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This was the third week in a row with extremely strong intra-week movements with 1.5% falls on Tuesday, Wednesday and Thursday with a strong recovery on Friday. The Nasdaq Composite, which has a tech concentration finished in the red, while the broader S&P 500, almost broke even.

What caused the drop?

1. High Capex spending from hyperscalers
2. Low job creation and higher layoffs
3. The cryptocurrency shakeout
4. The "SaaSmageddon" or "SasSacre"

1. High Capex spending from the hyperscalers:

Microsoft: In the previous week Microsoft had largely disappointed with “decent” earnings, but  too much exposure to OpenAI - almost 50% of its RPO (Revenue Performance Obligations) or backlog is with OpenAI, and high Capex plans for the year ahead derailed any positives from the earnings release. After spending $37Bn in the last quarter,  it expects Capex to be even higher in 2026, just like its peers, Meta, Amazon and Alphabet.

Alphabet: So still reeling from the previous week’s selling because of Microsoft, we saw Alphabet’s $175Bn in planned Capex resulting in a 5% after hours drop on Wednesday the 4th. Alphabet, pretty much beat on all counts, guided higher and will still sail through with $12 in earnings growing 7% in 2026. Revenue will grow faster at 17% and the behemoth is still prices at 8-9x sales. But I don't believe there is much stock price appreciation in 2026, and would be happy if it returned 8-9% a year.

Amazon: Amazon, too, had an excellent quarter, beating earnings and sales estimates and also gave good guidance but projected a whopping $200Bn in Capex next year. It too sank like a stone after hours.

We are certain of a lumpy 2026, and perhaps we may end up positive, but it is going to be a bumpy ride for AI and hyperscalers.

2. Low job creation and higher layoffs

Challenger Report:

January Job Cuts Surge; Lowest January Hiring on Record, and highest Jan layoffs since 2009.

U.S.-based employers announced 108,435 job cuts in January, an increase of 118% from the 49,795 in Jan  last year, and up 205% from the 35,553 job cuts announced in December. January’s total is the highest for the month since 2009, when 241,749 job cuts were announced. It is the highest monthly total since October 2025, when 153,074 cuts were recorded.

Adding some color was Andy Challenger:

Generally, we see a high number of job cuts in the first quarter, but this is a high total for January. It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026.

The less than optimistic outlook did send some shivers down the market's spine on Thursday. UPS and Amazon were the two main culprits with the 30K from UPS and 16K from Amazon.

Amazon’s CEO Andy Jassy, like many CEOs recently, has said AI will cost jobs in the coming years, but this cut appears to be due more to over hiring and reducing layers than to the new technology,” said Challenger.

Healthcare job cuts were quite prominent with healthcare companies, health products manufacturers, and hospitals, announcing 17,107 job cuts in January, the most for the industry since April 2020, when 19,453 job cuts were recorded. This industry is reeling and the government instead of helping is exacerbating the situation….with lower reimbursements from Medicaid and Medicare.

ADP Payroll:

Weak hiring and downward revisions indicate a dying jobs market. Private sector hiring in the US was far slower than expected last month, according to ADP data released on Wednesday, but the revisions to 2025 hiring of about 216,000 jobs last year due to revisions, reveal a far worsening situation. Previously, the ADP series suggested hiring was robust in early 2025, but decelerated only later in the year, however the revisions indicate that the rot had set in much earlier. Private payrolls rose by just 22,000 in January, far short of expectations, and worse than the downwardly revised 37,000 increase in December and below the consensus forecast for 45,000. The report starts 2026 off on basically the same note where 2025 ended: A lackluster job market in a low-hire, low-fire environment that likely will do little to quell fears from Federal Reserve policymakers that more support may be needed.

“Hiring is softening. It continues a pattern that we’ve noticed for the past three years,” Nela Richardson, ADP’s chief economist, said on CNBC. “Employers are very reluctant to hire in the current economy.”

Richardson noted that benchmark revisions the firm employed to its data showed that job gains in 2025 already were weaker than reported, by about 18,000 per month, or 216,000 for the year.

Wage gains were little changed from December, with those staying in their jobs seeing growth of 4.5%.

3. Bitcoin and crypto:

Between Tuesday and Thursday, Bitcoin dropped an astounding 17,000 from 79,304 to 62,463, before recovering by 8,000 to 70,571 on Friday. There is no way in any shape or form that this can be an alternative currency or hedge against currency debasement. I completely agree with Dr. Michael Burry’s assessment below.

Famed investor Michael Burry warned that Bitcoin’s selloff could intensify into a self-reinforcing “death spiral,” potentially causing lasting damage to companies that have spent the past year stockpiling the token, Bloomberg reported. Bloomberg, citing comments from Burry’s Substack post on Monday, said the investor argued that Bitcoin has been revealed as a largely speculative asset, failing to establish itself as a debasement hedge akin to precious metals. Burry warned that additional declines could quickly pressure the balance sheets of major holders, spark forced selling across the crypto ecosystem, and lead to broad value destruction. “Sickening scenarios have now come within reach,” Burry wrote. Should Bitcoin fall another 10%, Strategy Inc., the world’s largest corporate crypto treasury, would be billions in the red and “find capital markets essentially closed.” Additional drops, he said, would push Bitcoin miners toward bankruptcy. Burry added that "there is no organic use case reason for Bitcoin to slow or stop its descent," and that the token's adoption by corporate treasuries and new crypto-linked spot exchange-traded funds is not enough to buoy its price indefinitely.

Microstrategy’s results changed the narrative some on Friday, but I would be very, very skeptical of crypto going forward. Even more than usual.

4. The "SaaSmageddon" or "SaaSacre" - Claude the giant killer:

The largest financial platforms such as Bloomberg, The Wall Street Journal and Barron’s were carrying headlines suggesting that the fear of AI taking over White collar jobs was real. It was a SaaS armageddon...or SaaSacre, as the puns started flowing.

The headlines and multitude of articles also suggested  that the subscription or seat based licensing revenue model was in real danger if foundational model APIs such as Anthropic’s plug-ins would eliminate the need to pay for seats.

From the Wall Street Journal:

In a note Tuesday, Morgan Stanley analyst Toni Kaplan called Anthropic’s plug-in development “a sign of intensifying competition” that could be negative for big companies in the legal space, including Thomson Reuters and RELX. Both stocks closed down around 15%. As investor worries about new AI capabilities swept through other sectors, shares of companies that develop, license and even invest in code and systems were hit, wiping out $300 billion in market value. For weeks, software engineers have been sounding off on social media, expressing awe and dread about what they are seeing AI systems do. Skills that took them a lifetime to develop can be completed with relative ease, speeding up the process of coding to a shocking Degree. Meta Platforms Chief Financial Officer Susan Li told investors last week that the company has seen a 30% year-over-year increase in output per engineer driven by AI coding tools. Power users have seen an 80% boost.

My take is that yes, there is a valuation risk for sure but not to the point where these become obsolete, they drop from a secular growth category to GARPs, they should be bought on troughs, and kept for a decent return. I am buying SaaS companies at good valuations and absolutely believe that no AI company can compete with the likes of Cadence (CDNS) and Synopsis, (SNPS) but yes they too are subject to fair multiples and I have to be extremely careful of not overpaying.

The recovery on Friday and will it last? the strategy going forward.

Regardless of whether the markets drop to a correction level of 10%, these will be the rules for 2026 and beyond.

1. Keep the investments to very high quality, high conviction companies, or industries, trying to spread the net wider led to some mediocre investments. 
2. Don’t ignore the threats to business models such as SaaS - I didn’t see it coming the way it did. Sometimes even holding on to these companies doesn’t help, when the drawdowns are as high as 30-40%. 
3. Stick to a bargain-basement valuation otherwise avoid and move on.

While I was anticipating a long overdue correction of 10%, Friday’s strong rally has pushed that out, and I too bought two favorites Nebius (NBIS), and Credo Tech (CRDO) at what I felt were ridiculous prices.

Stocks:

Nebius (NBIS) - $92 - Buying in the $80-$90 range, my two year target is $250, this is an excellent company, and extremely volatile but I can handle that. I added more today.

Credo Tech (CRDO) - I bought this on Friday at $106, and expect it to move up to about $150-$160, in 2026. I added more today.

Reddit (RDDT) - $141 - great results but planning to hold for now.

Rubrik (RBRK) - $53 Worth buying around $50-$52 - even though cybersecurity stocks follow the SaaS model, I believe Rubrik is a bargain at this price. I added more today.