Inside today’s Daily Journal…

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.

Between 1879 and 1888, the British formed 36 new companies and raised $45 million to invest in cattle, an amount of capital equal to 5% of British GDP. Investors from Boston poured millions into ranches, including the copper baron Alexander Agassiz, the stockbroker Henry Higginson (who founded the Boston Symphony Orchestra), and Quincy Adams Shaw, scion of the wealthiest family in Boston. Most famously, in 1883, a 28-year-old Theodore Roosevelt invested half his family’s fortune into a single Dakota ranch.

And so it was that most of the entire world’s liquid capital was invested into the American West in a 10-year period between 1875 and 1885. Bubbles have an almost mystical way of finding pins. Just as the most amount of capital possible was locked up in Western ranches, the worst winter in recorded history descended onto the plains.

No one had ever seen anything like it. In mid-January 1887, the snow started falling on the northern plains and it didn’t stop for 10 days. The temperature fell to 28 below zero, then to 30 below, to 46 below zero – and, finally, to 60 degrees below zero. It was the coldest winter on record. Almost nothing survived. There was so much snow and so little grass that the cows that didn’t freeze to death starved waiting for spring.

Instead of a round-up, that spring the cowboys talked about the great die-up.

More than 80% of all the newly set up ranches failed. Historian Christopher Knowlton, in his book Cattle Kingdom, wrote:

In Colorado, the number of large-scale cattle companies was slashed from 58 in 1885 to just nine by 1888.

I’ve been wondering when the die-up would come for tech investors. And I’ve been trying to imagine what form it would take. I knew it would only seem obvious in retrospect.

And … suddenly… it is…

When barbed wire made cowboys infinitely more productive, lots of them lost their jobs.

Now, when AI makes knowledge workers more productive, what will happen? Lots of them will lose their jobs.

Today most knowledge workers use software tools. These tools are sold to enterprises using a per-seat licensing model. And these licenses are expensive. Salesforce (CRM) typically charges $500 per month, per seat, for its licenses. As more knowledge work is done by AI agents, not humans, the per-seat licensing model of software companies will be destroyed.

And, that, of course, is only the beginning. Barber wire eliminated many of the jobs cowboys used to do – like driving cattle from Texas to the Dakotas on the open range. It’s hard to imagine a future where anyone has to know how to create an Excel spreadsheet. AI now builds those faster than humans ever could. For free.

While investors have good reason to be excited about the incredible gains emerging from successful AI investments in hardware, memory, bandwidth, and power, I urge extreme caution in owning any software businesses or any informatics companies.

Even businesses like S&P Global and Moody’s, which have robust regulatory hurdles to competition, are in danger as AI will prove vastly better at predicting credit defaults and will be able to offer credible credit ratings at much lower prices.

That doesn’t mean that S&P Global or Moody’s will go out of business, but it does mean their margins will almost certainly come under assault.

The big die-up is coming. And it starts with software.

Tell me what you think – good, bad, or somewhere in between: [email protected]

Good investing,

Porter Stansberry
Stevenson, Maryland

P.S. Tech Frontiers editor Erez Kalir will release a bold new recommendation in his February issue, getting to subscribers tomorrow. In addition to suggesting readers buy shares of a tech giant he expects to be an AI winner, he also suggests shorting shares of a major player in AI.

In our new broadcast Tech Collision ’26 just released yesterday, Porter is joined by Erez, who reveals how artificial intelligence is now converging with two other technologies to permanently reshape our work, health, and money – opening a potential “generational opportunity” for investors.

Watch the full broadcast here.

1. Eli Lilly rallies 10% on another blockbuster quarter. Pharma giant Eli Lilly (LLY) beat expectations across the board in its Q4 earnings report released this morning – with a 43% year-on-year (“YOY”) revenue increase to $19.3 billion. The main drivers included a 110% YOY increase in sales of Lilly’s diabetes drug Mounjaro and a 123% YOY jump in sales of weight-loss drug Zepbound. LLY shares have gained 42% since our June 2025 Complete Investor recommendation and 67% since we made it a Best Buys in August.

To see the current line-up of Best Buys – and be the first to get access to our next selection later this month, click here to become a subscriber.

2. “Trump Homes” bid boosts Hovnanian shares. Major U.S. homebuilders Lennar and Taylor Morrison are pitching a massive “Trump Homes” initiative to tackle the affordability crisis. The privately-funded proposal aims to develop 1 million entry-level homes – a $250 billion pipeline – using a “pathway-to-ownership” model where three years of rent counts toward a down payment. The news ignited a sector-wide rally yesterday: shares of Complete Investor portfolio recommendation Hovnanian Enterprises (HOV) have jumped 9% and continue to show momentum.

3. “Real economy” stocks are waking up. This week, many “boring” stocks, in industries like manufacturing, transportation, and energy – those that produce tangible goods and services – are breaking out to 52-week highs. This includes Walmart (WMT), Coca-Cola (KO), Caterpillar (CAT), FedEx (FDX), and CSX (CSX), as well as several Complete Investor portfolio recommendations like Deere & Company (DE) and (see below) The Hershey Company (HSY). This is fantastic news for Complete Investor subscribers, but like the upside surprise in the ISM’s Purchasing Managers’ Index (“PMI”) we highlighted on Monday, these moves may also be an early sign of strength for the broad economy.

Porter first recommended The Hershey Company (HSY) in 2007 and did so again for Porter & Co. Complete Investor subscribers in 2024 – shares just broke above a one-year high and jumped above our buy-up-to price of $200.

“How Are You Using AI?”

Bruce and Judith T write:

Porter Comment: Great questions.

I’ve been using artificial intelligence (“AI”) to help proofread my work and to perform massive research projects in minutes. The analysis I did of all of Warren Buffett’s take-private deals for Berkshire Hathaway from the late 1990s until today would have taken two to three researchers a week to complete. AI did it in minutes. Likewise, AI is great for summarizing annual reports, researching history, and providing daily news summaries on all of our portfolio holdings.

It’s like having an almost unlimited number of very smart junior research assistants. What it can’t do (yet) is reach novel conclusions. And, fortunately, it isn’t a very good writer.

Great investing is mostly the art of seeing what isn’t there yet, so I have a feeling that AI will have a surprisingly hard time beating the market. But it will be undeniably great at arbitrage. It monitors every market in the world, in real time, and reacts faster than any human.

Hope this helps!

Porter

P.S. I mainly use Grok, but I’ve found that Google’s Gemini is getting better every day. I suspect it will be hard to keep pace with Google’s advances.

“Warsh Returning Discipline To Financial Markets?”

Jim W writes:

Porter Comment: Jim – Thanks for your note.

I don’t think you’re wrong, exactly. You could easily be right that the size and scope of our fiscal problems far overpower the impact of one man at the Fed.

On the other hand, very small changes in policy can have a huge impact on our economy. I see the appointment of Warsh is a sign that, finally, the administration may begin to address these issues seriously and urgently.

And, I know this: if that isn’t the case, Warsh will resign again.

Regards,

Porter

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