This week was one of the most volatile in recent memory, yet the S&P 500 was down only about 0.20%. On the surface, the broad index looked calm, but beneath it the market was anything but. What we are seeing is less about fundamentals and more about fear and money flows. The central anxiety remains that AI could materially disrupt the future cash flows of software companies. Investors are selling first and asking questions later, and importantly, that money is not finding its way into bonds. Instead, it is flooding into low volatility stocks, dividend paying stocks, small caps, and anything that can be labeled value.

The money is not leaving the market, it is simply being displaced. Investors are staying invested, but they are all crowding into the same parts of the market at the same time. In effect, they are selling at any price and buying at any price, even as the overall index barely moved.

At the same time, the underlying strength of the market is being supported by the economy itself, with the latest GDPNow estimate tracking growth of roughly 4% to 5%. You do not typically sell stocks when the economy is growing at one of the fastest paces in years. Instead, you try to remain invested, and that is exactly what we are seeing play out in the market this year.

You could see this clearly in the Invesco S&P 500® Low Volatility ETF (SPLV), which had trailed last year only being up 4% and is already up 5% this year. The Dow Jones crossed 50,000 for the first time after years of underperforming growth stocks. It caught up fast with a 1,200 point rise yesterday on essentially no new economic news.

Normally, moves like this require a rate cut or some major catalyst. Instead, it was weakness in low quality assets and cryptocurrencies that triggered the latest bout of panic selling, with Bitcoin briefly dipping below $60,000 before rebounding closer to $70,000. As is often the case, the bounce came quickly, and that money rotated straight into whatever was already going up, namely value stocks. If this pattern continues, I would expect those same value stocks to experience equally sharp reversals.

Part of the driver of all this volatility has been the growth tech giants stunning investors with their 2026 spending plans. Microsoft led the way last week at $150 billion, Google followed at $175 billion, and Amazon topped them all with a projected $200 billion.

I want to use Amazon as a case study because it captures the debate playing out across Big Tech. For years, Amazon was the quintessential growth company, reinvesting every dollar back into the business. As the company scaled, it became harder to justify 20% growth, and the stock eventually got stuck between identities. Some investors owned it for free cash flow, while others owned it purely for AWS growth.

That tension came to a head this week. When Amazon reported the strongest AWS growth in years, value investors initially punished the stock because they wanted profits today. Then, after a roughly 10% pullback and a renewed commitment to spend $200 billion, Amazon was reframed by the market as a growth story again. As Warren Buffett famously said, there is no such thing as a value or growth stock, it is all value, and growth is simply one component of that equation. In that sense, Amazon may actually be drifting closer to Buffett’s wheelhouse.

We do not have to look far for a cautionary tale. Yesterday, the Financial Times reported that Stellantis admitted it had lost touch with the real world needs of drivers and took a €22 billion charge tied to its aggressive push into electric vehicles. The stock suffered its worst one day drop on record. Stellantis, which owns brands like Peugeot, Fiat, and Jeep, built the EVs, but the customers did not show up in the way management expected.

That brings us to the key question, will AI follow the same path as EVs, or is this different. My view is that AI is far more compelling and is already being adopted across corporate America. Companies are rolling it out to entire workforces, many with hundreds of thousands of employees. Adoption has happened far faster than most people anticipated. The real story is not where AI is today, but where it is headed. Last week, I discussed AI agents, systems that can autonomously complete multi step tasks without constant prompting. That is where this is going.

There are risks. Regulation is coming, especially if job displacement accelerates. If AI begins to meaningfully replace large numbers of workers, political pressure will rise quickly, and that could lead to restrictions on how companies deploy these tools, higher compliance costs, or limits on certain applications. But this is not just a domestic issue. This is a global race. If the U.S. were to slow its pace of development, China and other countries would not.

Another risk that is less obvious but just as important is the economics of AI itself, specifically the cost of tokens and inferences. Training AI models requires massive upfront spending, which is what we are seeing now in the hundreds of billions of dollars of data center investment. But once those models are built, the real test is how expensive it is to actually run them at scale. If usage explodes but prices collapse, the economics could look very different than Wall Street currently expects.

We are already seeing the impact in software. This week, Anthropic released a new tool that effectively automated tasks previously handled by specialized compliance and legal software. The result was brutal. Several companies in that space saw their worst days since 2009, with many stocks down 15% or more. It was a classic sell first, ask questions later moment.

Returning to Amazon, it is now trading around 20x next year’s earnings. Its growth rate is the highest it has been in years, and once the infrastructure is built, cash flows should accelerate meaningfully. Yet the market is currently selling Amazon to buy value stocks that are already up significantly this year. Coca-Cola has not even reported earnings yet, and the stock already looks stretched. It is up about 13% this year ahead of next Tuesday’s report, and its forward P/E is now higher than Amazon’s. Walmart just crossed a $1 trillion market cap for the first time, and its P/E sits around the same level as Coke at roughly 26. By contrast, Microsoft’s multiple has come down materially, falling from about 34 to 25.

In the end, this market is less about right or wrong and more about timing and temperament. It is easy to chase what is working in the moment, but those moves tend to look obvious only after the fact. The smarter path is to stay balanced, own high quality businesses, and be willing to add to growth when it is uncomfortable rather than only after it has already run. I’ll be traveling next weekend, so my next update will on February 21st.

Have a great weekend. Go Pats!

Sources

“Dow Jones Industrial Average Crosses 50,000 Milestone” – The Wall Street Journal (Feb 6)
“Flight to Safety: Low Volatility ETFs See Record Inflows” – Barron’s (Feb 5)
“Amazon Q4 Earnings: $200 Billion Capex Projection for 2026” – Amazon Investor Relations / CNBC (Feb 5)
“Alphabet Capex Guidance Raised to $185 Billion” – Reuters (Feb 4)
“Microsoft and Meta Sustain $120B+ Infrastructure Pace” – Financial Times (Jan 30)
“Stellantis Shares Fall 25% on €22bn EV Impairment Charge” – Financial Times (Feb 5)
“Anthropic Launches ‘Claude CoWork’ Autonomous Agent” – TechCrunch (Feb 3)
“Legal & Compliance Stocks drop 15% on AI Displacement Fears” – MarketWatch (Feb 4)

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