CONCEPT
Financial Contagion
The process by which repricing in one asset class triggers repricings in connected asset classes through channels of financial, institutional, and psychological interconnection — operating in the AI case through channels Kindleberger did not live to survey.
Kindleberger distinguished contagion from mere correlation with precision: correlated declines occur when multiple assets are exposed to the same underlying shock; contagion occurs when the repricing of one asset causes the repricing of another that was not directly affected, through mechanisms of transmission that amplify the initial event beyond its original scope. The AI cycle exhibits contagion dynamics through four specific channels — investor reallocation, labor-market displacement, enterprise customer reassessment, and narrative amplification — that transmit the Software Death Cross well beyond the SaaS sector.
In The You On AI Field Guide
Investor reallocation is the first channel. Venture capital firms and institutional investors that funded the SaaS industry are not SaaS-specific. They hold diversified technology portfolios, and losses from SaaS repricing affect their willingness and capacity to invest across the entire technology sector. More significantly, their risk appetite is recalibrated by the experience of loss — affecting not just SaaS investments but all investments sharing characteristics the