AI Sparks Software Stock Meltdown & Bezos Axes 30% of Washington Post Staff

0:00Toby Lenk:Oh, could this vintage store be any cuter? Right? And the best part? They accept Discover. Accept Discover? In a little place like this? I don't think so, Jennifer.

0:10Neal Freyman:Oh, yeah, huh. Discover's accepted where I like to shop. Come on, baby, get with the times.

0:16Toby Lenk:Right, so we shouldn't get the parachute pants?

0:19Neal Freyman:These are making a comeback. I think.

0:23Toby Lenk:Discover is accepted at 99 % of places that take credit cards nationwide. based on the February 2025 Nielsen Report. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell. Today, the software industry faces an existential crisis.

0:39Neal Freyman:Then, the Washington Post is laying off 30 % of its staff. It's Thursday, February 5th. Let's ride.

0:50Toby Lenk:Bad news, Toby. My Drake May jersey isn't going to come in time for the Super Bowl. and that's because Fanatics, which is the exclusive supplier of Nike adult products for the NFL, is facing a major shortage. The online apparel giant wrote a long apology on X for fans who've complained about the lack of product, chalking it up to one reason, it didn't see this Super Bowl coming. The Patriots and Seahawks were such long shots to play in the championship, neither of them made the playoffs last season, that Fanatics didn't anticipate the 400 % surge in demand once these teams got hot around Thanksgiving.

1:22Toby Lenk:it promised it will be ready with a wide assortment of gear for whichever team wins on Sunday.

1:27Neal Freyman:People are really anti-fanatics at this point too. They complain about inconsistent jersey patches, the quality of the Super Bowl jerseys themselves. In 2022, some of the Kelly Green Eagles jerseys fanatics sent out had crooked numbers on it. I encourage you to look this up because it will drive you crazy. But I do empathize because the Patriots were horrible the prior season. How are they supposed to know that Drake May was going to become Tom Brady reincarnating and become Super Bowl bound? It's like if the Eagles, who were horrible this year, made it to the Super Bowl next year, it would literally be unfathomable.

2:01Toby Lenk:Never say never. Fanatics, start making Jalen Hurts jerseys right now. Okay, and now a word from our sponsor, Sandals. Toby, you doing anything romantic for Valentine's Day this year?

2:12Neal Freyman:Yeah, I was thinking of taking my lady to a remote cabin in the middle of the woods with no cell service.

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2:51Toby Lenk:Cable, television, department stores, print, newspapers, all once lucrative business models that ultimately bit the dust. Could software be next? It's the existential question everyone's asking as software companies get absolutely pummeled on the stock market this week. There's widespread fear that new AI tools could automate tasks that previously required expensive software subscriptions, obliterating the value of the companies that sell them. The meltdown started when Anthropic added new legal tools for its clawed co-work agent, aiming to win over in-house lawyers. Seems harmless enough, but on Tuesday morning, that triggered a major sell-off in legal and financial data firms like LegalZoom, Thomson Reuters, Equifax, and Intuit.

3:31Toby Lenk:Those jitters later spread to the rest of the software industry, hitting names like Salesforce, Workday, SAP, and ServiceNow. By the end of the day, software companies had lost$300 billion in value and yesterday brought even more selling. All told, an index tracking software stocks has shed nearly$1 trillion over the past seven days. Some are calling it the SaaSpocalypse, the beginning of the end for the software as a service industry. Others say the fear of AI disruption is overdone and expect to bounce back once nerves have calmed. No matter what, as Bloomberg writes, the vibes have gone from bearish to doomsday.

4:05Toby Lenk:A JP Morgan analyst put it best saying that we are now in an environment where the sector isn't just guilty until proven innocent, but is now being sentenced before trial.

4:13Neal Freyman:Yeah, I'm going to dive into what some more analysts were saying because they were kind of popping off about this. One senior equity investment manager based in Paris told Bloomberg, there's clearly indiscriminate selling across the entire software cluster. Toby Og, which is a great name, by the way, who is that analyst that you mentioned, he said that for software companies, better than expected results are no longer enough to convince the market. basically saying that it's almost ready, aim, fire at this point when it comes to selling software stocks because you dive into some of the financials of these companies, some of the earnings of these companies, and they're doing all right.

4:45Neal Freyman:ServiceNow last week said it is accelerating net new ARR at a huge scale. Seems pretty bullish. How did the market react? It lost$12 billion in market cap and is since down about 10%. The SaaS index is down 32 % over the past year despite most companies meeting or beating earnings. All the while, markets are up 15 % over that same period. So there really is a lot of fear in the space right now that is pretty divorced from the actual fundamental businesses themselves.

5:13Toby Lenk:And I just, yeah, it's worth emphasizing that this software sell-off is not a this week news headline. It's a full year headline where they've been kind of on a downward trajectory, but then the Anthropic legal tool dropped this week. And then essentially it was just sell first, ask questions later. There are some who are pushing back on this software sell-off, saying it's way overdone. This is very indiscriminate at this point. And one figure who thinks software stocks are getting unfairly pummeled is NVIDIA CEO Jensen Huang, who is essentially the king of AI right now. He called it the most illogical thing in the world.

5:49Toby Lenk:He said that AI is going to use existing tools to accomplish tasks rather than reinvent them. He said, would you use a hammer or invent a new hammer? So he's one of the bigger names saying maybe buy the dip.

6:00Neal Freyman:You know who else is a big name who is saying that this could be overblown is Sundar Pichai Alphabet CEO. He said yesterday, I think it is an enabling tool, speaking of AI, just like it has been an enabling tool for us across our products and services. So basically parroting the same exact argument that these tools are widely used for a reason. There's no need to go reinventing the wheel when the wheel works just fine. Where is all this money going, though? because if you are rotating out of software stocks, you must be rotating into something else. And a lot of them are going into consumer staples.

6:33Neal Freyman:Bank of America said that buyers have been pouring into consumer staples stocks at the fastest pace on record. These are things you use every day, you know, food stocks, beverage, hygiene products, stuff you need to live. So we're seeing a little bit more of that defensiveness from the market, whereas before, over the past, you know, really decade or so, SaaS stocks have been the de facto thing that if you wanted to grow your money, that's where you would put your money. Now the money is going to more defensive stocks.

6:59Toby Lenk:Yeah, I think it's worth putting a point on just how kind of shocking this is because if you wanted to beat the S &P 500, you would go into a basket of software stocks because they were so dependable. It's a very sticky product. If you're a company that buys Monday.com or Salesforce, that's very expensive, first of all, and it's also very annoying to change from that particular product. So if you wanted to beat the S &P 500, as an investor, you would put all of your money in software stocks. But over the past week, they've essentially wiped out all of their advantage over the broader index in the past five years, just in the past couple days alone.

7:34Neal Freyman:Saspocalypse is an apt way of framing it, I do believe. Moving on, the Washington Post is 150 years old, but 13 years of ownership by Jeff Bezos might be enough to kill it. Yesterday, the storied paper was left wounded and bleeding after announcing mass layoffs. The book section shut down. International news desk hollowed out. Sports section a shadow of what it once was. When the dust settled, one-third of the Post's total staff was cut. According to company leadership, the idea is for the paper to rise from the ashes with a greater focus on national news and politics, with some additional business and health reporting, and not much else beyond that.

8:11Neal Freyman:Matt Murray, the Post's executive editor, said that the company had lost too much money for too long as monthly traffic to the paper has nearly halved in recent years. Of course, the buck stops with Bezos, who bought the paper back in 2013. Flashback to 2024, he sounded tired but optimistic about the Post's chances of a turnaround, saying, We saved the Washington Post once, and we're going to save it a second time. But to many observers, culling newsroom staff feels more like a death sentence than a lifeboat. Neil, former Washington Post editor Marty Baron called Wednesday's announcement among the darkest days in the history of one of the world's greatest news organizations.

8:49Toby Lenk:The knives were out for Bezos yesterday. In the New York Times, they wrote that the cuts are a sign that Jeff Bezos, who became one of the world's richest people by selling things on the Internet, has not yet figured out how to build and maintain a profitable publication on the Internet. There was an Atlantic headline that read the murder of the Washington Post. And the thrust of these arguments is that this is not inevitable. Yes, news and print media is on the decline, but you can thrive in this digital world. There are publications that are doing really well. And it was a series of strategic errors by Bezos and the people that he hired that has laid this one storied publication low.

9:25Toby Lenk:If you just go back to 2016, 2017, the first Trump presidency, The Washington Post was absolutely killing it. It had more than three million paying subscribers. Now it's far below that level. Bezos poured money into this publication, expanded the newsroom by 85%. So there were boom times. They just did not capitalize on it.

9:43Neal Freyman:Yeah. And you mentioned politics because a lot of what you're hearing from Washington Post leadership is the path to profitability runs through politics. But it looks like the Post has been kind of fighting with one hand behind its back. Nate Silver pulled data from a news aggregation site that basically tracks which news and politics stories other people are linking to. He kind of uses it as a way to figure out which outlets are driving coverage of big political stories. And over the past 30 days, New York Times is kind of dominating that. They have 14 % mind share, if you will. The Washington Post ranked fourth, only 5 % mind share.

10:18Neal Freyman:And that is a massive divorce from the historical norms if you go back to that first Trump presidency. The Washington Post was actually ranking higher than the New York Times at that point despite having a smaller newsroom staff. And basically people are just reading between the lines and saying Bezos has made a concerted effort to not cover Trump as much. He wants to survive this second Trump presidency rather than cover it in the way they did in the first Trump presidency. So that is one of the things that if you're saying that politics is going to be where the profits come from, why are you making us not cover Trump as much as we did in the previous term?

10:52Toby Lenk:Yeah, one prime example of this that definitely hit the Post's bottom line was in 2024, the Washington Post editorial page wrote an endorsement of Kamala Harris, and then Jeff Bezos killed that. And that led to an absolute exodus of subscribers. They lost 250 ,000 subscribers during the aftermath of when they canceled the Kamala Harris endorsement. So an absolute massive loss in subscribers. And you can't help juxtapose what's going on at The Washington Post with what's happening around digital media more broadly, specifically The New York Times. The New York Times reported earnings yesterday.

11:24Toby Lenk:They added 1.4 million digital only subscribers in 2025. They are on path to hit 15 million by the end of 2027. They're absolutely killing it with this bundle format. So they get people in through games. They get people in through their lifestyle verticals. They get people in through news. By the end of the fourth quarter, just over half of its total subscriber base paid for access to multiple products. That is just one area where critics of Bezos' regime at Washington Post say, you had all the wind at your back and you didn't diversify your revenue sources like the New York Times, like some upstarts, like Semaphore, like more regional papers like the Boston Globe or the Philly Inquirer, who are absolutely killing it right now.

12:03Neal Freyman:I said the path to profit really lies through politics, but really it lies through the mini crossword in the world. All right, moving on. As attention turns towards the Super Bowl, your friend who stinks at sports betting might have their eyes glued to another platform where they can also stink at sports betting, prediction markets. While platforms Polymarket and Calshi have risen in status and popularity over the past years, the big game is set to bring a big spike in volume. Already more than$161 million have been wagered on Super Bowl event contracts on Calci, far outpacing the$27 million bet on last year's Eagles-Chiefs matchup.

12:40Neal Freyman:Calci says that 90 % of the total volume it processes is on sports, as users flock to what is a de facto sportsbook with national availability. However, the fact that lots of money is being splashed around on these platforms is not necessarily a good thing for the people doing the splashing. According to a report from equity research analysts at Citizens, users on prediction market sites were losing proportionally more money than their counterparts on traditional gambling sites like FanDuel and DraftKings. Calci did push back on that report, saying that the data was, quote, flat out wrong and born of a conflict of interest, but it still left a black eye on a platform as it gears up for a skyrocketing demand ahead of Sunday's game.

13:23Neal Freyman:Neil, you can use these platforms to bet on everything from Jesus's return to what the U.S. tariff rate on the EU will be by July 1st. And yet most people just use these platforms to gamble on sports.

13:33Toby Lenk:This analysis does cut to the heart of the value proposition that Kalshi and Polymarket do promise. They say that we're a more level playing field than sportsbooks because when you're talking about DraftKings or FanDuel, you're playing against the house. So the pricing is not so good for you. Anytime you go into a casino and leave$300 down, you know how the house always wins. We instead offer, it's just peer to peer. You're playing against other folks. And then a user on X pointed out that, well, this is not surprising that people lose more on Calci and Polymarket prediction markets than on sportsbooks, because on sportsbooks, you're flipping a coin, whereas on prediction markets, you are taking the other side of insider trades.

14:12Toby Lenk:And that's been a huge criticism of Polymarket and Calci. But diving into this analysis, it's pretty stark. And yes, we should remind you that Calci did push back on this data, But the report from Citizen showed that the median prediction market wallet lost about 7 % of the money wagered in the first 90 days of activity compared with a 1 % loss on other forms of gambling.

14:33Neal Freyman:And one sector of the prediction market that I want to call your attention to for the Super Bowl specifically is not the players on the field. It's actually the announcers in the booth. The NFL announcer mention markets are popping off this year. Basically, they're wondering whether certain phrases will be spoken on air, and you can bet on this. Phrases like Taylor Swift, what a catch, concussion protocol, roughing the password. These all have their own little markets set up there. And we have seen this in the financial world already where what people will say on earnings calls is bet upon. Brian Armstrong, who's the CEO of Coinbase, literally read the list out loud.

15:14Neal Freyman:He pulled up the Pauly market list for what words people think he would say and read them all. So talk about like insider trading.