While some of this sentiment is understandable given growing concerns around Anthropic-led AI disintermediation and its implications for terminal value, Karl’s latest industry checks reveal a more immediate challenge.

Since November/December, there’s been a sharper acceleration in enterprise AI budget growth, leading to a “crowding out” of non-AI spending. This is manifesting in slower SaaS and application growth, with fewer new seats, reduced module expansion, delayed project timelines, and ongoing vendor consolidation.

The result is not just a debate around terminal value, but a challenged near-term setup for the sector. Elongated sales cycles, skinnier beats, and likely muted guidance heading into Q1 earnings season are expected, with particular attention on names like SAP, ServiceNow, and Microsoft.

As a result of these developments, Karl has downgraded ServiceNow to Neutral this morning, focusing instead on a narrower basket of infrastructure and AI-leveraged Buy-rated names, including PLTR, ORCL, MSFT, and DDOG.