Animal Spirits Podcast Episode 451 Summary

Title: What Would You Do With $3 Million?
Date: February 11, 2026
Hosts: Michael Batnick & Ben Carlson

Episode Overview

In this episode, Michael and Ben delve into a rapidly shifting market landscape: the unwind in big tech and software stocks amid the ongoing AI revolution, the broadening of the stock market beyond the "Mag 7," massive sector rotations, and the implications for asset allocators and individual investors. The discussion balances market data with personal investing tales, explores the behavioral and real-life questions like the value of a $3M house vs. a $3M portfolio, and ends with lighter banter about parenting, travel, and streaming recommendations.

Key Discussion Points & Insights

1. The Market’s Rapid Shift: Tech Stumble, Everything Else Rises

• Market Recap & Stock Dispersion

  • S&P 500 was flat last week, but “the average stock was up almost 2%. 337 stocks outperformed the index.” (Ben, 05:03)
  • Huge dispersion: “107 stocks fell 4% on an individual day,” which historically aligns with bear markets, but “the index was just 1.5% off its highs.” (Michael, 06:02)
  • “This really is, seems to be the year where it’s turning—the other stuff is working.” (Ben, 05:26)

• Sector Standouts

  • Materials, energy, consumer staples, industrials, and utilities are all outperforming (“Every material stock is outperforming the S&P 500... 96% of energy stocks, 92% of staples... 86% of industrials... 77% of utilities.” - Michael, 06:56)
  • Consumer staples stocks are especially strong, driven by a sentiment switch and flight to safety, but also “a fundamental re-rating in some of these areas.” (Michael, 07:25)
  • “Consumer staples are going nuts too.” (Ben, 07:00)

• Valuations Gone Wild

  • “Walmart’s PE is 46x, Costco 54x... forward PE of tech and staples are basically at parity, which is wild.” (Ben/Michael, 08:09–08:16)

• Mega Cap Unwind

  • Equal-weight indices and small caps are hitting all-time highs as “the Mag 7 has gone nowhere for like six months.” (Ben, 06:34)
  • “It's the software/momentum unwind—software stocks got crushed, like Microsoft down 25%... Adobe down 50%.” (Michael, 09:48, 18:49)

2. Software’s Reckoning: Is AI Killing Moats?

• AI Disrupts Software

  • "Anthropic came out with Claude, Claude code, cloud, agents... is this totally changing what is going to happen in the software stock market?" (Ben, 17:11)
  • Overreaction or justified? “There’s going to be huge layoffs in these companies. They can’t continue to give stock options.” (Ben, 21:55)
  • PitchBook perspective: “Replacing a core SaaS platform effectively is open heart surgery...” but trend toward “AI copilots” layered on top is likelier than wholesale replacement. (Michael quoting PitchBook, 22:28)

• Ben Thompson on AI’s Real Impact

  • “[AI code writing] is only a matter of time before the vast majority of software is written by AI...” but support, maintenance, integration, and compliance mean “companies don’t want code, they want a product.” (Michael reading Ben Thompson, 23:23–25:40)
  • Short-term: overreaction is understandable. Long-term: “the moats are damaged, growth story slowed, a re-rating seems justified.” (Michael, 26:05)

3. Private Credit & Financial Knock-on Effects

• Risks to Private Credit:
  • “A lot of the businesses [private credit] lend to are SaaS businesses... within private credit, 17% of borrowers are software companies representing 22% of $1 trillion+ debt.” (Michael, 27:41)
  • Several BDCs and PE managers tanked: “Blue Owl down 50%, Blackstone/KKR/Apollo down 30%.” (Ben, 29:25)

4. Hyperscaler CapEx and The AI Arms Race

• CapEx Explosion
  • “Hyperscalers' CapEx was 65% of cash flow in '25, expected up to 90% in '26... that's 1.1pp of US GDP.” (Ben, 32:26, 33:19)
  • Reluctance: “There’s no way investors will allow 90% of op cash flow on CapEx, stocks will crash.” (Michael, 32:26)
  • “The output of all of this spend is going to be so insane... it’s hard to get too bearish on the stock market overall.” (Michael, 34:45)

5. Market Structure, Rotation, and Flows

• Broadening Market & Inflows

  • “Sector funds excluding tech had record $62B inflows in the first 5 weeks of the year—more than all of 2025.” (Ben, 36:56)
  • “The market is broadening out... you don't see that at market tops.” (Michael, 36:37)

• International & EM Rotation

  • “EM and international stocks continue to outperform... dollar could be in a cycle, which is bullish for EM.” (Ben, 38:01)
  • “This looks like a real bottom... my mind is blown.” (Michael, 39:15)

6. AI ROI: Real or Vapor?

• Are Companies Realizing AI Gains?
  • Kai Wu’s research: “Only 7% of companies mention AI-driven ROI, but those that do are outperforming by 5pp/year.” (Michael/Ben, 41:54–42:17)
  • Specific example: “C.H. Robinson, a logistics co, is using AI for more efficient matching—parabolic move.” (Ben, 41:56)
  • Claude (AI) analysis: “Aggressive rotation from high-multiple growth into capital-intensive businesses... classic late-cycle value rotation.” (Ben quoting Claude, 45:15)

7. Behavioral Investing: Catching Knives & Personal Capital Allocation

• Knife-catching in Practice

  • Michael bought IGV and Bitcoin after “panic, physical get-me-out liquidations,” noting he’ll cut losses if no bounce. (Michael, 15:29, 48:22, 51:00)
  • Ben: “Dollar-cost averaging into a losing name feels better than averaging into a winner. It's backwards.” (Ben, 15:55)

• Concentration Risks

  • “Concentration works both ways... more concentrated investors now than ever.” (Ben, 10:10)

8. What Would You Do with $3 Million?

• Debate: $3M House vs $3M Portfolio
  • “Why is a $3 million home a status symbol, but a $3 million portfolio isn’t?” (Nick Maggiulli, 58:51)
  • Ben would pick the home for utility at his life stage: “I’d get more joy out of the house.”
  • Michael counters: “You are an idiot. You could take a million dollars...” but ultimately relates to Ben’s logic. (59:55–60:56)

Notable Quotes & Memorable Moments

• On Software Panic:
  “The market is usually right. When a stock is down 50% and you’re blindly trying to buy it, you’re probably going to be wrong.” — Michael (19:48)

• On The Sea Change:
  “Last year was the start... now it’s small caps and mid caps and micro caps and value stocks... all this stuff is finally working.” — Ben (14:16)

• AI and Company Moats:
  “The moat has been damaged here... companies will spring up that don’t need as many employees that can write AI code...” — Ben (25:49)

• Parental Involvement:
  “We are totally the helicopter generation... I don’t know what the ramifications are.” — Ben (64:12)

• On Market Structure:
  “When you just look at portfolios, people are much more concentrated than they were before.” — Ben (10:17)

• Bitcoin/Tech Correlation:
  “IGV and Bitcoin look like twins... they are moving in lockstep. This chart is a tough look for Bitcoin.” — Michael & Ben (47:52–47:54)

Timestamps for Key Segments

• [04:52] Market update: S&P flat but massive dispersion
• [06:34] Sector outperformers and “sea change” in market leadership
• [09:05] Household names down 40–70% vs. S&P highs
• [15:29] Discussion of knife-catching and software panic
• [17:11] Why software is crashing: AI panic, Anthropic’s Claude
• [23:23] Ben Thompson on AI’s impact on the software sector
• [27:36] Private credit’s exposure to SaaS, risks for PE
• [32:26] Hyperscaler CapEx: Is it too much?
• [36:56] Record inflows into non-tech sector funds
• [38:01] International/EM bullish case
• [41:54] Kai Wu’s research: AI ROI mention = outperformance
• [45:15] Claude AI-generated market summary
• [48:22] Bitcoin trades like tech, knife-catching recap
• [59:10] The $3 million question: house or portfolio?

Additional Segments & Highlights

Personal Finance & Lifestyle

• Market concentration and behavioral biases: Real-world implications for individuals owning outsized positions in stocks or company RSUs/options.
• Parenting & Changing Family Dynamics: Modern dads are far more involved; discussion about “helicopter parenting” and parental competition.
• Homeownership & Housing Affordability: “Owning-to-income ratios in big cities are way higher than before... unless you have rich parents or hit the lotto, you’re out of luck.” (Ben, 53:40)
• Travel and national parks banter: Ben and Michael reminisce about past hikes and the cultural value of parks.

Media & Pop Culture

• Streaming & Books:
  • “Tetris” film on Apple TV gets a thumbs up (Ben, 73:00)
  • “Kitchen Confidential” (Anthony Bourdain memoir) and “Hits, Flops & Other Illusions” (Ed Zwick) as recommended Audible listens

Listener Takeaways

• Don’t obsess over top-performing sectors—market leadership can change swiftly.
• AI may threaten incumbents, but panic and market overreactions are common.
• Diversification is working again—concentration works both ways!
• Flows matter: Watch sector ETFs and international funds for clues to sentiment.
• It’s a great time to check portfolio exposures and assumptions.”

For more detailed charts and visual references, check out Michael and Ben’s blog show notes.

Contact: animalspirits@compoundnews.com
Further Reading: See episode show notes for referenced research and charts