The Tape has its Say
Nvidia’s results were the obvious event of the week, and it was a good one. Management pointed to next year's growth as supply constrained at roughly 70%, well above consensus estimates and providing the market with visibility into next year for the first time. The market cap math – Nvidia gained 7% after its results which added $442 billion to its market value, representing more than 478 individual S&P 500 companies are worth in their entirety.
Fundamentally, there's not much to argue with (just like in previous quarters) – Nvidia provided the market with strong visibility into next year. But we pay attention to price as well as fundamentals, and the price action told a more complicated story. A print with this kind of demand visibility should have been a green light for the picks-and-shovels trade: memory, semi cap equipment, the rest of the supply chain, but that's not really what happened. Follow-through was thin, even with NVDA handing the market a clean growth signal.
Instead, the money rotated into software, where the prints were also stellar. Salesforce delivered a strong beat-and-raise quarter, showed real traction with Agentforce, and announced a partnership with Anthropic that embeds CRM data directly into Claude.
It was another sign that software isn't dead - it's evolving. We're finally seeing tangible signs that AI can be a monetization event rather than simply a seat-destruction story. The original bear case was that AI commoditizes the application layer and destroys pricing power; Salesforce's print is starting to demonstrate the alternative — incumbent vendors using their proprietary data, workflows, and distribution to embed AI rather than getting disintermediated by it.
The cumulative effect: software (as represented by the iShares Expanded Tech-Software ETF - IGV) broke out to a new high on the year, recovering everything it had given back earlier. The software/semiconductors ratio pushed through a long-term trend line in the process. After two years of the hardware layer capturing the lion's share of AI enthusiasm, the love may be broadening out.
Figure 1 – iShares Expanded Tech-Software ETF (IGV) vs. Philadelphia Stock Exchange Semiconductor Index (SOX)
Zero Day, Zero Rest
Helping the rally in software names was the cybersecurity space, where a string of strong results led by Crowdstrike helped security names make new highs. CrowdStrike delivered an outstanding quarter, signing a record $333 million in new subscription contracts — up 51% from a year ago and well above what analysts expected — pushing its total recurring revenue base to $5.84 billion, growing 25% year-over-year for the fourth straight quarter of acceleration. The big story was AI: CrowdStrike's new product that protects companies from AI-driven cyber threats nearly tripled in size in just one quarter, as the explosion of AI agents in the corporate world is creating a massive new wave of security demand that CrowdStrike is uniquely positioned to capture.
What's driving the urgency in cybersecurity right now is that hackers are getting faster at exploiting software flaws. A few years ago, attackers typically took about a year to exploit a newly disclosed vulnerability. Today that gap has shrunk to just one day. This is because advanced AI tools can now spot hidden software vulnerabilities that humans would never find. The catch is that the same AI that finds these flaws can also be used to weaponize them. Meanwhile, efforts to actually patch the code are falling behind: one analysis found AI is discovering new vulnerabilities 16 times faster than they're getting fixed. This puts most organizations in a constant state of playing catch-up, and the fact that CrowdStrike's AI-based security product nearly tripled in one quarter is a signal that the market is waking up to this urgency.
Figure 2 – Cybersecurity Urgency
Looking Down the Ice
Wayne Gretzky's line about skating to where the puck is going, not where it's been, gets overused in market commentary, but this week is a decent excuse to use it. The first two years of the AI trade rewarded owning the picks and shovels: chips, power generation, the physical buildout. That trade isn't necessarily over, but this week was a signal the market is starting to look further down the ice towards the companies that monetize AI and protect against it, not just the ones that build it. As with past market cycles of major tectonic shifts, skating alongside the winners is rewarding as long as they continue to anticipate where the puck is going.
Have a great week!
Tony, Sam & JLO
