The Big Die-Up For Software Is Here

The End Of High-Margin, Per-Seat Licenses

Inside today’s Daily Journal…

• Essay: The Big Die-Up For Software Is Here

• Eli Lilly shares surge

• “Trump Homes” initiative helps homebuilders

• Real-economy stocks show strength

• Chart Of The Day… Hershey hits 12-month high

• Today’s Mailbag

Three years ago, I predicted that artificial intelligence (“AI”) was headed for a big “die-up.”

AI, like all great new innovations, massively increases productivity. And by massively increasing the productivity of information processing, AI will likely become the most valuable innovation yet. But investors would be wise to remember the cannibalistic nature of capitalism.

Huge gains to productivity means someone’s business model is being destroyed.

A big die-up looms.

What’s a die-up? It’s what happens when a new technology unleashes unprecedented gains to productivity, spawning an investment mania… and… eventually… catastrophic investment losses.

Like when barbed wire was invented by three farmers at a county fair in DeKalb, Illinois, in July 1874. Wire fences significantly boosted cattle’s odds of survival by separating the bulls from each other. That meant an 80% reduction in annual bull mortality! And barbed wire also reduced the need for cowboys to round up the cattle.

The most important change, though, was that barbed wire meant the end of the open range. Access to the best grasslands and watering holes could now be controlled. The economics were obvious: the bigger the ranch, the greater the returns from barbed-wire fencing. Thus, demand for both ranch land and steel soared.

The leader in the barbed-wire industry – the Jensen Huang of barbed wire – was John “Bet-a-Million” Gates. His American Steel and Wire company grew like the internet for a decade. In 1877, only three years after its invention, 12.8 million pounds of barbed wire were produced, 26.6 million pounds in 1878, 50.3 million pounds in 1880, and almost 100 million pounds by 1882.

Who could afford to buy so much steel? The wealthiest investors in the world.