst three-day rout since the spring of 2024.

By the time the closing bell rang, the S&P 500 had surrendered 1.2%, but the real carnage was hidden beneath the surface of the software and crypto sectors.

The primary catalyst was a chilling realization that the massive capital expenditures being funneled into artificial intelligence might be cannibalizing the very companies investors once thought were safe.

Anthropic’s release of a powerful new model designed for financial and legal research sent shockwaves through legacy software makers that fueled a new narrative: that these companies are now AI victims rather than beneficiaries.

“Investors were willing to pay premium multiples for software companies that could reap efficiencies from utilizing AI,” noted Steve Sosnick at Interactive Brokers. “That view abruptly reversed, with software companies now perceived as victims of AI’s disruption.”

(Photo: CNBC)

In the late hours, the unease was further compounded by a staggering $200 billion spending forecast from Amazon, echoing similar “Capex creep” from Microsoft and Alphabet.

Amazon’s shares plunged as investors questioned if these gargantuan bets would ever translate into bottom-line profits. Indeed, the pivot from growth-at-all-costs to a “show me the money” skepticism hit the software sector particularly hard, with the iShares Expanded Tech-Software Sector ETF sinking 5%.

“The AI trade which was the accelerant last year is perhaps the extinguisher this year,” observed Melissa Brown, reflecting the broader sentiment that the technology is beginning to “eat” the industries it was supposed to enhance.

As tech faltered, the crypto market essentially fell off a cliff.

Bitcoin tumbled 13% to near $62,000, a staggering retreat that has effectively wiped out nearly half its value since the euphoria of last October. The selloff was intensified by a “crypto winter” chill that saw Bitcoin-heavy entities like Michael Saylor’s Strategy Inc. report a staggering $12.4 billion net loss for the fourth quarter.

(Photo: Ronda Churchill/Bloomberg)

Mark Hackett at Nationwide noted that the volatility echoed most loudly in areas fueled by retail leverage.

“Whenever a wave of extreme selling hits the market,” added strategists at Bespoke Investment Group, “investors with a value or contrarian bent will start wading through the carnage, though they have to stomach volatility in the meantime.”

The final blow came from the labor market, where the narrative of “economic resilience” was replaced by “fragility.”

US job openings fell to their lowest level since 2020, and January layoffs reached heights not seen since the Great Recession of 2009. This weak data sent a surge into Treasuries, dropping the 10-year yield to 4.18% as investors sought safety from the equity storm.

“The latest labor figures reiterate that the US jobs market is not firing on all cylinders,” said Bret Kenwell at eToro.

As the VIX jumped to 22, the session ended with a sober warning from Matt Maley at Miller Tabak, who noted that the S&P 500 is hovering precariously near its 100-day support line. “If a meaningful drop below that line happens this time,” he warned, “that would raise some major warning flags.”

Today will be critical to see if traders are willing to buy the dip to support the market, or if the sell-off accelerates even further.

Top Beaten-Down Software Stock Right Now

Today’s Stock Pick: Braze, Inc. (BRZE)

Looking for a beaten-down software stock to buy?

Consider Braze.

If you’ve ever ordered a pizza and gotten a perfectly timed text saying it’s out for delivery, or received a push notification from a streaming app recommending a show right after you finished a series, there’s a good chance Braze is the one making that happen in the background.

The company runs a cloud-based customer engagement platform that helps big brands like Burger King, Skyscanner, and the NBA talk to their customers in a way that feels personal rather than like spam.

Instead of just blasting out the same email to everyone, their software looks at what you’re doing in real-time and triggers a message across whatever channel you’re using at that moment, whether it’s an app notification, an email, or even a message inside a car or on a smart TV.

For investors, the story here is really about the shift from old-school “batch and blast” marketing to what they call “cross-channel engagement” that leads to hyper-personalized marketing.

Braze leverages new technologies to help marketers become better companions to the customer’s journey. These include Cloud and Mobile, Big Data and Machine Learning, and Transformers, GenAI, and Agents.

(Source: Braze)

Let’s begin with data.

Companies have an insane amount of data. They know that data could lead to more personalized messaging, but the problem is cleaning them up and turning them into actionable insights.

Braze offers a simple way through its data offerings. It integrates with big data providers like AWS, Azure, and Snowflake. And it makes it easier for marketers to centralize key data.

The next step would be Orchestration.

Using data, marketers will design a mind-blowing journey that guides a customer from point A to point C, making their experience even more amazing.

Everything can be built in journey builders, like the screenshot below:

(Source: Braze)

Lastly, Braze enables marketers to reach their customers through several channels — YouTube, Instagram, emails, SMS, Facebook, and so on.

This is the new baseline for modern marketing.

Those who can’t adapt by using these technologies will certainly fall behind. Why? They won’t be able to offer experiences as personalized as other marketers using Braze.

Sure enough, thousands of major brands use Braze.

Those names include Equinox, DoorDash, FanDuel, Monday, Intuit, and Yelp.

(Source: Braze)

To cultivate its growth, Braze as a strong partnership program with 1,600+ services partners. Basically, those partners recommend their clients to use Braze.

For example, Accenture might analyze its client’s business and inform executives that they should use Braze to accelerate their marketing results.

(Source: Braze)

Now, let’s talk financials.

The recent quarter delivered a 26% y-o-y growth. Impressive, right? Its dollar-based net retention rate is 108%.

(Source: Braze)

Better yet, the company has some flexibility.

For the 3-year period between FY’26 to FY’28, the company expects to expand its operating margin if annual revenue growth is modest at <15%.

What if revenue grew faster? Braze expects operating margins to be smaller.

In other words, Braze expects to be more profitable if revenue growth is lower and less profitable if revenue growth is higher. Either way, it might be good news for Wall Street.

(Source: Braze)

Bottom line: Braze represents the future of marketing with its innovative tech stack. It has built a strong business foundation, and it could be an excellent buy since the stock has been down by about 45% in the last month alone.

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