An Armageddon Moment for Software companies

 While the stock market is a sensitive indicator for changes in the short-term, the long-term fundamental changes are often first warned by the bond market. Here is one for the software sector, which may be on the edge of a total collapse in the near future. Be ware of it if you are heave in it in your portfolio!

 

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AI threatens to undo as much as a decade of software investments...

And private lenders could be stuck collecting pennies.

One lender has already hit the brakes. Marathon Asset Management is a major private credit lender. And as of June 2025, the company stopped lending to software companies altogether.

The reason is simple... AI is moving too fast for comfort. What seems like a good, safe deal today could be worthless tomorrow.

That even applies to software companies investing in AI. There's no guarantee those businesses will have an advantage tomorrow. A five-year loan assumes the borrower's product stays relevant long enough to keep renewing contracts and paying interest.

But in the age of AI, there's no guarantee. Features that used to take quarters to build are becoming simple prompts. The "stickiness" lenders used to underwrite is getting harder to prove.

Marathon CEO Bruce Richards framed it as a "Blockbuster Video moment" for software. He said we're seeing a wave in which business models either adapt quickly or get left behind... with near-zero recovery rates for lenders.

Today's tough environment could spell disaster for many creditors...

Throughout 2025, software loans largely matched the return of the overall loan market.

But those same software loans lost 2.5% in January alone... while the rest of the market was roughly flat.

Software loans are coming under pressure because of AI disruption. And financial-services firm UBS expects things to get much worse...

In its "aggressive disruption" scenario, UBS sees U.S. high-yield defaults reaching 4%. Defaults would jump to 13% in private credit.

That's Armageddon territory.

UBS also estimates that as much as 35% of the $1.7 trillion private credit market is exposed to AI disruption risk.

In other words, this isn't a niche problem confined to a handful of bad deals.

Creditors spent years giving cheap debt to software companies... and that system could be about to implode.

 Rob Spivey

 

 

 

This time feels different

  

 

 

  

 

Volatility has returned to the markets over the past few days. Particularly in technology. This is not tech-specific market volatility. What we’re seeing is a broad derisking/deleveraging of momentum trades. Investors are selling anything that’s moved sharply higher in recent months. This includes technology, precious metals, cryptos, copper, nuclear energy, satellites, and even industrial stocks.

At the same time, the broader market has remained surprisingly resilient. One of the clearest signals of this rotation can be seen in the Consumer Staples Select Sector SPDR Fund (XLP). This ETF holds defensive stalwarts like Walmart (WMT), Procter & Gamble (PG), and Coca-Cola (KO) – businesses with stable cash flows and steadily growing dividends. Even during the recent market pullback, XLP has continued to push higher.

Expect to see more volatility in the weeks/months ahead, especially for those who are using high leverage to trade. I heard some crypto platforms allow traders to control 50 Bitcoins ($3.5 million) with only $100 dollars.  This kind of insanity will of course wipe out people's money very quickly with any slight volatility. Don't be one of them!

 

The biggest IPO: SpaceX with merged xAI

 

 

 See the note from a trading guru:

The skies are cloudy at the moment. And, it sure “feels” like a storm is brewing. All the reasons to be cautious are still in place…

The yen carry trade is starting to reverse. Long term interest rates keep pressing higher. Gold and silver are in panic mode. VIX call option prices are at a large premium to put options. Bank stocks are lagging. High yield bonds are rolling over. The Supreme Court decision on tariffs could happen any day. 

While the market is quite volatile, we at DW Family are actually doing quite well with many profitable trades closed these days. Using options to bet with some low-risk trades, it is working very well. 

 

  

 

The market is vlunerable to a sharp downside turn

  

  

 

 

 

I got a call from President Trump!

 By now you must have known what has happened to Maduro over the weekend. 

President Trump called me before that to tip me for the upcoming operation, so that I got a chance to buy in advance a stock, one of few beneficiaries from this military action. I'm talking about CVX.

 

See what happened today to the stock price, a cheerful jump rarely seen for it in one day! 

 

    

As the result, my long-term calls for CVX have nearly doubled. Not a bad "inside trading" 😀😂 

  

 

 

 

 Of course, this is a pure fiction. Don't report me to the SEC!!

 

 

SpaceX IPO

 

 

  

Now share some great news about SpaceX IPO that is coming this year. I'm more than happy for it, given my stake in it. I put some money in its private equity three times (i.e. a tiny potion of the 30% private investors as shown below), and my average cost base is about $37 Billion.  It appears SpaceX is planning for an IPO around the middle of 2026 for a valuation between $1-1.5 Trillion, yes, in T not B. In other words, it is potentially a 25-40 times valuation increase at its IPO if my dream really comes true! Given SpaceX has a huge moat without much competition and its potential for the space AI/Solar energy business is so huge and mind-blogging, I bet we may see it become another Tesla in terms of its future uptrend. Thanks, Musk, for being such a genius businessman of the century!!👍💪

 

In 2015, Google wrote a $900 million check to SpaceX for a roughly 7.5% stake in Elon Musk’s budding aerospace/rocket company. At the time, SpaceX was valued at $12 billion. Ten years later, Google’s early investment in SpaceX is now being framed as a great trade, not just because of the massive profit it will generate, but also because of the strategic benefits it will afford Google.

SpaceX recently announced plans to go public at a target valuation of $1.5 trillion. At that valuation, Google’s $900 million stake will be worth $112 billion. For context, Google’s latest annual income was $98 billion. A 125x return over ten years is incredible; the strategic foresight is equally powerful. As AI models grow more complex, the need for energy to power data centers is increasingly the binding constraint. Data centers already strain power grids, water resources, and local communities. One answer to the shortcomings of the power grid is space-based data centers. SpaceX, with 7500 satellites in orbit, has demonstrated its ability to deploy data centers in space. The benefit of space-based data centers is that solar power is much more efficient than on Earth. Consider the following excerpt from Travis Beals, Senior Director, Paradigms of Intelligence:

The Sun is the ultimate energy source in our solar system, emitting more power than 100 trillion times humanity’s total electricity production. In the right orbit, a solar panel can be up to 8 times more productive than on earth, and produce power nearly continuously, reducing the need for batteries. In the future, space may be the best place to scale AI compute.

SpaceX was never just a financial investment; it was a bet on solving AI’s future resource problem. Space offers effectively unlimited solar energy, passive cooling, and freedom from land and water constraints that are currently highly problematic for hyperscalers. Google’s strategic and financial investment success demonstrates that it is effectively aligning capital, infrastructure, and long-term compute needs. The graph below, courtesy of Jarsy, shows the composition of SpaceX investors.