"How did you go bankrupt?" Bill asked.
"Two ways," Mike said. "Gradually and then suddenly."
— Ernest Hemingway, The Sun Also Rises, 1926.

Some financial headlines to get ourselves situated:

Grab coffee.

We're going in deep.

I wish we didn't have to.

But 2026 isn't asking for permission.

If you were around then, you will remember these things.

For a couple of years, AOL flooded our mailboxes (physical mailboxes, that is) with software (also in physical form, which we called CD-ROMs then — yes, those were prehistoric times) with promises to get us "online" (whatever that meant at the time) for hours, for free.

In fact, AOL apparently spent about $300M sending CD-ROMs across the land, and at the peak of their production, they made up about 50% of all CD production.

I'm telling you this to remind you what the dawn of this modern economic era looked like.

I remember it.

My friends remember it.

Now we're all on the same page.

Software stocks are down. Private equity down. Private credit down.

Not every last one in every category.

But enough of the ones that matter to make headlines.

Whether this becomes a defining moment in market history depends on two things:

I will say one thing at the outset:

If you know what happens next, that makes one of us.

I will also say the following, however, about the "who loses" part.

A couple of years ago, I wrote a piece that called what private credit managers were doing a "muppets moment" — pushing past institutional investors and into retail investors for new investor dollars.

I didn't know what exactly could lead to buyer's remorse, but it didn't feel like a great setup for a happy ending. You can read that piece here: Private Credit's "Muppets" Moment?

That's enough of the "I told you so" — it's never a good look.

But it does underscore one thing: It's really hard to know what catalyst eventually pulls the rug out from under wobbly things. Now we seem to have a reasonable candidate, and it has a fun moniker: SaaSpocalypse.

Now let’s bridge our way from 1999 to 2026.

As Marc Andreessen put it back in 2011, "software is eating the world." There is a lot of shorthand in these five words. Let's unpack it, just a little.

Why would AOL spend $300M sending "free hours" to you?

You know who learned lessons one, two, and three real fast?

The people who manage private-equity investment companies.

Scalable subscription-product companies with pricing power is the type of thing that you too would be eager to own if you were in that line of business.

And one last thing…

When you've ostensibly found the Golden Goose — the "perfect" business model that's high growth, high profits, and produces steady cash flows — you know what you do? You tend to leverage it.

And so they did.

→ Buy software companies in private-equity funds, that is.

→ And fund them in all sorts of fun ways, including via private credit — first with institutional dollars, including from insurance companies, some of which were owned by private-equity firms themselves in our post-GFC world, and eventually with retail dollars, too.

This explains, as a corollary, why the last 25 years have been marked by a relentless migration from public markets to private markets. Why share the Golden Goose with the world when you don't have to?

Which brings me to the figure below…

It tracks every instance in which an S&P 500 company has dropped 5% or more in a day since January 1, 2026, through earlier this week.

You see, for the last few weeks, the market has decided to aggressively and repeatedly punish any company whose business model could be "disrupted" by AI.

That's how you get the 20%–40% declines we had in our first graph above in under two months (even though the S&P 500 overall is roughly flat to date this year).

At this point, it would be irresponsible not to ask:

Note that asking the question is nowhere near the same as pretending to have the answer.

Asking what-ifs is not dangerous.

Being unprepared in the face of an uncertain future is.

The AI disruption scare trade is simple: expensive subscription business models are under attack because the have-nots now have an alternative: AI.

You used to have "no choice." You had to pay for that specialized software over and over again. They had you over a barrel.

But all of a sudden, maybe — just maybe — you could build your own alternative solution on the cheap.

And yes, it's silly to assume that everyone is going to cook up their own CRM (or bookkeeping software) to save on enterprise IT bills.

It's a lot less silly to conclude that big-boy software makers will be facing more competition from smaller-fish businesses who see an opening to create an alternative product at a fraction of the cost of the legacy vendor.

The point is software doesn't have to go away to rationalize this. It probably won't. But it might get commoditized, and pricing power might erode in a hurry.

In and of itself, that would be a rough reality for the surplus-collecting legacy software companies out there.

But so is life (and so is capitalism).

You shouldn’t expect to make abnormal profits forever.

And if you do, you’re a very silly person indeed.

If it were just public software companies, it would be one thing:

Mark-to-market losses happen fast in public markets.
The mark is in. And so is the pain.

It's all the software bets made outside of public markets in private-equity land.

It's the direct loans to software firms by private-credit outfits and their investors.

Wherever there is a loan commitment made on the same premise as those mortgages from before the Financial Crisis: "This can't fail." Well, all of a sudden, maybe it can.

More risk all over town.

Cash not going back out the door to investors, like they thought.

Potential defaults on borrowed money.

And that includes meaningful margin calls on extraordinarily wealthy people who thought they were clever to pledge their company stock for loans, because why sell when you can borrow?

I repeat, I do not know what happens next.

Hopefully nothing worth writing home about.

But there’s a lot of private risk out there.

Let’s hope it doesn’t become a public issue.

And let’s definitely hope not a concern for you and your family.

To that end, ask yourself.

There is no prize for being brave in the dark.

PS: There is a bigger context here. This is something that I talked about with my friend David Nadig on Treussard Talks last year. The short version? If you don't understand the 'why' of markets, or if you “disturb the Force” in capitalism, you can get very unpleasant societal outcomes.

Dave reminds us: Markets are meant to support species-level human flourishing. “And if you can't draw that line, you're probably just entertaining yourself.” Listen to our conversation below.