10 Charts: AI is killing software? Really?
Big Picture
💡 Is this an inflationary cycle or just energy spike? Frustrated GARP investors.
Happy Friday! So this week CPI came in at +4.2% Y/Y in May, the hottest print in over a year. But energy alone added 1.50pp of that. More than double its normal run rate. Strip energy and core was +0.2% M/M, +2.9% Y/Y, the softest core read in three quarters. So the surface number looks bad and the underlying number is fine.
Here’s the way we think about it. It started with tariffs a year ago or so. The narrative has been the conversation ever since and once that got pushed to the back, then came war. Almost the same exact reaction, which has impacted some of our names sensitive to economic factors despite a strong economy. Something we have gotten right over and over if you read this. Regardless market likes to the ride the waves of narratives versus data. So with Iran war making noise, then the faster that resolves, the faster the “war equals inflation” framing falls off. The longer it drags, the more it embeds. Either way, real-time inflation has actually moved lower over the last two weeks and real wages on the Truflation cut are still positive at +1.3% Y/Y. The consumer can keep spending because the consumer is still ahead. That’s why we’re not changing the underlying view.
The other story this week is software. Anthropic launched Fable, a fork of Mythos, and the SaaS apocalypse trade ran again. We continue to look for the evidence in the actual financials. We’re four years in from ChatGPT, the build out is massive, and the names are reaccelerating. Adobe reaccelerated. The top 50 cloud software names just put up the best aggregate net new ARR in five years. Meta keeps taking ad budget. meta.ai traffic +260% Y/Y. The disruption narrative and the tape are not telling the same story. Sucks, but market likes narratives, and its going against those areas. Small side note, apparently Fable is the most deceptive model yet, producing false info more than others, so tread lightly.
One more worth flagging. Cash App launched Cash App Mobile this week. $40 a month for unlimited 5G on AT&T. They are turning the phone bill into a Cash App product. Something we are excited about. It creates a recurring non financial product embedded…
[1] Like it or not, real wages remain nicely positive. They have been all along.
So nominal wages are +3.5% Y/Y. On the CPI print, which is what most economists anchor to, real wages are -0.7% Y/Y. Energy is doing real damage at the pump and that’s pulling the CPI-adjusted line negative. But on Truflation, our preferred real-time inflation read, real wages are +1.3% Y/Y.
Either way the consumer is roughly running in line with prices, and on the cleaner read the consumer is still ahead. That’s why we keep saying the spending side can hold, and it has.
[2] CPI +4.2% Y/Y. Energy is the print.
Look at the green. Lots of it.
Headline accelerated from +3.7% to +4.2% Y/Y in May. Energy contributed 1.50pp of that, up from roughly 0.4pp at the start of the year. Core services held around 2.1pp. Core goods barely moved at 0.21pp. This isn’t broad-based reinflation. This is gasoline at $4 and a diesel curve that’s been ripping since Iran. Strip energy and the print is +2.7% Y/Y. Basically where were year ago.
[3] Energy futures suggest the headline has peaked.
This one is little much but important.
Here you can see the energy contribution to headline CPI plus what NYMEX futures are pricing for the next two years.
The current curve takes the energy contribution from +1.50pp today back down to roughly +0.10pp by mid-2028. If the curve is right, the headline inflation reading mechanically rolls back into the low 2s.
Obviously this assumes no further escalation. But it’s the market’s best guess and worth respecting.
[4] Food prices are cooling, not embedding.
Big for a name we hold First Watch. Go get your BEC from them if you can. Now… the Bloomberg Bacon-Egg-Cheese plus Coffee index. $2.58 per serving in May 2026, down from a peak of $3.30 in October 2024. Bacon is the biggest line at $1.01, coffee $0.48, cheese $0.46, eggs $0.36, bread $0.27.
Worth flagging that the food side of the inflation story has been quietly resolving for almost two years now, even with all the tariff and trade noise.
Nobody is talking about this on food side.
[5] Cloud software net new ARR re-accelerating.
So you are telling me AI is killing software? Then why does this look liek this…
The aggregate top 50 cloud software net new ARR grew +127% Y/Y in Q1 FY26. Best print in five years. YEAH YOU READ THAT RIGHT. The chart was below zero for most of 2022 and 2023, hovering through 2024, and then this. So again where’s the evidence that AI is taking down SaaS in the financials? We don’t see it. We see the opposite. The big names are reaccelerating, not rolling over.
Ugh frustrating
[6] Adobe is re-accelerating into the AI cycle.
Adobe reported Q2 FY26 revenue at $6.62B, +13% Y/Y. Up from +12% last quarter and +10.8% the quarter before. Y/Y has accelerated three quarters in a row, not decelerated. AI-first ARR, the metric they’re using to track Firefly and Express monetization, tripled Y/Y and now exceeds $500M.
So one of the names that should be most exposed to AI disruption, the creative software incumbent, is putting up the best growth rate it’s seen since 2022.
Again frustrating and we are AI pilled over here.
[7] Meta now 54.6% of measured ad budget.
Now looking at ad spending. For the week of May 31 to June 7, Meta is now 54.6% of all measured ad budget, up +1.32pp W/W. Google 18.82%, down -0.26pp. TikTok 4.82%. YouTube 3.14%. And here’s the part. CAC on Meta fell -2.4% W/W and CTR rose +3.7%. They aren’t just taking share, they’re getting cheaper and more engaging at the same time. Something we’ve been explicit about in terms of our thesis on who wins the AI ad cycle.
[8] meta.ai traffic +260% Y/Y. Scaling fast.
Then we got meta.ai pulled in 27M visits in May 2026, up from roughly 7M a year ago.
That’s +260% Y/Y in a category that nobody is paying attention to relative to ChatGPT and Gemini. Meta isn’t just integrating AI into the ad stack. The consumer surface is scaling too. They aren’t the only ones running this playbook, but they are running it well.
[9] AI spend per employee. 680x gap from top to median.
Looking at some Ramp data, the top 1% of companies are now spending $7,500 per employee per month on AI. Top 10% at $611. Median at $11.38. That’s a 680x gap from the top cohort to the median.
Two reads.
First, the AI spend story is real but it’s heavily concentrated in a small group of frontier adopters. When you hear “every company is spending on AI” be careful about who you mean. Second, the median number is still rising, which means diffusion is happening. Just slowly.
[10] Cash App embeds deeper into daily life.
Cash App launched Cash App Mobile this week. $40 per month for unlimited 5G on AT&T, taxes and fees included, no contracts. Powered by Gigs on the backend, integrated directly into the Cash App ecosystem.
The setup here is to turn the phone bill, one of the most predictable monthly bills the consumer has, into a Cash App product. Embed deeper into Modern Earner habits. Block is an investment of ours and this is exactly the consumer-finance operating system thesis we’ve been talking about. Worth flagging.
Net Net
So zooming out. Energy did the work on CPI, not a inflation cycle yet. Real wages still positive which means that only read that matters. Software is reaccelerating, not rolling over, even four years into the AI build. Meta keeps compounding ad share and consumer surface at the same time. Block is quietly turning the phone bill into a Cash App product (different). And the food side of inflation, that nobody is talking about, is back to where it was almost two years ago. Market wants to ride the narratives again, it is frustrating for fundamental investors looking for compounders and not riding waves. Overall though the data keeps telling us something positive. We’re staying with the data.
That’s all for this week!
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