The AI trade is dead. Long live AI.

Friends, we have suddenly become a ChatGPT household. My husband uses it for calorie tracking. I use it as a cooking/meal-planning assistant. We both use it as a friend we ask all of our burning questions, like?"what games can I play with my 5-year old while waiting at a restaurant?," "which humidifier is the best fit for this house?" and?"what are some of the most famous books about postwar Europe?"?

And when I hit the limit on free daily usage, I just swap over to Grok 3, which is also excellent, or Perplexity, or Gemini. We'll probably pony up for the $20 a month ChatGPT account at some point, because it's such a great helper (and I like how it keeps track of your chat history). I am not at all surprised they now have more than 400 million active weekly users.?

Point being, this technology has quickly gone mainstream. And that comes--as it so often does--at precisely the moment the AI trade is unwinding in the stock market. Nvidia is down 18% from its highs, and the whole market is worried that its earnings tomorrow evening could disappoint. Broadcom is down 20%. Even Meta has tanked a quick 12% following its record 20-day winning streak.?

"We are still early days in this de-risk, momentum unwind," warns Mizuho's Jordan Klein. "It is accelerating on fears that year-to-date gains will quickly turn into year-to-date losses." Big software names like Microsoft, Oracle, and ServiceNow that were reliable gainers last year, for instance, are also no longer.?

This is in part because many of these names simply got over-bought, as Klein notes. But it also comes amid a slew of recent data pointing to an economic slowdown. On top of weak January retail sales and last week's poor consumer sentiment, we got another confidence drop in a different report this morning, and a big slide in the Philadelphia Fed local manufacturing index.?

That has pushed bond yields sharply lower again today, with the 10-year now in the 4.2% range, down from 4.8% just a month ago. More and more strategists, like David Zervos at Jefferies, are telling us they're comfortable owning bonds here. Suddenly, 4% on a risk-free instrument with appreciation upside looks good relative to the precarious former high-flyers in the AI trade.?

And so this near-term correction is likely to continue until enough buyers are flushed out, or the narrative shifts. It doesn't mean that AI itself is over, or overhyped, or something to be dismissed. In fact, as I watch myself using ChatGPT more and more, I worry a lot about what this means for the preexisting internet economy. What happens to the recipe blogger who used to make a decent living from all of that search traffic??

That loss of income may not show up as a "jobless claim," and may be hard to detect in the traditional economic data. But that is a real headwind to small businesses and individuals that have made a living off of the internet. So we have DOGE in the government, DOGE in the workplace (witness corporate layoffs at Meta, Starbucks, and Chevron this year), and AI in the internet space. That is a big upheaval that the U.S. economy--and the markets--will have to work through.?