Is AI a Bubble? I Didn't Think So Until I Heard of SDD

Summary

This a a long article, but one I think worth reading. I’m reframing my “70% era” characterization in light of what I’m seeing.• Specification-Driven Development (SDD) emerged this month as both legitimate response to AI coding chaos and convenient narrative justifying soaring valuations—Tessl raised $125M but delivered only a beta registry 10 months later while Cursor hit $9.9B valuation in under a year• The 70% automation claim collapses under scrutiny: McKinsey’s widely-cited stat applies to all occupations, not just coding—real-world METR study showed developers taking 19% longer with AI tools despite believing they were 20% faster• My own experience reveals the nuance: Greenfield Python/Next.js projects with my agentic frameworks hit near-100% AI coding, but team projects with legacy systems drop to under 30% automation—the ceiling depends heavily on context, not just task type• Valuation multiples strain credulity: AI coding companies command 25-70x ARR (vs dot-com peak of 18x), with Codeium at 70x and collapsed OpenAI acquisition talks—yet 84% of developers now use AI tools and GitHub Copilot generates real $400M ARR• The correction is inevitable within 18-24 months: Companies with product-market fit and operational discipline will survive while ventures burning capital on “technical potential” face reckoning, following the same arc as 3D printing and crypto bubbles—expect consolidation around a handful of winners• SDD functions as quality control theater: Real developers face real pain from vibe coding disasters (170/1,645 Lovable apps had vulnerabilities), but the methodology also provides governance narratives that justify enterprise procurement and enable disconnected valuations—it’s both solution and symptomThe sudden emergence of Specification-Driven Development (SDD) in 2025 reveals a pattern I’ve seen before: real technology solving real problems, wrapped in a narrative that justifies valuations disconnected from reality. When Tessl raises $125 million...