Intuit's recent earnings may have ended the idea of the "AI Bubble"

Long time lurker, first time poster. Everything below was written by me with zero help from AI, so I apologize if there's anything missing or inaccurate.

I want to start by saying that I'm not discounting the potential that we're currently in an AI bubble. It is hard looking at many of these valuations and not thinking that we're completely in bubble territory, despite all the reassurances analysts have given. However, despite the similarities between this and the dot-com bubble, there's a key difference that I don't see talked about very often.

Concurrently to the AI boom right now, we're witnessing one of the most violent cross-industry downturns in recent memory due to fears of potential AI displacement. Many of the biggest SaaS companies are down more than 35% over the past year directly attributed to fears of AI displacement. While many of these companies continued to post strong revenue numbers, investor sentiment continued to remain strongly bearish on displacement fears. In part, many of those who believe we're currently in an AI bubble don't believe that displacement is happening anytime soon, if at all. Up to this point, SaaS fears have held a tentative equilibrium as long as revenue performance held, and appeared to be able to create enough of a public sentiment that displacement fears were completely overblown.

That all changed this week. To my knowledge, Intuit this week was the first of the large-cap SaaS providers that sounded the alarm. The weakened outlook on Turbotax was attributed by many in the market as the direct result of AI displacement fears, and the stock fell almost 20% since then. AI displacement fears in SaaS finally got their proof of concept this week. It remains to be seen whether this was isolated to Intuit, or if this is harbinger of things to come as AI continues to improve.

Outside of SaaS, AI disruption within other industries may already be in full effect, even if downturns aren't being attributed to AI displacement. Industries like management consulting are seeing downturns of 35% or more across the board. A consistent theme across the spectrum for consulting has been "margin pressure", attributed to slowing business and inability to attract clients. As a former consultant myself, it's not difficult to see why. Chatgpt or Claude can *already* freely churn out deliverables in many areas that a consulting firm may charge in the tens of thousands for. Projects that used to be budgeted for 40 billable hours may now only be for 16 due to expectations from clients for firms to utilize AI tools, significantly slashing margins per project. Even without directly being attributed to AI displacement, Wall Street likely has been pricing this in for a while now, resulting in billions of dollars being pulled from these markets.

So why does this matter in relation to the AI bubble discussion? Because unlike other stock market bubbles of the past, the market is already starting to paint a clear -and sinister- picture of what they see as the sustained value proposition on AI. What Wall Street is putting money on is not theoretical speculation that AI will generate new revenue through a new product or technological advances boosting the economy, which is what the dot-com bubble was based off. What they are betting on is that AI is going to steal proven high-margin revenue streams out of existing multi-billion dollar industries in the market. This is a dramatic departure from bubbles in the past for a few reasons.

1. First, it is much easier for these industries to justify massive capex spending to investors when revenue projections are based on the acquisition of proven high-margin businesses, rather than theoretical revenue on a new product. To give an example, if Microsoft launches a Copilot AI tool next year that can scan a W-2 and automatically do a person's taxes, then Microsoft's revenue projections on that tool can be entirely based on how much market share they estimate they'll be able to take from Intuit, HR Block, and other tax service businesses. This is a far easier value add for an investor to conceptualize than a new product without a track record.
2. Second, unlike previous bubbles that were almost entirely sustained by a constant inflow of new capital into the market that eventually ends, the current AI boom, in theory, has a powerful secondary source of capital that already exists within the market to power its rapid ascent. As AI continues to improve and industry displacement fears continues to rise, more and more money can be pulled out of the markets of SaaS, consulting, and others to continue feeding the AI machine, lessening the importance of a constant injection of new money.

Of course, nothing lasts forever. At some point, AI will need to demonstrate proof of concept that it indeed -is- capable of stealing that revenue in a sustainable manner. However, as long as more and more industries continue to demonstrate increasingly weaker numbers due to AI displacement, then investor confidence in AI will continue to grow. Even if it never grows to be a self-sustaining force, as long as it can continue cannibalizing the confidence of other markets, there will be a pressure valve that did not exist in other historic bubbles.

Intuit was the first domino to fall on this. It remains to be seen if this was an isolated incident or the first of many.