> When rewriting the entire codebase is very quick and cheap, why bother iterating on small components?

We are nowhere near this scenario tbh. Token cost is very high and is currently heavily subsidized by VC money to gain market share. Also this realistically only applies to small projects, small codebases and mostly greenfield ones. No way you can rewrite the whole codebase quickly and cheaply in any mid-sized+ projects

But even assuming token cost plummets, any non-trivial piece of software that is valuable enough to generate income for the company is also big, complex, interconnected enough that cannot be rewritten quickly even by AI, also for business reasons too. If a piece of code works, is stable and is tested, then rewriting it will always bring a high degree of risk and uncertainty that in a lot of business critical applications is just not worth it. A stable system can stay untouched for years besides minor dependencies updates.