Falling Leaves (and Stocks) (This Week in Stratechery)
1. Key Themes
Theme: AI infrastructure now faces real political and regulatory risk
Data centers lost at the ballot box
The week's elections turned the AI buildout into a political liability, with opposition crossing party lines.
"This week's elections delivered Democrats the largest Congressional majority either party has enjoyed in 36 years, and coupled with a variety of similar results at the state level (particularly in Texas), not to mention plenty of data center opposition among Republicans, the future of the AI buildout is now fraught with more regulatory uncertainty than ever."
The open question is whether anti-building sentiment is permanent
Ben Thompson's article frames the outcome as a possible structural shift, not a one-cycle swing.
"Data Centers were on the ballot, and they lost in a major way; what does it mean if American opposition to building is permanent?"
Washington gets harder for AI hardware leaders
The new Congress also changes the China and export-control calculus, with Nvidia singled out.
"Offering one safe bet in the new environment: life is about to get a lot more complicated for Jensen Huang in Washington."
Theme: Google's search slowdown looks like a replay of Facebook's format transition, and may be a buying-the-fear moment
Search growth slowed, spooking investors
"Last week Google reported earnings and saw growth in search revenue slow for the first time in five quarters. Given the appearance of mortality in what might be the greatest business in the history of digital commerce, investors were predictably spooked."
Thompson's analogy: AI Mode as Google's Stories and Reels
"I think the company deserves time to see if AI Mode ends up like Stories and Reels did for Facebook: if anyone can monetize AI with ads, it's going to be Google."
Google is playing a bigger game than one product
"Google's earnings miss looks a lot like Facebook's, and that's a credit to Google. The company is being more aggressive than they get credit for." "Google's AI bet is about more than AI Mode, and why I find myself impressed by Google's fortitude, even if the rest of the Internet is a casualty."
Theme: Incumbent software and hardware companies are being re-evaluated against AI fears and supply constraints
Enterprise software's AI-disruption narrative collides with the data
"Earlier this year, nearly a trillion dollars in enterprise software value disappeared amid fears of AI eating its lunch."
Apple's hardware strength persists despite memory costs
"Apple's earnings suggest that the company's hardware business is doing better than ever, even in the face of memory challenges. Does the software story help or hurt?"
Incumbents leaning into the AI paradigm shift
"An interview with Intuit CEO Sasan Goodarzi about the working for one of tech's oldest software companies, and how Intuit is leaning into the AI paradigm shift."
2. Contrarian Perspectives
SaaS stocks cratered, but actual SaaS businesses accelerated. The market's "SaaSpocalypse" narrative diverges from payments data, suggesting the sell-off priced in a future that hasn't shown up in revenue.
"Stock prices only tell us what investors think will happen, and not necessarily what is happening. In this case, Stripe recently built a SaaS Index using payments data from 72,000 non-AI SaaS businesses. Looking at their actual performance, we can see that while SaaS stocks were selling off, revenue growth was actually accelerating." "Year-over-year growth is now over 30%, with some of the fastest growth coming from the youngest SaaS companies."
The Google bear case may be overstated. Rather than treating the first search slowdown in five quarters as a sign of terminal decline, Thompson argues the market should wait to see how AI Mode monetizes, as Facebook's did with new formats. The Sharp Tech episode asks directly whether the bears were right.
"I think the company deserves time to see if AI Mode ends up like Stories and Reels did for Facebook." "Were Google Bears Right All Along?"
3. Companies Identified
Google (Alphabet)
- Description: Search and AI giant, parent of AI Mode.
- Why mentioned: Centerpiece case study of an incumbent facing disruption fears while investing aggressively.
- Quotes: "Google's earnings miss looks a lot like Facebook's, and that's a credit to Google." / "If anyone can monetize AI with ads, it's going to be Google."
Facebook (Meta)
- Description: Social media company.
- Why mentioned: Historical analogue for Google's product-format transition (Stories and Reels).
- Quotes: "AI Mode ends up like Stories and Reels did for Facebook."
- Description: Payments infrastructure company (sponsor).
- Why mentioned: Its payments data serves as an economic barometer and powers a SaaS Index.
- Quotes: "With more than 1.7% of global GDP running on Stripe, working with them means I can bring some of what they're seeing to Stratechery. They are, in a sense, a barometer of the economy."
- Description: Consumer hardware and software company.
- Why mentioned: Earnings show hardware strength despite memory-supply challenges.
- Quotes: "Apple's earnings suggest that the company's hardware business is doing better than ever, even in the face of memory challenges."
- Description: Long-standing accounting and financial software company.
- Why mentioned: Example of an old-guard software firm adapting to AI.
- Quotes: "how Intuit is leaning into the AI paradigm shift."
Nvidia
- Description: AI chip leader.
- Why mentioned: Likely to face new scrutiny in Washington after the midterms.
- Quotes: "New Scrutiny for Nvidia?" / "Life is about to get a lot more complicated for Jensen Huang in Washington."
Zhipu AI (GLM)
- Description: Chinese AI lab behind the GLM models.
- Why mentioned: Subject of an Asianometry deep dive on China's AI rise.
- Quotes: "The Rise of GLM and China's Zhipu AI."
- Description: Delivery and local commerce platform.
- Why mentioned: Discussed alongside Google on Dithering (no detail provided in this email).
- Quotes: "DoorDash and Google."
- Description: Grocery delivery platform.
- Why mentioned: Topic in the Sharp Tech subscriber mailbag (no detail provided).
- Quotes: "Subscriber Mail: Apple Past and Present, Omarchy, Instacart, and Baseball."
4. People Identified
Ben Thompson
- Description: Stratechery author and analyst.
- Why mentioned: Author of the Google and "AI on the Ballot" analyses.
- Quotes: "Ben's Article on Wednesday built on his data center warnings from April and provided 10 takes on the post-midterms landscape for tech companies."
- Description: Stratechery writer and podcast host.
- Why mentioned: Wrote on the political dimensions of the election and hosts the China discussion.
- Quotes: "I wrote about X, 2024 symmetry, and the more political aspects of the election for Sharp Text."
Sasan Goodarzi
- Description: CEO of Intuit.
- Why mentioned: Interviewed about accounting software and AI.
- Quotes: "An Interview With Intuit CEO Sasan Goodarzi About Accounting and AI."
Jensen Huang
- Description: Nvidia CEO.
- Why mentioned: Expected to face a harder political environment in Washington.
- Quotes: "Life is about to get a lot more complicated for Jensen Huang in Washington."
- Description: Author of Sinocism, co-host of Sharp China.
- Why mentioned: Discusses US-China relations after the midterms.
- Quotes: "Sharp China with Andrew Sharp and Sinocism's Bill Bishop."
Donald Trump
- Description: U.S. President.
- Why mentioned: His post-defeat posture toward China is a key unknown.
- Quotes: "Highlighting the profound unknowns concerning President Trump's posture after this week's defeat."
John Gruber
- Description: Daring Fireball author.
- Why mentioned: Co-host of Dithering, discussing DoorDash/Google and the MacBook Pro.
- Quotes: "Dithering with Ben Thompson and Daring Fireball's John Gruber."
5. Operating Insights
Use ground-truth operating data, not stock prices, to judge a sector's health. Stripe's payments-derived index showed SaaS revenue accelerating while the market priced in decline. Operators and investors can look for revenue-flow signals rather than sentiment.
"Stock prices only tell us what investors think will happen, and not necessarily what is happening."
Plan for permitting and political risk in infrastructure-dependent businesses. If you build or depend on data centers, bipartisan local opposition is now a core planning variable.
"The future of the AI buildout is now fraught with more regulatory uncertainty than ever."
Format transitions are survivable if the monetization engine adapts. Google's challenge mirrors Facebook's shift to Stories and Reels: a new format initially monetizes worse, then catches up. Operators facing platform shifts should invest through the transition rather than defend the old format.
"Google's earnings miss looks a lot like Facebook's, and that's a credit to Google."
6. Overlooked Insights
Young SaaS companies are growing fastest. This runs against the narrative that AI is hardest on newer software entrants, and suggests new vintages may be more resilient.
"Year-over-year growth is now over 30%, with some of the fastest growth coming from the youngest SaaS companies."
Memory supply is a live hardware constraint. Apple's results are framed around memory challenges, hinting at component-cost pressure in the AI era.
"Even in the face of memory challenges."