Why there’s a “huge vibe divergence” between tech and finance on AI

Not since Biggie Smalls and Tupac has there been an East Coast versus West Coast schism like the current perception gap over artificial intelligence.

The only type of AI exposure that’s worked on Wall Street lately is owning companies benefiting from shortages (memory chips) or ones that will benefit from expanding capacity of these scarce resources (semicap equipment). The theme has been a net negative for the market this year, based on how much software stocks thought to be at risk of severe disintermediation by AI have slumped.

Over in Silicon Valley, commentators and VCs are pounding the table that AI has now proven its ability to transform computer-based work, thanks in large part to recent progress from Anthropic. That is, AI has gotten better at doing things. Things that save us time and have commercial value.

As you might expect given the price action, this apparent discrepancy is primarily being noted by tech types who claim their counterparts in finance are short-sighted and fail to appreciate the scale of recent breakthroughs.

The capabilities of AI that has commercial applications may have increased meaningfully in the past few weeks or months.

But AI is certainly asking a lot more of investors. It’s asking them to forgive a lack of free cash flow generation as money gets piled into massive capex instead of buybacks. And it’s asking them for a lot more money, both through debt issuance in private and public markets and, soon, a heck of a lot of equity supply from the likes of SpaceX/xAI, Anthropic, and OpenAI. The valuations of these privately held companies have increased by about $550 billion since September. Think of it as adding about half a Berkshire Hathaway’s worth of value in five months. 

It would be somewhat disingenuous for AI boosters to say that all these privatized tech gains, and the underlying progress upon which they’re based, wouldn’t also be someone’s pain.

New technology can make old things obsolete. You’re reading this over the internet, not via a fax machine. You watch movies on Netflix, you don’t rent them at Blockbuster. The history of technological innovation has been that it produces net gains over time, but also localized losses.

However, this week, Nvidia CEO Jensen Huang called the idea that the software industry would be replaced by AI the “most illogical thing in the world,” arguing that AI agents will leverage existing software tools rather than reinvent them. A humanoid robot with artificial general intelligence would use an existing chainsaw, not invent a new chainsaw, Huang said as part of an extended analogy that made me want to invest in a Kevlar suit.

Well! I look at the above slide from OpenAI and say, AI “coworkers” are definitely trying to position themselves as being the brains of the operation that drive the core value currently provided by software companies. Whether software companies can extract a reasonable rent from AI “coworkers” for interacting with these systems of record is an open question. If the rent proves to be too damn high, however, that would seemingly raise the appeal of reinventing software tools, rather than working within the existing suite. 

(While I’ve been skeptical that AI is the proximate cause of job losses stateside, I would not be shocked if the substantial drawdown in software stocks is what catalyzes the first major identifiable wave of AI-fueled unemployment.)

But the cause of the divide between tech and finance isn’t simply a matter of how badly software stocks are getting crushed.

It’s reflected in the fact that the hyperscalers, the companies aggressively participating in this arms race, aren’t being treated like there’s a massive war on the horizon that they’re about to collectively win.

By and large, higher-than-expected capex has not been rewarded this season (see: Google, Microsoft, Amazon). Investors seem to be saying that if there are extrapolative expectations and an AI bubble at hand, it’s based on what tech companies are spending, not what they’re willing to pay for them.

Some of the divide between New York and Silicon Valley, in my view, reflects what happens when people veer outside their lane, which can lead to people talking past each other. Assessing the long-term potential utility of recent AI breakthroughs, for instance, is very much outside my lane. 

But make no mistake about it — there is a divide, it’s real, and it’s not easy to answer who’s right and who’s wrong, or how much the truth (likely) is somewhere in the middle.

Some things I think I know that may shed some light on why this tech/finance gap exists, and how it might prove vexing to definitively resolve:

• Not every great company is a great stock where it’s priced, and not every great stock is a great stock all the time. All the Magnificent 7 hyperscalers outside of Microsoft are outpacing the S&P 500 since the unofficial launch party of the AI boom in 2023.

  • Zooming out, tech insiders are lauding the increasing promise of AI, and investors are ascribing more value to the top model providers and the companies spending the most on compute. 

• My ability to use AI to augment my work has increased exponentially since mid-November.

• The hangover from capex binges tends to be a very difficult period for the big spenders (see: aftermath of shale investment or dot-com bubble) — and that’s not an indictment of the technology.

• If AI is a flop in ROI terms, it would not be the first time Silicon Valley vastly overestimated the commercial, real-world applicability of a new technology.

• In the short term, initial conditions and positioning matter more than fundamentals in explaining price action. And financial market narratives will follow price.

If tech bros and finance bros have one thing in common (besides vests), it’s an affinity for riding hot trends. AI’s ability to complete long tasks faster than humans is seemingly accelerating; AI stocks, by and large, have had a rough 2026. 

So if both groups allow lines to determine narratives and those lines point in different directions, it’s no wonder they’re living in different worlds.