The Perils of the AI Exponential

**Nathaniel Whittemore** (0:00)
Today on the AI Daily Brief, the perils of the AI exponential, and before that in the headlines, and definitely not related at all, Claude Cote turns one. The AI Daily Brief is a daily podcast and video about the most important news and discussions in AI.
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We kick off today with another reminder of just how fast things are changing. Claude Code, this platform that has become so integral to the changing of the world and the shift in how business gets done, is just one year old. In fact, this weekend, Anthropic threw it a first birthday party to celebrate. There was clearly something in the air in February of last year. At the beginning of the month, Andrej Karpathy coined the term Vibe Coding and it was a capability set that had clearly just started to come into its own with the latest generation of models. At the time, agentic coding was still seen as something of a fascination. It was something quirky that might help non-technical people build some fun personal apps, but was very clearly too unreliable to be used in production environments. Fast forward just a year, and on any given day on this show, you're going to hear about the extent to which agentic coding is disrupting not only the software industry, but also infiltrating other areas of work as well. For Anthropic, Claude Cote has fundamentally changed the destiny of the company. What started as a side project for developer Boris Czerny has become the central pillar of their strategy. Not only is Claude Cote generating 2.5 billion in ARR, it's also being used to code its own upgrades and develop new products at a staggering pace. In a recent interview, Czerny recalled the early weeks of internal release. He said, I remember Dario asking like, hey, are you forcing engineers to use this? Why is everyone using it? Czerny responded that all he needed to do was make it available, and everyone voted with their feet. The same distribution method is working for developers the world over. Anthropix recent analysis of their API figures found that almost half of all tool calls are related to software engineering. In other words, AI coding is the biggest use case for Anthropix models, and it's not close. What's more, Claude Code transformed the AI industry. It completely eliminated the argument that AI is just fancy autocomplete or a better version of Google. Watching the changes happen from inside, Boris believes this is a fundamental phase shift for software engineering. In a recent interview, he commented, Continuing to trace the exponential, I think what will happen is coding will be generally solved for everyone. Today, coding is practically solved for me, and I think it will be the case for everyone regardless of domain. So happy birthday to Claude Code one year in and it already changed the world. Now, changes in the world are rarely simple. In fact, they are more often chaotic and even violent. On that front, Anthropic's new security tool sent cybersecurity stocks into a tailspin last week, raising new questions about the software sell-off. On Thursday, Anthropic unveiled Claude Code Security, another new plugin to extend the tool's capabilities. Anthropic said the feature scans code bases for security vulnerabilities and suggests patches, allowing developers to find and fix security issues that traditional methods often miss. Their phrasing, obviously. Friday's market action saw cybersecurity stocks decimate it. These companies had so far been resistant to the broader software sell-off, with the First Trust cybersecurity index losing 11% over the past six months, compared to 24% for other software indices. Friday alone, however, saw CrowdStrike lose 8%, Okta lose 9% and CloudFlare lose 7%.
Many were totally incredulous, with Kenton Varda, a tech lead for CloudFlare, posting, Lol at investors who think all forms of security are fungible and so the release of Claude Code Security, a tool for finding security bugs in your code, means Okta, CrowdStrike and others should lose 5% of their stock value. Now, of course, a big part of the pushback during the software sell-off has been that even if companies can theoretically vibe-code their own SaaS products, few want to take on the task of maintaining and supporting internal software. One might imagine that this goes double for cybersecurity, which adds a ton of insurance and liability issues on top. In this case, and this is the point that Kenton was making, the features of Claude Code Security don't even overlap with the products offered by these firms. What was released by Anthropic is only designed to audit and monitor internal code for vulnerabilities. CloudFlare and CrowdStrike largely provide security for customer-facing services, preventing downtime from internet-based cyberattacks, and the Okta Drawdown is even more puzzling, given that they provide two-factor authentication services. Anthropic didn't even hint at anything regarding any of these aspects of cybersecurity. Still, while it might be easy to dismiss this as irrational markets acting irrationally, for investors, there's a lot of signal in how this crash is playing out. Dennis Dick of Triple D Trading said, There's been a steady selling in software and today it's security that's getting a mini flash crash on a headline. This kind of market is scary for investors because things are just moving relentlessly to the downside as soon as you get a hint of disruption. It's rational to be cautious because people were saying a while ago that the software drop was overdone and yet it keeps going down. Buko Capital put the logic in even more fundamental terms, writing, I think it's fine to sell Cloudflare and CrowdStrike actually, even if the anthropic news doesn't impact them today, because maybe you shouldn't pay 25x revenue when the landscape is shifting this quickly. This is sort of the closest to my take very broadly defined, which is that even if yes, it does seem like almost all of these moves are overblown in the short term and the catalysts don't really warrant them, I don't think that they're really about the specific catalysts. I think that they are very clearly part of a broader based repricing going on right now. That's about exactly what Buko is talking about here, a question of how to value software when it is changing so quickly. Neither I nor the market knows where things are going to land and where they're going to feel comfortable, and so until that reset point is hit, if it even can be, you're just going to see a lot of these weird moments like this.