Even though earnings were not bad at first glance, there were a couple of things that were not great (to say the least). Before going into these, let’s take a quick look at the numbers:

The summary table portrays that Danaher’s growth continues to be “meh” but that the execution on the margin front continues to be good. Reported margins expanded quite considerably because Danaher was up against easy comps after having incurred an impairment charge ($0.60 per share) in Q2 2025. This impairment charge was adjusted out in the non-GAAP figures, but these non-GAAP figures also portray that the underlying profitability of the business is improving as Danaher turns the corner.

Let’s understand what two things went “wrong” because both were evident in the numbers. The first one was the updated guide. At the beginning of the year, Danaher’s management claimed that the company would grow its top line somewhere between 3%-6% in FY 2026. I already explained in an article why everything seemed to be trending towards something better than the low end but that the high end would be pretty difficult to achieve unless all the stars aligned in Danaher’s favor. After some non-favorable events, management has decided to anchor to the low end; they now expect core revenue will grow 3-4% this year.

Even though this scenario was contemplated in the guide at the start of the year, there’s no denying that management implicitly lowered the guide (from a midpoint of 4.5% to 3.5%), which is not a great look in a market context in which many believed they were being quite conservative (myself included). Many shareholders have been waiting for Danaher’s growth inflection and seeing this inflection deferred once again is evidently not great news. Danaher’s core growth has evolved as follows over the past few years:

• 2024: -1.5%

• 2025: -2%

• 2026 (expected midpoint): 3.5%

So, while 2026 is expected to bring a 550 bps improvement to core organic revenue growth, the reality is that it’s still far from management’s expectations of HSD (high single digits) core revenue growth rate over the long term. Any additional hiccups in terms of the company’s growth rate only shed doubts on management’s credibility.

Now, what was really interesting about all of this was the “source” of the weakness. If you’ve been following Danaher for a while you’d know that, over the past few quarters, the different segments had moved pretty much always in a similar way: bioprocessing experiencing a strong recovery, respiratory (diagnostics) surprising to the upside, and lifesciences taking more than expected to return to growth. Well, in an incredible turn of events, we had pretty much the opposite this quarter: lifesciences surprised to the upside, whereas respiratory and bioprocessing surprised to the downside. Just when one thinks the other segments are going to stop “diluting” the growth in biotechnology, the opposite happens (are you not entertained?).

Management shared that “core revenue growth excluding respiratory” was 4.5% in Q2, which is an implicit 150 bps sequential acceleration compared to Q1. Even though this might seem like great news, I must say that it was disappointing to see management come up with a new metric. Management did not “invent” a new metric to strip out respiratory growth when it was accretive to core organic growth rate, but they are doing so now when it’s dilutive (heads I win, tails I win too!). Still, I can understand why they’d like to do this considering that they are trying to portray what the “recurring” business is growing at. Imho, investors should simply ignore this new metric.

Bioprocessing’s surprising weakness does matter for several reasons, though. The main one is that a lot of people likely own Danaher for the bioprocessing exposure, which means that weakness in this segment might have “broken” the thesis for some I totally understand why this might be the case, but the only thing I would tell these people is that you can get pure-play bioprocessing exposure through different companies (like Sartorius and Repligen). Who would’ve said that Life Sciences was going to “save” Danaher’s Q2? Definitely not me!

Anyways, the reason for the bioprocessing weakness is also interesting and has implications for next year’s growth rate (hopefully). Management claimed that the bioprocessing “issues” were isolated to project timing related to chromatography columns:

They also quantified the impact:

This ultimately means that, if these orders would’ve converted to revenue in Q2/Q3, not only would have Danaher delivered a more significant beat in the quarter, but the guide for the year would’ve been more “appealing.” Management did point out that the underlying trends in bioprocessing continue to be strong, with mid-teens growth in orders of both equipment and consumables.

Considering all of the above, this does seem more like a solvable, Danaher-specific issue than anything worrying in terms of the industry or Danaher’s competitiveness within it (this is why management was quick to point out that they’re spec’d into this program). What this does create is easy comps for next year in which we might see a better-than-expected growth rate despite Danaher managing to stay within its stated guide at the beginning of the year (3-6%). In short: is FY 2027 finally the inflection year? I highly doubt many still believe that it will be.

To all of the above we must also add that management still believes that a Capex “supercycle” is upon us:

Now, even though I’ve tried to spin the “bad” news in a positive way, the reality is that growth continues to disappoint and that there always seems to be an “excuse” for the lower-than-expected growth (something that doesn’t particularly excite me). I also wasn’t fond of management talking about Pall’s growth in semiconductors. Yes, there’s a filtration business within Danaher exposed to semis (and it’s growing double digits), but what does this matter when it’s not relevant for Danaher’s core business and growth rate? Seems like management was trying to hype people up. Anyways, let’s talk now about capital allocation.

Besides investing in its core business, Danaher has deployed shareholders’ capital in two ways lately: buybacks and M&A. The company spent $900 million repurchasing 5 million shares during the quarter. Danaher has historically rarely done buybacks (and they were historically considered as “high signal” events) but the reality is that a good chunk of the buybacks the company has done over the past few years were conducted at valuations considerably larger than today’s stock price (and with fundamental performance continuing to disappoint all throughout):

Management might indeed believe that the company is attractive today but they are not putting their own money behind their words. Insider buying has been “meh” although it’s true that insider selling has somewhat cooled down this year).

The other way (and probably main way) in which Danaher deploys capital is M&A. The company closed the significant Masimo acquisition in June (which I discussed in this article), and it seems to be doing well thus far: Masimo grew HSD during the quarter and management believes there’s upside to HSD growth. Let’s not forget that Masimo’s growth will eventually start to contribute to “core revenue growth” once Danaher anniversaries the acquisition.

Danaher has also conducted the acquisition of STAT Lab, which is expected to close by the end of 2026. STAT Lab complements Danaher’s Leica Biosystems business, has >85% recurring revenue, and is expected to grow HSD over the long term (like Danaher in theory should!). This business generated $250 million in revenue in FY 2025, so if it grows HSD next year it should generate around $270 million (i.e., it’s not that substantial for Danaher).

Now, even though I explained why I believe Masimo is a good asset, the reality is that we’ll only know if all this M&A makes sense in hindsight. I believe there are two things worth having in mind:

1. Danaher is not paying bargain prices for these assets (which doesn’t mean that they can’t or won’t generate decent returns over the long-term)

2. Both assets separate Danaher to a greater extent from becoming a pure-play bioprocessing business (which many investors want)

I don’t think any of these are necessarily bad, but there are what they are and we must take them into account.

I’ve also seen a couple of valuation headlines out there that seem pretty misleading/inaccurate.

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Best Anchor Stocks

Eurofins (EPA:ERF)

Testing is important, it’s like having a fire detector…

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3 months ago · 16 likes · Best Anchor Stocks

Eurofins reported mixed H1 2026 earnings last week. Even though the company displayed very strong EPS growth (+29% YoY), the reality is that organic growth (+2.7% YoY) continues to fall short of management’s expectations (MSD this year and 6.5% over the long term).

As most earnings releases, Eurofins’ earnings release had food for the bulls and the bears. Let’s begin with the “bad” news and leave the “good” news for later.

The “bad” news is that organic growth continues to fall short of management’s expectations. Even though management claimed that “organic revenue growth improved from Q1 to Q2,” the acceleration was not something to write home about (maybe not something to write about at all!). Organic revenue growth was 2.6% in Q1 and 2.7% in H1, meaning that Q2 organic growth must have been relatively close to that of Q1. They gave several explanations (or excuses, however you want to see it) for the weak organic growth, one of which I believe was somewhat worrying.

Gilles Martin talked several times about “easy comps” as a future tailwind for organic growth, which I believe is a rather terrible way of framing it and something that probably “scared” investors. The first thing that came to my mind after reading the “easy comps” explanation was that Eurofins is not a secularly growing business (because secularly growing businesses don’t need easy comps to grow at an acceptable rate). This explanation made it seem as if Eurofins needed easy comps to grow at its long-term objective, which means that the long-term objective is secularly unachievable. I believe this was a communication mistake by Gilles and that he actually doesn’t believe that Eurofins won’t secularly grow in the future, though.

The other “explanations” behind the weak organic growth made more sense, albeit some must be contextualized. The “Life” segment performed poorly in Q1 due to some weather related impacts and Gilles mentioned back then that it would improve throughout the year; it did. The Life segment is already back at the MSD objective after experiencing some catch-up during Q2 (+4.8% organic growth in H1 and +5.3% in Q2).

This ultimately means that the weakness in Q2 must have come from another place, and this was the usual suspect: Biopharma.

Biopharma worsened significantly (-0.1% organic growth in H1 and -1.1% in Q2) for several reasons (discussed below). Management explained that they expect the segment will have a better H2 when easy comps materialize and as several important contracts are reactivated. The first explanation (easy comps) actually doesn’t make much sense as H2 2026 seems to have significantly tougher comps than H1 2026. This is what management said in the H2 2025 earnings press release:

This was also the case for Biopharma as the segment saw its revenue growth accelerate in H2 2025. I might be missing something, but I actually don’t see the easy comps management is talking about. The only thing that might explain it is that management is already talking about easy comps for next year:

Let’s not forget that Biopharma is made up of a couple of subsegments, each with their different drivers and levels of lumpiness. We could summarize these subsegments and their performance as follows…

• Biopharma Product Testing (BPT): was softer in Europe than in previous periods because a couple of large contracts ended. Management believes this was the main driver behind the sequential worsening of the Biopharma segment (it’s also the largest sub-segment), but they believe the weakness is temporary

• Discovery (aka. the early phases of biopharma): still soft, but they see some green shoots related to biotech funding:

I’d say that the green shoots were somewhat confirmed by Medpace last week, as August Troendle claimed that biotech funding was picking up and that it was broad-based. I’d imagine that the impact of improved funding on Medpace is more immediate than it is for Eurofins (as customers are likely to fund first the programs that are closer to the commercial phase). This said, Eurofins should see a considerable pick-up here if/when AI starts to help in drug discovery (although there’s also a bear case to be made here as it might result in less early stage work)

• Central Lab & Bioanalysis (i.e., clinical): management claimed that this business is small relative to the size of the contracts. This means that it is lumpy and volatile (due to timing):

The CRO pipeline might be a good leading indicator of what’s to come here. It was evident in Medpace’s earnings that CRO RFPs are picking up. Eurofins already shared in Q4 2025 that they expect this segment to inflect in H2 2026: “On biopharma, yes, Central Lab and Bioanalysis, we have some fairly large contracts, and, our best guess now maybe would be H2 2026 for start of that”

• Development & Manufacturing (i.e., CDMO or the final part of the value chain): a lumpy business because a few large contracts make up most of the revenue.

All of the above resulted in Biopharma weakness that management deems temporary due to cyclicality:

We shouldn’t forget that this segment is poised to benefit from the potential inflection in the industry once funding solidifies and AI starts to fill the drug pipeline. When will this happen? No idea, but I am pretty sure it will. Biotech funding is already inflecting and there are signed contracts waiting to start (coherent with Medpace’s pipeline comments in the most recent earnings), so it all bodes well for a stronger H2 2026 and potentially 2027:

The restructuring programs/investments the company is undertaking are also negatively impacting organic growth:

So, all in all, not a great start to the year from an organic growth POV, something I believe only increases the pressure on management’s credibility. Even though Gilles said this…

…I highly doubt the market/investors are buying it at this point. After having grown considerably slower than MSD in H1, Eurofins needs its organic growth to pick up quite considerably in H2 to meet this year’s objective. It’s definitely possible, but the company is coming up against tougher comps and “when” those contracts ultimately make it into revenue is not 100% under management’s control. It seems pretty evident that management has been a tad more optimistic than they should in terms of the timing of the recovery (I don’t expect them to be good at this) but Gilles believes that, whether or whether not they achieve this is not important due to currently low valuation:

I don’t agree with his POV. Credibility is always important in financial markets and repeatedly falling short of guidance is ill-advised in terms of building credibility (something I discussed at length in the in-depth report). With this I am not saying that I believe this breaks the thesis, I actually believe Gilles and think that the timing is anyone’s guess. The good news is that the valuation does support waiting for this growth to return.

Now, even though management has lost credibility on the organic growth front, H1 2026 served them well to gain credibility on the margin/execution front. Let’s talk about the good news now.

The main highlight of the release could be found on the margin/cash conversion front. Eurofins reported very strong margin performance, significantly ahead of management’s mid-term expectations. Let’s not forget that management’s mid-term target (FY 2027) was 24% EBITDA margin (which they left unchanged). The first half EBITDA margin was 23.3% and, more interestingly, the mature scope EBITDA margin was 25.3%, already considerably above the mid-term objective. Gilles has mentioned a couple of times that the 24% guide should not be considered a ceiling, and we are starting to see why.

This together with better cash conversion and lower Capex (as investments ease) also resulted in a 46% YoY increase in Free Cash Flow to the Firm. Eurofins generated €403 million in FCFF in H1 2026 (this is before “acquisition of subsidiaries” which should end up trending towards 0) which it continued to reinvest into buybacks (Gilles has also continued buying shares in the open market). This takes us to a potentially ideal scenario for LT shareholders: one in which organic growth returns back to historical norms but does so with a lag as Eurofins’ cash generation ramps up.

So, all in all, I would categorize Eurofins’ earnings as a mixed-bag: great on the margin and cash conversion front, and relatively weak on the organic growth front. I don’t think the investment works as well as I outlined in the in-depth report if organic growth doesn’t return at least to a MSD level regardless of the execution in the margin front, but at the same time I see no reason yet to believe that the current headwinds are secular.

The company also announced a $400 million EV acquisition in July: the Life Sciences segment of Element Materials. They believe that they are a better owner for this asset than Element Materials and paid an EV/sales of 2.6x, which is again considerably higher than where Eurofins is trading at. Profitability of this asset is similar to the Eurofins average, which means that it will generate EBITDA of around €36 million in 2026 for an EV/EBITDA multiple of 11x. The interesting thing is that it generates profitability similar to the Eurofins’ average without access to Eurofins’ lab network, meaning that the post-synergy EBITDA is likely going to be considerably smaller.

2.6x sales is definitely not a bargain multiple (and there’s no multiple arbitrage as Eurofins is trading at 2x sales) but this is a significant acquisition and therefore Eurofins has had to pay a tad more. The company, however, tends to pay low multiples in its consolidation effort which do come with some multiple arbitrage (even when trading at the currently low valuation): in H1 2026 the company closed 17 acquisitions at an average of 1.7x sales! Again, I don’t think the investment works just purely due to consolidation, but if organic growth returns to normal, the multiple might re-rate on a significantly larger base that Eurofins has been building.

Have a great day,

Leandro

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Markets dropped this week as AI-trade stocks continued to disappoint “stock-performance” wise but not in terms of fundamentals. I explain what this might mean in the brief market commentary. There is also plenty of company-specific news this week.

Without further ado, let’s get on with it.

Articles of the week

I published two articles this week, both earnings digests. The first one was Texas Instruments’ Q2 Earnings digest: “The converging inflection.”

TI reported very strong earnings, but the stock has run up quite a bit over the last few months, so is it still a good buy? I go over this (and more) in the article.

The second article of the week was Medpace’s Q2 earnings digest: “Long live the buyback king.”

The company reported very solid earnings and portrayed two things:

1. A lot of people still don’t really understand the business’ dynamics

2. Excellent capital allocation (shocker)

I’ll leave a spoiler on the first point from my article:

Without further ado, let’s see what the markets did this week.

Market Overview

Both indices were down this week. The S&P 500 dropped 0.4% whereas the Nasdaq dropped 1.7%. When one sees this divergence across the indices one can be pretty much sure that the AI-trade did not do well:

One thing I found interesting (which I suffered with Texas Instruments’ and ASML’s earnings) is that several semiconductor stocks have begun showing “cracks”, and not precisely in their fundamental performance. Semi stocks (and the AI complex in general) continue blowing numbers out of the park, but the stock reactions have now started to disappoint. Let’s take a look at a couple of examples.

Texas Instruments and ASML beat by a wide margin what already seemed like pretty optimistic expectations, but their stocks did not do much post-earnings (in fact, they dropped):

Something similar can be said about Intel or Google. After Intel reported earnings considerably above market expectations, the stock rose 15% in AH (after hours) only to drop 8% during the day when markets opened their regular hours:

Maybe a better way of looking at this dynamic is looking at the performance of the SMH and the SOXX, the two most-followed semiconductor indices. Despite most of the companies included in them having reported outstanding earnings, both are down between 15% and 20% from their most recent highs:

You might have gotten to this point thinking that I am about to explain why this has happened and what’s going to happen from here on out, and I am sorry to disappoint you; it’s not happening although I wish! Now, I can share my POV. I believe that the market (most times) takes quite a while to catch up to great fundamental performance (i.e., it can be slow), but not only does it eventually catch up but most times ends up running ahead (this is called recency bias). If we zoom out we can see that both the SOXX and the SMH are up 118% and 95%, respectively, over the last year. The fact that some people believe that “nothing has been priced” into the AI complex is a tad worrying and portrays that we might be getting close to a short to medium term top. Can I be wrong? Not only I can, but I probably will.

In NOTW#93 (May 30) I shared what I believed were 10 signs of exuberance (some of which continue to be present today). Here they are with a small update (in bold) when applicable:

1. Hyper-concentrated portfolios around one theme: every time one starts to see that investors are concentrating their portfolios around one theme (crazy that some actually think that holding 20 names in the same factor is being diversified), watch out. I’ve also seen a considerable amount of one-stock portfolios, which is also a sign that risk management is nowhere to be seen. This continues to be the case, and the recent “drawdown” has portrayed why it’s dangerous. With indices barely below ATHs some people were experiencing 30%+ drawdowns and were clearly getting too emotional.

2. Leveraged thematic ETFs everywhere: several leveraged ETFs have appeared around topics like AI, memory chips, optics…This is never usually a sign that valuations are low, but who knows! This has gotten to a point in which regulators have started to intervene. South Korea has started to enforce stricter margin requirements to be able to hold one-stock levered ETFs.

3. Sell side upgrading companies based on 13Fs: the actions of a very prominent AI investor (who some people claim is the Cathie Wood of the current generation, although I don’t necessarily agree with this) are clearly influencing sell side price targets, which not only is a sign that things are hot, but also doesn’t say anything good about the professionalism of some sell-side analysts. Not much to comment on here.

4. YTD screenshots daily (and investors being “humble”): this might actually be one of the most solid indicators. We are seeing a constant flow of people sharing their YTD returns which in some cases are astronomical (upwards of 1,000%). This would be, in and of itself, a strong sign, but the best people are those who are up 30% YTD and say that “it could be better.” Return expectations are out of the charts, and this is also visible in the following “topping” signal. This actually surprised me because with the recent drawdown the screenshots flipped to people trying to portray what a strong drawdown they were experiencing. But nevertheless we don’t see many screenshots today. With the bounces some people share that their portfolios are up 20%+ in a day, which I don’t think is the flex they believe it is (i.e., portrays terrible risk management).

5. Stocks that are up 20% YTD categorized as “not moving“. Return expectations are so high that AI-stocks that are up 20%+ YTD are categorized as “stale” or a source of opportunity cost. People are in for a rough surprise when stocks eventually stop returning 100% every month! This continues to be the case.

6. 13Fs moving stocks double digits: when prominent AI investors reveal new AI positions in their 13Fs or other regulatory fillings, stocks are moving 10%+. This is not a sign of a healthy market. This is now not happening, and good news are not having the desired effect on stock performance (a signal of where expectations had gone)

7. People believe that under no circumstances can the AI trade falter: despite all these signs, some people believe that AI is unstoppable and that it can only go up. The reality is that, despite AI being very real, the AI trade can falter anytime and there are many ways that AI slows down that have little to do with the technology per se. Of course, this doesn’t mean it has to happen but it does show that many are not even considering the potential risks. Self explanatory because the AI trade is “faltering” despite strong fundamental performance

8. PTs based on “vibes”: Price targets are being updated based on questionable 2030 multiples. The only thing you need to enjoy such optimistic multiples from the sell-side is being categorized a “bottleneck.”

9. Luxury car dealerships in Korea are full: memory chips are doing so well that Korea is experiencing an incredible wealth effect. This in and of itself is not a sign of anything, but definitely not a sign of a bottom! I guess they are not full anymore considering that a lot of South Korean “investors” were levered and a good chunk of them have gotten margin calls.

10. All the AI/space companies considering an IPO: this is always a strong indicator that things have run ahead of themselves. Post the SpaceX IPO the shares of space companies dropped considerably, including that of SpaceX.

Both the SMH and SOXX are down since I published these signs of exuberance and regardless of what this means (probably nothing), I believe one can simultaneously believe two things:

1. That AI is real

2. That some stocks run considerably ahead of their fundamentals

If you join complacency together with leverage you get disastrous (and sometimes even comical?) scenarios. I read this week about a guy that went from a $10 million portfolio to -$500k and just began posting bible verses. Absolutely incredible, but we still see a lot of people who own 1-stock portfolios in the name of “conviction.” A 1-stock portfolio (imho) doesn’t portray conviction but rather terrible risk management (and don’t get me started about what these 1-stocks are!). With this I don’t want to portray that I am an AI permabear, I’m not and still hold AI-related stocks in the portfolio. The only thing I am trying to portray here is that in investing not only the fundamentals matter but also the implied expectations priced into the stocks. I believe this is pretty obvious to everyone but it’s sometimes forgotten when investors become complacent. Oh, and the same applies the other way around: those sectors that have seen their multiples destroyed now have “easy comps” in terms of expectations, so it might not take much for them to turn around.

The industry map was mixed this week, with hyperscalers continuing to sell off on the expectations of higher future Capex. It’s interesting because the market seems to simultaneously believe that hyperscalers won’t earn a decent ROIC on their AI investments but that the supply chain of said investments is going to continue generating outsized returns (I can assure you that both are not happening):

The fear and greed index improved slightly but remained in fear territory:

Company-specific news

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I know it feels like I say this over and over again (maybe I do?), but Medpace reported very strong earnings this week. The stock rose considerably the following day and is up 53% from the Q1 post-earning sell-off (are you not entertained?):

In some way, earnings were the exact opposite than they were in Q1. Recall that Medpace reported an extremely solid top line (+27% YoY) but a relatively weak book to bill (0.88x) last quarter. The commentary wasn’t great either: despite growing nicely, August Troendle (Medpace’s Founder and CEO) claimed that cancellations had been higher than usual, which put pressure on net new awards (gross awards were fine) and therefore on the book to bill. The stock reacted pretty negatively, dropping 22% in a single day. The market seemed worried about how Medpace would be able to sustain high growth rates with lackluster net bookings and not-great backlog growth. While the fears were “warranted” albeit short-sighted, the reality is that Medpace (at the valuation at the time) did not need to continue growing at a similar pace to be a good investment, but that’s a topic for another day.

Q1 also seemed like a repeat of management’s “plan” (which I discussed in this article). The thing is that Medpace only returns capital to shareholders through share repurchases, but they refuse to repurchase at elevated valuations (as they should). This is why it seems that some earnings are downplayed on purpose to be able to repurchase at more attractive valuations. Q1 seemed like such a scenario as management repurchased $300 million worth of stock at an average price of $417. Medpace’s buyback chart is a thing of beauty:

Q2 was actually quite the “opposite” to Q1. Revenue growth came in considerably lighter (and the guide implies it will get significantly lighter in H2) at +17%, but the pipeline commentary was very positive (net new awards were up 28% YoY) and probably calmed the market in terms of what can be expected going forward:

While many expected FY 2027 to be a “cliff” year after two consecutive quarters of weak book to bill, it seems like the pipeline is filling up nicely and the cliff will most likely be avoided. This is a very interesting topic because the backlog figure is actually a terrible leading indicator of future revenue growth. You’ll be wondering “how can this be?.” There are two reasons. First (and as I’ve discussed in other articles), Medpace also has a pre-backlog. This pre-backlog gets filled with business that has been awarded to Medpace but in which management is not yet “completely” sure that will make it through to revenue.

Say that a customer awards Medpace with a Phase III trial but Medpace’s management is unsure that they’ll get funding to conduct it. This award then goes into pre-backlog, but won’t make it into backlog unless management is “certain” that it’ll convert into revenue. This pre-backlog, by the way, is larger than the reported backlog and growing faster over the last twelve months. Considering that the reported backlog is around $3 billion and growing 5%, we know that Medpace’s total backlog (pre-backlog + reported backlog) is at least $6 billion and growing faster than 5%. This to an extent invalidates the “cliff” thesis, but there’s more.

Management mentioned this quarter that, due to the elevated cancellations that they have suffered in past quarters, they have become stricter in terms of what makes it into the backlog. So much so that something could go into backlog (from pre-backlog) and revenue within the same quarter!

This ultimately means that some things that could’ve made it into the backlog in previous periods (when criteria was less stringent) are being left out now. Conclusion: the backlog and its growth rate are poor leading indicators of what’s to come for Medpace. Now, we got plenty of great news regarding the pipeline. First around RFPs:

This is great news, but maybe better news is the fact that management expects quite a bit of these RFPs (and things in the pre-backlog) to make it into gross bookings in H2 2026. They claimed that the strong net bookings number in Q2 (which evidently surprised analysts) was a consequence of lower cancellations, as gross bookings remained at a similar level than in prior periods. However, the growth lever of net bookings strength is about to flip:

This ultimately means that if cancellations are lowish in the following quarters, we should see net bookings ramp up quite significantly (therefore somewhat invalidating the “cliff” thesis in case it needed invalidating). If we join this with the fact that Medpace expects slower revenue growth, the book to bill should go bananas.

The other thing that the market is worried about (and I’ve seen a lot of people claim that Medpace is overearning for this exact reason) is the metabolic mix. Metabolic as a percentage of Medpace’s business has crept up quite significantly over the past few years (the GLP-1 effect) and many believe it is not sustainable. In that “many” we could also include Medpace’s management, but the company is substituting the metabolic projects with oncology trials.

They believe metabolic and oncology will eventually go back to a more normal proportion of the business. The above seems to somewhat invalidate the thesis that Medpace is overearning. Yes, the company was definitely overearning on metabolic, but they were maybe also underearning on oncology!

Now, all the above said, the guidance makes little sense even after the raise. Management raised its revenue growth guide to a midpoint of 12.5% from a midpoint of 10.9%. With revenue having grown 21% over the first 6 months, this means they expect revenue growth of 5% in H2! This is potentially possible because a lot of business might be “delayed” or “deferred” to FY 2027, but still seems like it has been sandbagged because it’s not coherent with the commentary. I believe, however, that it’s a win-win situation. If revenue grows faster this year then great. If it doesn’t because it gets deferred into FY 2027 then good as well because we’ll get growth durability (after enjoying yet another double digit growth year!).

We did not get any commentary on how FY 2027 might look like, but management did say that headcount is expected to grow HSD (high single digits) this year and also in FY 2027. In a labor-driven business, this is probably a good sign of what’s to come! All in all, a great quarter by Medpace not only due to the quarter itself but because it “invalidates” several known bear cases. Oh, I forgot one: management mentioned that turnover was low once again, which also invalidates the historic bear case that claimed that Medpace treated its workers terribly!

What about the valuation?

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• Revenue of $5.5 billion, up 23% YoY and beating expectations by 4%. Revenue growth accelerated as it was up 19% YoY last Q.

• EPS of $2.14, up 52% YoY and beating expectations by 10%

• Q3 revenue guide of $5.9 billion (midpoint), beating expectations by 6%

Sell-side analysts are aware that the cycle is inflecting but they have been quite “pessimistic” in their forecasts (at least thus far). With the exception of Q4 2025, analysts have been behind the curve since the upcycle began:

The Q3 revenue guide implies (at the midpoint) that revenue will accelerate again to 24% YoY. Probably the most “incredible” thing in the earnings was that management claimed that Q1, Q2, and the Q3 guide include little pricing tailwinds (if any). Pricing in H1 2026 was flat (better than usual, as it typically goes down over time), but management expects that it’ll start contributing positively in Q3, Q4, and going into next year (albeit not so much in the former):

This ultimately means that the uplift we are currently seeing is pretty much driven entirely by unit volume, which signals that the cycle is recovering but still doesn’t reflect that some pockets of the industry might start to become “bottlenecks.” Pricing is yet another lever that TI will have at its disposal to continue performing well over the next few quarters (evidently it’ll also be good for margins).

The stock “sold off” despite the great results (similar to ASML), portraying that expectations (whisper and buyside) across the semiconductor complex might be a tad high (to say the least). One can only wonder what would be happening here if TI had reported a miss. Well, we actually know what would have happened as one of the company’s peers, STM, dropped 15% after guiding below consensus citing slower recovery in automotive and industrial (this doesn’t seem consistent with TI’s commentary, though). You already know how this works, though: algos be algoing and TI dropped in sympathy with STM despite having reported just 10 hours earlier (make it make sense).

Regardless of this “expectations game”, I’ll go over the valuation at the end of the article, as we now have new information to more or less understand whether TI is fairly valued today.

First, let’s take a quick look at the quarter.

Texas Instruments’ quarter

I believe TI’s summary table clearly portrays that the quarter was excellent:

The margin uplift should not be a surprise (and remember that it comes without pricing tailwinds which should fall directly to the bottom line). I have explained several times (especially on the way down) how TI is a fixed cost business. The company suffers considerable operating deleverage during downturns, but this quickly flips into significant operating leverage as soon as demand comes back.

To this we must add that TI has been investing significant amounts into Capex to prepare for this demand. Gross capex is being scaled down and CHIPS Act subsidies are being received, so net capex is decreasing considerably and investors are enjoying the “holy grail” on the way up: faster revenue growth + expanding margins + improving cash conversion (due to lower Capex and working capital leverage). TI seemed very expensive on TTM numbers even when it was at $170, but the reality is that those TTM numbers in which the multiple was based on were far from being normalized.

As discussed in my last earnings update, the company is experiencing the convergence of two tailwinds: the cycle inflection in the legacy TI business (automotive and general industrial) and the data center tailwind. This not only has implications for the current quarter but also when thinking about what “peak” sales might look like a few quarters/years down the road. Management was asked the key question: “What point in the cycle are we in?” They replied the following:

I.e., it’s still early, but more so when we contextualize the 2022 peak. The first thing to note is that the data center opportunity (with its first and second derivatives) was absent a couple of years ago. The second one is the higher content per application. TI’s industry grows secularly due to the higher semiconductor content across applications over time. In plain English, industrial systems and cars are more digitized today than they were in 2022, meaning that the next peak should be higher than the last peak. The following slide from TI’s Capital Management Update is pretty illustrative:

To this we have to add a booming data center segment. The data center segment was not even significant in the 2022 cycle, but it’s now at a $1 billion+ run rate and doubled year over year in Q2.

There is a third potential tailwind, although likely not unique to this upcycle: inventory build-up. After having suffered a considerable inventory glut in the past couple of years, customers might have taken inventory to levels that are too low and might now need to rebuild these on the way up.

Despite the obvious strength in data center, management claimed that strength was broadbased across all of the company’s segments:

The strength in automotive surprised everyone, including management. They mentioned it was primarily driven by China (EVs and hybrids) and, even though I am not a fan of China driving results for TI (let’s not forget that Chinese authorities are investigating the company for dumping practices), I must say it sort of “invalidates” the bear thesis that prevailed a couple of years ago. Many claimed that, without access to ASML’s leading lithography equipment, Chinese fabs would focus on mature nodes and flood the market. 2-3 years have already gone by (with ASML selling quite a few DUV systems in China) and TI continues to do pretty well in China. Maybe there’s something more than just being able to manufacture the components! These same people, by the way, also claimed that TI management was “running investors off a cliff” when they had little visibility. Neither of these claims have aged well, at least not yet.

TI’s last couple of quarters have again demonstrated the importance of investment horizons. When Texas Instruments was spending Capex at an accelerated clip and building inventory aggressively during the downturn, the “word on the street” was that they were spending money like “drunken sailors.” Management always claimed that they were pursuing a similar strategy then they did during the pandemic: prepare the supply for the heightened demand that would eventually come (albeit not knowing when). This would allow them to gain share in the upcycle, and this is (surprise) what we are seeing today. With capacity tight across the industry, TI is very well positioned to gain a portion of its competitors’ business:

Texas Instruments also has considerably more capacity already built and awaiting equipment depending on how the demand plays out (i.e., there’s still space to leverage the existing cleanroom).

Even though investors were again predated by short-termism, TI was able to look further out, eventually rewarding patient shareholders. As in many cases in financial markets, the edge here was the ability to be patient and holding something that nobody wanted to own until the inflection eventually took place. It’s not rocket science, but it’s hard to do.

So, all in all, yet another outstanding quarter for TI which is not showing signs of slowing down. With visibility into 3 quarters, we can now more precisely contextualize the current valuation.

Is TI still cheap?

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The momentum factor has been suffering quite a violent reversal over the past few weeks, will it be secular? I talk about this and more things in the market commentary.

Without further ado, let’s get on with it.

The new in-depth report (aka. my new position)

This week I published my new in-depth report.

The company I profile is a very interesting (and unknown) business that has a 90% market share on a mission-critical workflow in a trillion-dollar industry. I believe it’s poised to deliver an 18-19% CAGR over the next 5 years and I explain why in the report.

Paid subscribers can read all the in-depth reports here and the last 7 by clicking any of the links below:

• Proprietary monopolistic data that matters (the new in-depth report)

• The Durable Winners of the Robot Age (Robotics Industry primer)

• Eurofins (EPA:ERF): Lost Credibility

• BBB Foods (TBBB): Bueno, bonito, barato?

• AAON (AAON: A Cool Way to Play AI?

• Trupanion (TRUP): Applying the Amazon model in the Pet Insurance Industry

• Medpace Holdings (MEDP): The CRO anomaly?

All of these in-depth reports contain a great amount of detail on the businesses and their investment theses (when applicable, as not all end up making it into the portfolio). Not in-depth reports per se (at least to my standards), but I’ve also published work lately on Rosebank Industries (LON:ROSE) and Sabre (SABR).

Articles of the week

Besides the in-depth report shared above, I also published a comprehensive article on the earnings of ASML/TSMC and the implications for the AI industry and ASML’s own 2030 guide.

It’s a pretty in-depth article that should help you contextualize the recent capacity additions announced by ASML and what it means for its financials and the “bottleneck” investment thesis so prevalent in the AI sector.

Without further ado, let’s see what the markets did this week.

Market Overview

The S&P 500 was up 0.2% this week, whereas the Nasdaq was down 0.8%:

The past couple of weeks could be thought of as the “death of momentum,” albeit we don’t know how long this will last. The fact that “momentum” stocks have been doing poorly is pretty evident when comparing the performance of the SPMO (the S&P 500 momentum ETF) against that of the S&P 500. The former is down 10% over the last month, whereas the latter is basically flat and even slightly positive:

This means (in plain english) that those stocks enjoying the highest momentum score (i.e., those stocks whose stock prices had been going up significantly over the last 12 months) have been performing poorly as of late. When one combines this with the fact that many “investors” turned complacent and were running with high leverage…one gets to very significant (sometimes even unbelievable) drawdowns in a short period of time. I mean, what we’ve been seeing on X this week has been absolutely mind-boggling. Some people are down >40% in under a month with indices barely off from ATHs. I believe this is a consequence of two things (it always is): leverage and high concentration. This is precisely what one expects to see in a bull market. Fyi, one can be very concentrated even owning 20 stocks!

Even though (and to be fair) many of these people have displayed excellent returns over the past couple of months, they are now getting very emotional and believe that the market is extremely irrational. What they do not stop to think is that the market might have been extremely irrational in bidding up certain “bottleneck” and “chokepoint” AI companies. This is a tale as old as time: the market is only irrational when it goes against you!

Nobody knows what will happen with momentum from here on out, but momentum is indeed a factor that has been working for a long time. So much so that it led famous investor Terry Smith to shift his fund (Fundsmith) to a more “momentum-based” approach after losing considerable AUM after years of subpar performance. Did he call the top in momentum? Momentum has seen a pretty dramatic reversal since Terry shifted his strategy. I will say that this might be just a bump along the momentum factor’s way, but it’s important to understand that no matter how good and sustainable momentum has been in the past, it doesn’t mean that it’ll be the same way in the future. Reading about the story of Long Term Capital Management should make clear why!

The thing is that when one runs with extreme leverage, even a bump along the way can have disastrous consequences. This is why portfolio management is a topic that more people should give the importance it deserves. Trying to get rich very quickly in the stock market might end up with a blown-up portfolio. The reason is that maximizing returns is not useful if one is not accounting for risk. In short: any investor should strive to maximize risk-adjusted return.

There’s a very useful exercise (albeit subjective) that can help you with this. I have created a matrix (available to paid subscribers) comparing risk and expected IRR for the positions in my portfolio (i.e., the Best Anchor Stocks portfolio). The goal is to maximize the bottom-right quadrant (the best risk-adjusted returns) and minimize the top-left quadrant (the worst risk adjusted returns):

Despite the fact that indices are close to ATHs, my portfolio currently has a 46% exposure to the “Best” (bottom right) quadrant:

We’ll see how this ends up playing out over the long term, but I have high conviction that my top positions offer great risk-adjusted IRRs!

The industry map was a reflection of what I discussed above: many things that had been doing very well over the past couple of months ended up doing pretty poorly this week:

Source: Finviz

If you need any proof of this, take a look at how the above (which is a weekly performance) compares to the YTD performance:

The fear and greed index dropped to fear territory:

Source: CNN

Company-specific news

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It’s no secret that both ASML and TSMC reported very strong earnings this week. Their stocks did not react as positively as many expected, which is something to consider in terms of what the market is telling investors. I believe a lot of people think that great earnings should (in 100% of the situations) result in strong stock price appreciation. This is actually not always the case, as earnings should always be considered in the context of expectations. There’s no denying that expectations for the AI complex in many cases have run up too fast and that stock prices do not always follow sell-side expectations!

Anyways, both companies significantly beat revenue and EPS expectations and considerably raised guidance.

The directional nature of their fundamentals shouldn’t surprise anyone because these companies are impacted by similar forces. TSMC sees very strong demand from its customers (companies that outsource their chip manufacturing), which translates into TSMC’s willingness to expand capacity. This capacity expansion eventually flows to the WFE (Wafer Fabrication Equipment) industry, where ASML is a strong player and has a monopoly in lithography.

I don’t think that going over all the numbers makes sense (those have been extensively shared by others by now), so I’ll focus on the qualitative aspects of the earnings with the goal of providing a differentiated POV (point of view).

Despite being moved by similar long-term forces (semiconductor demand), both companies’ short-term outperformances are driven by different things. Due to the long lead times of its equipment, ASML’s short-term beats have historically been correlated to the strength of its IBM (Installed Base Management) segment. As IBM is a high-margin segment, revenue beats driven by IBM have historically translated into EPS/profitability beats as well. IBM includes software/hardware upgrades and services conducted on the existing installed base. When capacity is tight, customers order new systems, but as these take time to make it into the installed base, customers perform upgrades on the existing installed base to improve their productivity (this is important for the capacity discussion that comes later).

It’s also worth noting that ASML’s raised guide (+16% at the midpoint) is very relevant. Management is guiding for sales of €44 billion this year, a number which should sound familiar considering that it’s the low-end of the company’s 2030 guide! This evidently has implications when thinking about the 2030 guide (discussed later on).

TSMC has more leeway to flex high demand over the short-term. For starters, the company is in many cases the beneficiary of ASML’s upgrades, which allows it to increase the number of wph (wafers per hour) relatively fast, also considering that fabs don’t typically run at 100% capacity. This gives TSMC the ability to somewhat flex capacity quickly.

Secondly (and most importantly), TSMC can flex its pricing power considerably faster due to the shorter lead times that wafers enjoy when compared to equipment lead times. A leading-edge wafer may take 3-4 months to be fully manufactured whereas ASML’s equipment typically takes 12-18 months (to which one should add when the order was made). ASML had also been historically known for not flexing its pricing power despite its monopolistic position. This is about to change.

The company had historically “priced to value,” meaning that, as systems got more productive, the company increased their ASP (Average Selling Price) to capture its fair share of value added. They’ll continue to do this in the foreseeable future BUT management also shared that they would make “exceptional” (my words) price increases to consider the current demand environment. Some rumours claim that TSMC is not happy about the price increases (neither about the price of high-NA EUV), but I’d say that it’s a bit unfair for TSMC to get upset about price hikes considering that…

1. TSMC is raising prices + expanding margins at an aggressive pace (are they the only ones that can get their fair share of value added? ASML seems to think “no”)

2. Even though TSMC was considered once the only viable EUV customer, this has since changed. The arrival of the memory players, Intel, and other potential players like Terafab and Rapidus has converted what was once a monopsony into a more fragmented customer base. This evidently means that customers must “fight” for ASML’s existing capacity

“Capacity” was probably the “star” word from TSMC’s and ASML’s earnings. We can look at this from several angles, but I believe all the angles make us arrive at the same conclusion: ASML and TSMC are likely not going to be bottlenecks for as long as many expected. Let’s start with ASML.

ASML has three main ways of increasing the industry’s capacity:

1. Manufacturing more systems (the most straightforward capacity lever which everyone understands)

2. Making new systems more productive

3. Upgrading the installed base (i.e., existing systems) to more productive configurations

The company is flexing the three levers in the current environment and capacity is going to come online probably at a faster pace than many expected. Let’s not forget that many investor’s supply-demand imbalance expectations came down to ASML’s extremely long lead times.

ASML announced in its Q2 earnings call aggressive capacity expansion plans over the short-term in both EUV and DUV. Management plans to raise its low-NA EUV output by 30% in 2027 and by an additional 30% in 2028 (albeit the latter is not a firm commitment but rather a forecast based on current conversations with customers). Immersion DUV is expected to experience a similar capacity increase (+30% in 2027 and +30% in 2028). An important point of this expected capacity expansion is its visibility. The order book for low-NA EUV systems (including the expected 30% increase) is full for 2027 and the company is already filling the 2028 order book.

The above translates into an expected low-NA EUV output of 110 systems in 2028, compared to the 65 expected in 2026. This is already a 70% 2-year increase in unit output, but the low-NA EUV mix will help ASML increase capacity further. ASML currently manufactures three configurations of low-NA EUV systems: “Ds”, “Es”, and “Fs”. While the mix had historically been made up of “Ds” and “Es”, it’s transitioning slowly but steadily into “Es” and “Fs” (with some analysts believing that 2028 sales will be made up of mostly “Fs.” This is important because these systems have considerably different productivity levels (in terms of wph):

• Ds: 160 wph

• Es: 220 wph (+40% compared to the D)

• Fs: 260 wph (+18% compared to the E)

So, not only is ASML planning to increase the unit output, but the new units that are expected to come to the market will also be considerably more productive. Management sized the impact for 2027: while they expect unit output to grow 30%, they expect the unit mix to add an additional 1,500 basis points (15%) to said capacity expansion (so it’ll be closer to a 45% capacity increase). This means that we could expect wph output from new systems to roughly double in two years. Using 220 wph as the base case (ASML announced that no additional Ds would be shipped in 2027/2028), the increased unit capacity translates into a doubling of low-NA EUV wph exposures added to the industry in just two years. 65 systems in 2026 are equivalent to around 14,300 wph (based on continuous operations and assuming productivity of 220 wph), but 110 in 2028 would be equivalent to somewhere around 26,400 (assuming 240 wph).

If we take a look at the current capacity of the industry in terms of wph we can also see how material this is going to be. ASML doesn’t publish exact numbers on its installed base but we know how many EUV systems they sell over time. This, together with the fact that all systems remain in operations, means that we can approximate the low-NA EUV installed base.

Considering that ASML had shipped 190 low-NA EUV systems by Q1 2023 and adding the shipments from that date onward gets us to a cumulative installed base of roughly 290-300. These are heavily tilted toward B and C configurations which are significantly less productive than the newer systems. If we assume that the blended wph output of these systems is 180, this means that the current installed base supports around 52,000 wph. Assuming that ASML adds a cumulative 260 low-NA EUV systems in 2026 (+65), 2027 (+85), and 2028 (+110) at a blended wph of 240, we get to net wph adds of 62,000 wph. This ultimately means that wph capacity increases 120% over the next 3 years (per the estimates above).

Now, it’s important to understand that wph is not necessarily directly correlated to wafer starts. For starters, one could think that some of these systems are likely going to fall in the hands of less yield-efficient companies than TSMC. TSMC doesn’t even earn yields of 100%, so the “less experienced” players will not even get close to that number. This means that the above is a theoretical maximum. The second thing to consider is that pretty much all of the leading-edge wafers are multi-patterned and wph is a metric that explains exposures. This means that a percentage of this increased wph is absorbed by layer intensity rather than by new wafers, but it’s still considered “capacity increase” as those higher exposures should’ve been absorbed either way.

Are bottlenecks still trendy?

ASML’s and TSMC’s commentary around the most famous word in current financial markets (bottlenecks) was also interesting. Analysts asked the company whether the 85 and 110 numbers were based on their ability to supply or rather on end demand (likely expecting it to be the former!). Management unexpectedly said that the output is based on demand signals by customers and that supply could be stretched further (or at least stretching it further could be considered) if customers required it. Higher demand is not out of the question, according to ASML’s CEO Christophe Fouquet it’s actually highly possible for 2028:

This ultimately means that ASML is expanding capacity to meet demand and therefore that it will not remain a bottleneck for long. This isn’t probably what many expected!

TSMC somewhat confirmed ASML’s words in a broader sense, claiming that they don’t expect bottlenecks across the supply chain to meet their capacity expansion goals. Capacity expansion goals which by the way are pretty aggressive…

TSMC is about to spend considerable amounts of capital in capacity expansion which management admitted (as obvious as it is) that it’s coming from their customers telling them how much they’ll need. I don’t believe I am saying this, but TSMC is getting “bulled up” on AI (sign of a top?):

How I interpret all of the above is that the bottleneck remains memory but that many bottlenecks are getting solved sooner than many expected. Jensen Huang said a couple of months ago (on the Dwakersh Podcast) that semis would not be a long-term problem (“If I can convince TSMC, ASML will be convinced.”) but rather that the bottleneck would be power. I believe he is slowly being proven right:

I am not going to discuss the memory situation here (I’ve written other articles on the topic), but TSMC did confirm that memory pricing is destroying non-AI demand. This means that memory pricing is already impacting demand, and with increased capacity coming…

I believe memory needs will be significantly higher in the future (not only driven by digital AI but also by physical AI) but that capacity can come online faster than many expect (and I think ASML is a proof point of this). To this we must add the potential impact of any “memory enhancement” that comes the industry’s way. An event like this should not be ruled out of the question considering that memory is now the main bottleneck in AI. What this ultimately means is that the brightest minds are focused on solving the “memory problem.”

Now, the fact that TSMC and ASML are not going to be bottlenecks beyond 2028 (at least not according to their current expectations) doesn’t mean that AI will not remain in a supply-constrained environment. I potentially see two things that might invalidate the demand-supply balance:

1. Demand might be much more significant than customers expected in the first place. Not out of the question considering that it has happened a couple of times before

2. There are other bottlenecks different from TSMC and ASML (like the aforementioned memory)

The second point is likely but bottlenecks might get resolved over time. They most surely will, but if the main bottleneck according to Jensen Huang (power) doesn’t get solved, solving things downstream won’t do much to help AI growth. Interestingly, TSMC alluded to higher competition in back-end wafer manufacturing being positive because it eliminates the bottleneck for their front-end operations.

What does look likely is that the commentary claiming that the entire industry will remain significantly constrained “beyond 2030” must be revisited. It might happen, but some of the historically considered bottlenecks are bringing significant capacity online before 2030 and likely faster than many expected (humans always find a way to bypass bottlenecks).

ASML’s expected capacity expansion not only has implications for the industry but also for the company’s 2030 guide. Let’s take a closer look at this.

ASML can demolish the 2030 guide…two years in advance

Above I discussed that ASML’s management guided for €44 billion in sales this year, which is the equivalent to the low-end of its 2030 guide. The €44 billion doesn’t “include”…

• The aggressive capacity expansion the company is about to undertake

• The exceptional price increases the company is about to make

• The increased IBM sales that come with the capacity expansion

This should have investors wondering: is the 2030 guide still valid? The quick answer that was somewhat confirmed by management during the call is that it’s not (management claimed they would revisit the 2030 guide in the next capital markets day in 2027). We can crunch some numbers to understand what ASML might achieve in 2028 and understand whether the 2030 is longer valid or whether it’s not. To do this we need several things:

• An estimate on how many systems are going to be sold (primarily EUV and DUV). We got this in the Q2 earnings call

• Average ASPs: we can somewhat estimate this although it’s tough to be precise because we don’t know what the exceptional price increases will be (I am not going to consider these)

• IBM revenue

• Metrology and Inspection system sales

Note that this is just an estimate and that I’ll hold ASPs constant from 2025 levels (which is not a realistic expectation but will behave as a source of conservativeness). Based on 2025 numbers we have an implied ASP of roughly €230 million for low-NA EUV, €70-€75 million for immersion DUV, and €15 million for dry DUV.

Let’s start with low-NA EUV. Assuming ASML is able to ship 110 systems in 2028 at a €230 million ASP (will likely be higher), this results in around €25 billion in low-NA system sales.

In terms of high-NA EUV, management did not raise the capacity expectations so we could more or less calculate this. From management’s commentary we could imply around 15-20 high-NA EUV shipments by 2028. At an average ASP of €340 million we get somewhere around €5-7 billion in high-NA EUV revenue. This means that total EUV revenue in 2028 will be around €30-32 billion. And recall that in the case of low-NA EUV it doesn’t consider a significantly higher ASP that will most likely become a reality. If one would like to conservatively add a 15% blended ASP increase through the period, that would result in €35-€37 billion in EUV revenue in 2028.

DUV immersion capacity is also expected to grow 30% in 2027 and an additional 30% in 2028. This means that the unit output should be around 220 units in 2028. At a €70 million average ASP, this results in €16 billion in immersion DUV revenue. Dry DUV is also seeing an uptick in demand, but for conservativeness we’ll hold it constant at €2.5 billion. This means that total DUV results in €15-16 billion of revenue in 2028. Metrology and Inspection is also seeing an uptick in demand due to ASML’s holistic lithography strategy, but we’ll keep it at €1.5 billion in 2028.

All of the above means that net system sales land (with a 15% 2-year ASP increase and little growth in dry DUV and metrology & inspection) somewhere around €51-€55 billion in 2028.

Now let’s add IBM revenue. IBM sales should ramp fast for three reasons:

1. The installed base is going to grow significantly

2. It’s the first thing that customer can flex to expand capacity

3. EUV sales have attached a higher IBM attach rate than DUV

IBM sales are going to be around €11 billion in 2026 (considering management’s comments around 30%+ growth). If we assume IBM revenue grows 20% in both 2027 and 2028 (reasonable considering all of the above), this gets us to around €15 billion in IBM revenue in 2028. This is realistic considering that…

1. Management guided for €13 billion in IBM revenue on a €47 billion net system sales base for 2030. This results in a 28% attach rate, which is exactly the same as €15 billion in IBM revenue over €53 billion in net system sales.

2. Management has historically been conservative with IBM sales

If we add this to net system sales (€53 billion midpoint) we see that ASML could land around €68 billion in total revenue in 2028. Not only is this 13% ahead of its 2030 guide, but it’s also achieved two years earlier.

The remaining unknown is margins. Gross margins are likely going to go up in 2027 and 2028 for several reasons:

1. IBM revenue is growing fast and it is high margin revenue

2. The system mix is improving and ASML is going to flex pricing more aggressively than they expected (should drop to the bottom line)

3. The planned capacity expansion is based on the existing footprint (i.e., there will be considerable operating leverage)

Gross margins above 60% should not be out of the question considering this was the high end expectation for 2030 with a considerably lower level of system and IBM revenue, but I’ll anchor on this number. 60% gross margins result in gross profit of around €41 billion. With €6 billion in R&D expenses and €1.7 billion in SG&A (from management’s 2030 guide), this gets us to operating income of €33.3 billion. This means that ASML is currently trading at a 2028 EBIT multiple of 18x. If one believes that this business is worth at least 25x EBIT (not unreasonable), the potential IRR is around 17-18% (without considering share buybacks and/or dividends which should at least add 1-2% to these numbers). Honestly pretty good considering the run the company has already enjoyed.

At a 20x EBIT multiple in 2028, the IRR compresses considerably to 6% (in such a short period the multiple drives much of the IRR), but let’s not forget that I assumed little flex in terms of ASP. Now, all the forecasts above are definitely not free of risks. ASML’s 2028 orders are still not firm and demand could falter. Just as I am writing this, the new Chinese model Kimi K3 promises to bring another “Deepseek” moment to the industry as it supposedly performs better than Opus 4.8 and GPT-5.5 but at a fraction of the cost. Jevons Paradox invalidated the “Deepseek moment,” but this is just a reminder that demand and the thesis can suffer hiccups along the way.

To this we must add that the 30% capacity increase expected for 2028 is an aspiration, not a firm number (albeit ASML believes it’s actually on the low end). The good news is that it’s based on the existing footprint, meaning that ASML will most likely not have significantly unused capacity if demand ends up faltering a bit. With my fundamental expectations on ASML increasing considerably and the stock price correcting somewhat, I am starting to get interested again in a potential add. One thing is clear: I’ll maintain the position that’s left after my several trims.

Have a great day,

Leandro

Jerome Dodson (founder of Parnassus Investments) said the following in an interview that ended up shaping my investment philosophy:

Having the above in mind has helped my find several interesting and profitable situations:

• Keysight (60% CAGR since publish date)

• Medpace (42% CAGR)

• ASML (26% CAGR)

• Deere (16% CAGR)

• Texas Instruments (16% CAGR)

None of these were secrets, they were just hard to own for many professional investors because they were “not working at any given moment.”

In every case, the price you had to pay for that mispricing was patience, the fundamentals eventually inflected while the market waited for a catalyst that, in hindsight, wasn’t necessary.

I believe I’ve found the sixth company of this kind, albeit even better because it’s not even exposed to the industry’s cycles (all of the above, to a greater or lesser extent, were).

Below I’m sharing the full report on a company most investors have mistaken as cyclical due to the industry’s dynamics. Underneath, one can find something very different.

What I found underneath the label

A few things stood out to me as I went through the research, and I think they’re worth sharing before you get to read the full thesis.

A 90%+ share of the single workflow its customers can’t operate without. This company exhibits monopoly-like characteristics on the thing that matters most in its industry.

Regulators effectively confirmed the superiority by blocking an acquisition that, in hindsight, did not change the fate of the industry.

Management’s own incentive plan is based on aggressive stock price targets. Boards don’t set stretch targets like that unless they genuinely believe the shares are cheap and the objectives are achievable.

There’s roughly a 10x gap between current revenue and management’s own estimate of the total addressable market — and by management’s own admission, about 80% of the growth needed to close that gap can come from customers the company already has. That’s a very different growth profile than needing to win new logos in a crowded market.

Buybacks have already cut shares outstanding by more than 20% and management continues to simplify the business. Shrinking to become better is almost always a great capital allocation sign.

The number that matters most

My base case: ~18% annualized returns over the next 5 years.

What makes that number interesting is what it doesn’t require. It assumes no multiple expansion — the valuation multiple is already low relative to the quality of the underlying business, so I’m not underwriting a re-rating story. The return comes almost entirely from operating fundamentals: revenue growth, margin expansion, and disciplined capital return.

That’s the same DNA behind every name on the list above. None of those five needed the market to suddenly “wake up” and pay a higher multiple (although it helped at times!). The business kept compounding, and eventually the market had no choice but to follow.

What I look for in these situations:

• A moat that gets stronger with scale, not weaker

• Recurring, high-visibility revenue

• Management with the correct incentives in play and deploying capital intelligently

• A valuation that doesn’t require heroic assumptions to work

This one checks every box. I’ve spent the last two months pulling the thesis apart and you can find the result below.

I started a position in this company today.

You can get access to the entire report plus…

• All in-depth reports (15+ companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

Taking advantage of a limited-time 40% summer sale discount. The discount ends today:

Claim my limited-time discount

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You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

You’ll also get access to the 30+ page detailed report on the robotics industry.

The in-depth reports of Stevanato and Deere are also free to read to gauge the quality of the research.

Join today:

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The markets were flat in a relatively boring week, although I discuss one topic that got me particularly interested this week: is AI eating software at large enterprises?

Without further ado, let’s get on with it.

A new in-depth report next week

The day (or better said, week) has come! I’ll publish a new in-depth report next week, exclusive for paid subscribers. The company is a relatively unknown software business that owns proprietary data to fence off the AI “threat.” I believe it’s deeply misunderstood by the market as it has fallen “prey” to two misleading narratives.

You can read all the in-depth reports here and the last 5 by clicking any of the links below:

• Eurofins (EPA:ERF): Lost Credibility

• BBB Foods (TBBB): Bueno, bonito, barato?

• AAON (AAON: A Cool Way to Play AI?

• Trupanion (TRUP): Applying the Amazon model in the Pet Insurance Industry

• Medpace Holdings (MEDP): The CRO anomaly?

All of these in-depth reports contain a great amount of detail on the businesses and their investment thesis (when applicable, as not all end up making it into the portfolio). Not in-depth reports per se (at least to my standards), but I’ve also published work lately on Rosebank Industries (LON:ROSE) and Sabre (SABR).

Articles of the week

I published one article this week: the sixth edition of “On the radar.”

Best Anchor Stocks

On The Radar #6

Welcome to the sixth issue of “On The Radar.” If you want to know what this series is about, I recommend reading the first issue…

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22 days ago · 11 likes · 2 comments · Best Anchor Stocks

I profile four (it’s normally three) companies this week:

1. An HVAC/Refrigeration provider (hardware, software, and services) that’s family-owned, well-run, and that it’s exposed to the industry in an interesting way

2. A company with vast proprietary data and competitive advantages in which management is highly aligned with shareholders

3. A medtech company that has gone from loved to hated in the space of one year without fundamentals budging much

4. A single-product medtech in the early scaling phases that looks interesting (yes, you read that right “a single product medtech”, yikes?)

I’ve already profiled 19 companies in this series and expect to profile many more in the future.

Without further ado, let’s see what the markets did this week.

Market Overview

Both indices were relatively flat this week after recovering from a weak start:

There was one thing I found particularly interesting in an otherwise “boring” week: this Starbuck’s headline:

Source: Fortune

One would’ve imagined that such a headline should’ve destroyed the IGV (the software ETF) because it could be understood as the AI bear case for software becoming a reality. The IGV was indeed down 2.5% this week, but likely far from what one (at least myself) would’ve expected if the market would’ve taken this seriously. The headline portrays one reality, but there’s a different reality hidden in the article. I suspect that not many people who shared the headline have actually read the article, so let’s take a look.

The headline claims that Starbucks is increasing its reliance on AI to cut the software tools of companies like Microsoft (inventory management) and IBM (maintenance). Starbucks’ CTO sent in an internal memo to employees claiming that the company spends around $400 million in software every year and that “there’s clear opportunities to reduce the spend in software.” One thing I believe this misses is how much the internal software development is going to cost in terms of labor and maintenance (software does not maintain itself), but that’s a topic for another day.

The article then goes on to claim that Starbucks has been working for several years on building a POS system to replace Oracle Symphony. This means that after several years of hard work, the efforts have been futile (which, surprise, means that software is not as simple to solve as many believe, even in the AI era).

But several other things in the article seem to indicate that stripping out software from third-party vendors might not be worth it. First, Starbucks has already failed once:

Okay, I get it, doing this is tough (no surprises here) but the returns must be worth it, right? Well, it turns out they might not be! Starbucks expects to save $10 million from these efforts…

…which should be contextualized in the context of the company’s $20 billion opex. This results in savings of 0.05%, which doesn’t seem extremely enticing considering that the company will (and is already) risking business continuity with no measurable results to show thus far. The company expects to “roll out” these features by the end of next year (2027), meaning that we are not even going to see measurable results for a long time. I honestly think that, while the headline looked very bearish for software, the reality portrays that it’s actually not that easy to replace software and that it doesn’t seem like the risk/reward is worth it! If it’s not worth it in enterprise SaaS, it might be even less worth it in SMB SaaS, which is where most of my exposure to software lies.

The industry map was mixed this week, with semis picking up some of the ground they lost last week:

The fear and greed index improved materially and is now in neutral territory:

Company-specific news

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Best Anchor Stocks

(NEW) On The Radar #1

Welcome to the first issue of On The Radar, a new Best Anchor Stocks recurring section! The initial idea is to publish an “On The Radar” article once every two weeks, probably at or around the end of the week (Thursday/Friday). Even though I’ll share more information below, the goal of “On The Radar” is to openly share much more of my investment process in a way that’s useful to you. Let me explain a bit further…

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4 months ago · 17 likes · 2 comments · Best Anchor Stocks

Simply put, the goal is to share interesting companies that I’ve looked at but have not researched in-depth yet (at least not to my standards). You can think of the “On The Radar” series as a well-curated list of companies that fit my investment philosophy and that might (in the future) make it into the portfolio. So far I’ve only included in my portfolio 1 of the 15 companies I have profiled in this series, with good (but still early) results: +13% in about a month (there’s also an in-depth report available for paid subscribers). I have to say that I am close to making the second inclusion of an “On The Radar” company into the portfolio. I’ll publish the in-depth report next week (exclusive for paid subscribers).

Today’s issue brings four companies (one for free and the remaining reserved for paid subscribers) as I’ve decided to make a double-inclusion and I’ll explain why. Here’s what you can expect today:

1. An HVAC/Refrigeration provider (hardware, software, and services) that’s family-owned, well-run, and that it’s exposed to the industry in an interesting way

2. A company with vast proprietary data and competitive advantages in which management is highly aligned with shareholders

3. A medtech company that has gone from loved to hated in the space of one year without fundamentals budging much

4. A single-product medtech in the early scaling phases that looks interesting (yes, you read that right “a single product medtech”, yikes?)

Note that all of these businesses get included in the “On The Radar” tab of the Portfolio Management Tool with their respective price evolution since the issue. These are generally companies that I don’t own but I find interesting so I prefer to see stock prices dropping across the board. This said, I do expect to include good companies here, so even if I don’t include them in the portfolio, I’d expect to see stock prices rise over the LT because that would mean I am fishing in the correct pond:

As this is the sixth issue, free subscribers have had access to 6 companies (one for free per issue) whereas paid subscribers have had access to 19!

So, without further ado, let’s jump into today’s issue which doesn’t start with a Swiss company (surprise).

Carel Industries (BIT:CRL)

Brief description of the business

Carel participates in the HVAC and refrigeration markets. The company sells (primarily) control systems to HVAC/refrigeration OEMs. These OEMs install Carel’s products with the goal of making their solutions more energy efficient. Maybe a better way of understanding Carel is thinking that the company provides the brains (both hardware and software) that go into HVAC and refrigeration equipment.

One would think that HVAC and refrigeration equipment OEMs would’ve already in-sourced something like this, but it turns out that it’s tougher than it looks.

Why it caught my attention

Carel caught my attention for two reasons, but it all started with my willingness to look into the HVAC industry. Seeing the heatwaves that Europe has faced over the last couple of years, I thought it would be a good idea to try to look for HVAC beneficiaries. If you live in the US, you’ll know that HVAC penetration is pretty high there, but it’s significantly lower in Europe…

The CNN article goes to claim that the trend if shifting:

Now, there’s an additional roadblock in Europe and it’s exactly the one you’d expect: regulation. The EU is dead serious with their “Climate Neutral” ambitions and they are pushing towards energy efficiency. This means that not only is the European HVAC industry in need of new units, but they’ll also be significant retrofit/renovation demands to adhere to regulations. For these reasons, I tried to look for companies in Europe that might be flying under the radar in the industry, and Carel popped up.

Now, the main reason why I looked into Carel was its track record. When one looks into an HVAC supplier/OEM, one expects to see cyclicality tied to new construction or inventory cycles. While Carel has only been publicly traded since 2018, the organic growth track record is pretty good: only one negative growth year (2024) but higher growth than one would’ve imagined (management strives for HSD organic growth to which one must add tuck-in acquisitions). Since 2017, revenue has CAGRd at a 12% clip:

The other thing that made me want to look into it was the fact that it remains family-owned and run, BUT (very important BUT) with the family striving to improve the liquidity of the stock.

What I like

I liked several things about Carel:

• It seems like a pretty well run business in which management knows what they are doing (this is obvious if one reads the earnings calls)

• The HVAC industry enjoys secular tailwinds (mainly in Europe) so it seems like an interesting place to fish (this is not only applicable to Carel and I don’t expect to stop looking once I dig into Carel)

• The company is exposed in an interesting way to the HVAC industry. It’s not your typical OEM vendor; Carel sells a high quality and mission critical product into the equipment

• Carel also made an interesting software-like acquisition in 2023 (Kiona), which grows considerably faster than Carel and enjoys better margins (which have been expanding)

• The company is also exposed to the fast-growth data center market which is becoming a pretty strong tailwind. This said, the company does not entirely rely on this industry as less than 50% of its current growth comes from data center (it’s still significant, though)

What gives me pause

The main thing that gives me pause is that I believe the company has gotten bid up (up 83% over the past year) probably due to its data center exposure. If there’s a market rotation outside of AI, the stock may suffer. I’d say this is pretty apparent in the fact that Carel has moved lately together with the semiconductor industry.

The valuation also seems tight for a HSD (high-single digit) organic grower; it’s currently trading at a 34x EBIT!

What I am watching

I have to do more work but based on what I’ve seen, this seems like a “do-the-homework-today-to-enjoy-it-tomorrow” kind of situation as there seems to be significantly better opportunities across my portfolio.

Let’s now jump into the next company.

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You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

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• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

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The in-depth reports of Stevanato and Deere are also free to read to gauge the quality of the research.

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It was a short week in the markets due to the 4th of July weekend. This, however, did not stop the ongoing rotation. I talk about this and other topics in the brief market commentary.

Without further ado, let’s get on with it.

The IRR of the next in-depth report

I am currently working on the next in-depth report. It will feature a company that has been caught up in two narratives, both of which I believe are wrong. I’ve been working on the model and (as it stands) this is the IRR I get to using somewhat conservative assumptions:

Considering that it’s a company that has a solid competitive positioning and is resilient through industry cycles, I view the risk/reward as extremely enticing. Of course, it’s not free of risks, and I’ll discuss those in the report as well.

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An update on my 4 buys a month ago

Around a month ago I released the following article discussing the 4 companies that I was going to buy and making 2 honorable mentions.

Best Anchor Stocks

I am buying these 4 companies today

The portfolio currently stands at an interesting crossroads. I believe there’s a significant difference in valuation across the companies in my portfolio (similar to what we see in the market). After trimming some positions and bringing my cash balance to around 10%, I wanted to share…

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2 months ago · 11 likes · Best Anchor Stocks

The result (up to today, as I still believe a lot of these are cheap), is the following:

• +1%

• -7%

• +24%

• +1%

The honorable mentions have done even better (both of these are among the last 5 additions to the portfolio):

• +30%

• +12%

An equal weight of these positions has increased in value by 10% vs a drop of 1.3% for the S&P 500 during the same period. Granted that it’s very early, but I expect the results over the long term to be even better.

Articles of the week

There were no articles this week as I continued to work on the next in-depth report that I’ll publish as soon as possible (I also don’t want the stock to run up on me). Next week you can expect the sixth edition of “On The Radar” with three new companies that I’ve been reading about lately.

Without further ado, let’s see what the markets did this week.

Market Overview

It was a short week in financial markets because markets were closed on Friday despite the 4th of July being a Saturday. The S&P (SPY) was basically flat whereas the Nasdaq (QQQ) was down more than 1.5%:

Over the past couple of weeks I’ve been throwing the word “rotation” around. We had a bit more of it this week as capital left the “frothy” sectors (like semis) and continued flowing into the non-frothy sectors like healthcare and software. The IGV (software ETF) and the XLV (healthcare ETF) were both up this week whereas the SOXX (semiconductor ETF) was down quite considerably:

I have been positioning my portfolio for such a scenario (the portfolio’s return this week was 3.4%), although I have not taken my semis exposure to 0. Over time I’ve realized that “betting everything” into any given company, factor, or sector is a good recipe for making emotional decisions. This is the reason why I am pretty much always exposed to trends that I find appealing (regardless of the fact that it’s unlikely that all will “go up” simultaneously) and I simply move around the weights depending on what I feel is more attractive at the time.

So, for example, I deem a good chunk of the healthcare industry to be very attractive, which shouldn’t be a surprise if you’ve been following my work. This is the reason why 30%+ of my portfolio is in this industry, but this doesn’t mean that there’s no space for semiconductors or AI-related stuff. There is, but today at a significantly lower weight than it was a couple of months ago. It’s also worth noting that semis/AI now make up a considerable chunk of the indices and are considerably larger than other non-frothy industries. This means that we likely don’t need a full-on rotation for other things to work well.

I also published the following on X (as a joke although I have trimmed my ASML position a couple of times), and I was somewhat surprised with the replies:

In case you don’t know, I published an article a year ago on the topic of never-sell.

Best Anchor Stocks

Never sell?

This week, I posted the following on X…

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a year ago · 47 likes · 14 comments · Best Anchor Stocks

I believe it’s a very good framework for long-term investors but that it shouldn’t be taken to the extremes (like pretty much nothing in life).

The industry map was a reflection of what I discussed earlier: semis red with pretty much everything else green:

Source: Finviz

The fear and greed index improved a bit to fear territory:

Source: CNN

Company-specific news

Read more

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

You’ll also get access to the 30+ page detailed report on the robotics industry.

The in-depth reports of Stevanato and Deere are also free to read to gauge the quality of the research.

Join today:

Subscribe now

Both indices were down considerably this week despite (or maybe because) very strong Micron earnings. I go over all the memory debates in the market commentary despite many people believing that you can’t have an opinion if you don’t own these companies or if you are not going to feed their confirmation bias.

Without further ado, let’s get on with it.

SOON: The next in-depth report

I have just started working on the next detailed report. I can’t say with 100% confidence that the company will make it into the portfolio, but I’m 95% sure it will.

This is a set-up I have been looking for for quite a while (unsuccessfully until now!). It’s a software company that owns proprietary data that is mission critical for its customers. This means that AI is not a risk but a significant tailwind for the business. Now, what makes the setup interesting is that the company has been thrown out by the market with the SaaS narrative, meaning the risk/reward has become pretty appealing. Interestingly, the company is not well known across the investor community.

I won’t say anything else until I publish the report, which I expect to publish soon (for paid subscribers).

Articles of the week

I published one article this week: the fifth edition of “On The Radar.”

Best Anchor Stocks

On The Radar #5

Welcome to the fifth issue of “On The Radar.” If you want to know what this series is about, I recommend reading the first issue…

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a month ago · 14 likes · Best Anchor Stocks

I profiled three interesting businesses:

1. A company that participates in the injectables supply chain with a pretty solid competitive position and great growth prospects

2. A software business that acts as the system of record in its industry and that owns proprietary data

3. A distributor with a great track record in a secularly-growing industry that has entered other attractive and high-growth markets

Without further ado, let’s see what the markets did this week.

Market Overview

It was a very interesting week in the market. The spotlight was on Micron’s earnings on Wednesday, with everyone wondering if the AI trade was alive and well. The S&P and the Nasdaq both dropped considerably this week:

I believe that the memory situation deserves a word or two (although memory permabulls believe you can’t have an opinion if you are not invested in these businesses). So, let me first provide some context. Memory companies (Samsung, SK Hynix, and Micron) had been underinvesting in capacity for a long time because memory chip prices were low (it has historically been considered a commodity). This changed with AI, when the memory needs increased exponentially all of a sudden. With supply taking several years to come online and demand surging to unprecedented levels, memory companies are once again experiencing a supply/demand imbalance, but one that goes in their favor. What has this resulted in? Extreme pricing moves to the upside. Just for context, Micron’s gross margin has gone from the 40% range and from the company losing money operationally to 86% gross margins and 80% EBIT margins. Wow. So, in essence, memory companies have become a pretty relevant bottleneck to the AI buildout and they are surely monetizing their status.

I want to share some thoughts here. The first one that comes to mind is the market’s dilemma. While bottleneck-related stocks have been doing great lately as margins surge on the back of price increases, the stocks of hyperscalers have not done so well due to fears of them earning a subpar ROIC on their Capex. This is pretty interesting because both can’t be true at the same time. I mean, bottlenecks can’t be sustainable while hyperscalers earn a subpar ROIC on their investments because the latter will most likely pull back spending if they continue getting squeezed. So, either the ROIC that the hyperscalers earn is considerably higher than what many believe (which I must say looks likely) or the bottlenecks are not going to last long. We can even see a situation where ROIC is fine but bottlenecks don’t last for other reasons.

Regardless of whether hyperscalers are earning a decent ROIC or not, I believe that bottlenecks are (by definition) not sustainable. Or at least, they’ve not been historically, driven by the forces of capitalism and human ingenuity. Betting that a bottleneck is sustainable is betting against humanity finding a way through, which is not a bet that I would take. Interestingly, many people seem to believe that the only way that the memory bottleneck fades is if memory players expand capacity, which will take several years to arrive. Now, while this is the most likely scenario, the reality is that there are other potential scenarios worth considering, mostly revolving around politics.

Two interesting things happened this week:

1. Apple raised prices of certain products (not the iPhone) due to rising memory chip costs

2. Microsoft did the same with the Xbox

Nobody really cares about the second (who buys an Xbox anyways?) but I believe that it was a significant event because it was Satya Nadella who sent out the message. Satya is unlikely to care at this point about Xbox profitability, but he surely knows that surfacing a price hike on a consumer-facing product is likely to raise politician eyebrows. Then we got the Apple news. According to the Financial Times, Apple is lobbying the government to be able to buy DRAM from CXMT, a black-listed Chinese supplier:

I have no clue whether the company will be successful in its efforts (maybe not), but this is one of many levers that all the companies impacted by the surge in memory prices (many of which are pretty powerful) will pursue to try to bring prices down. It’s interesting because many people believe that Micron should price gouge their customers because, when they were in a downcycle, providers such as Apple were taking advantage of memory overcapacity to buy at depressed prices. So, the first thing that appears to be evident is that customer relationships between memory players and their most important customers are not the best. This is not good over the long term however you want to spin it and there’s a reason why companies like ASML and TSMC don’t price gouge their customers (and it’s not because they can’t!).

The second thing that I would say is that…if memory players are “price gouging” customers today, it seems pretty evident that their management teams believe they are still selling a commodity. If the industry had completely transformed itself and was not a commodity, then I’d imagine that memory players would be incentivized to cultivate good long term customer relationships and not make as most money as possible in a short period of time. I believe that when demand and supply balances out again (no clue if it will be demand coming down or supply coming up, or both), memory players are likely in for a rough surprise. I have no clue about when this happens, though.

While everyone is talking about supply, there are also certain things happening on the demand side. OpenAI claimed this week that the government would decide who gets access to its new models. Several months ago, I claimed that not many people were considering political issues on the demand side, and we are increasingly seeing the government meddle with the demand side. Will the government try to influence the supply side as well? Many claim today that this would be stupid and that it’s not happening, but the reality is that actions from the Pentagon might make it appear likely that it’s under consideration. Significantly higher memory prices can potentially impact the economy in two ways:

1. Higher inflation: this is what Microsoft and Apple are trying to surface

2. Lower GDP growth as the AI buildout cools down: this is what the market is implying will happen if hyperscaler ROIC is sub-par

The industry map was mixed this week, with semis/tech doing poorly and defensive industries like healthcare doing pretty well:

The XLV (healthcare ETF) has run up significantly from the lows and I believe it has significant room to run (my portfolio is positioned accordingly):

The fear and greed index dropped to extreme fear territory:

My new position

I started a new position this week. The rationale for starting the position was discussed in my recent robotics report.

Best Anchor Stocks

The Durable Winners of the Robot Age

The full PDF of this report is available (for paid subscribers) at the end of the post. There’s considerable free content as well so don’t hesitate to read…

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a month ago · 21 likes · Best Anchor Stocks

Here it is:

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Best Anchor Stocks

(NEW) On The Radar #1

Welcome to the first issue of On The Radar, a new Best Anchor Stocks recurring section! The initial idea is to publish an “On The Radar” article once every two weeks, probably at or around the end of the week (Thursday/Friday). Even though I’ll share more information below, the goal of “On The Radar” is to openly share much more of my investment process in a way that’s useful to you. Let me explain a bit further…

Read more

4 months ago · 17 likes · 2 comments · Best Anchor Stocks

Simply put, the goal is to share interesting companies that I’ve looked at but have not researched in-depth yet. You can think of the “On The Radar” series as a well-curated list of companies that fit my investment philosophy and that might (in the future) make it into the portfolio. So far I’ve only included in my portfolio 1 of the 12 companies I have profiled in this series, with good (but still early) results: +13% in about a month (there’s also an in-depth report available for paid subscribers).

Today’s issue brings yet another three companies (one for free and the remaining reserved for paid subscribers). Here’s what you can expect today:

1. A company that participates in the injectables supply chain with a pretty solid competitive position and great growth prospects

2. A software business that acts as the system of record in its industry and that owns proprietary data (I’ve been looking for a similar set-up for a while)

3. A distributor with a great track record in a secularly-growing industry that has entered other attractive and high-growth markets

Note that all of these businesses get included in the “On The Radar” tab of the Portfolio Management Tool with their respective price evolution since the issue. These are generally companies that I don’t own but I find interesting so I prefer to see stock prices dropping across the board. Some have unfortunately done very well before I was able to make my mind up:

As this is the fifth issue, free subscribers have had access to 5 companies (one for free per issue) whereas paid subscribers have had access to 15.

Subscribe now

So, without further ado, let’s jump into today’s issue which starts (again) with a Swiss company.

Skan Group (SWX:SKAN)

Brief description of the business

I believe this is the third consecutive issue that starts with a Swiss company. You might think that I have been scouting the Swiss stock market and I’m doing this on purpose, but that’s far from the truth!

So, what does Skan Group do? Skan Group manufactures equipment relevant to the fill & finish process in the pharmaceutical industry. The company sells (primarily) isolators and automated aseptic filling stations and follows a razor-razorblade business model. Skan sells the equipment at a lowish margin but subsequently monetizes it through high-margin services and consumables:

Source: SKAN Investor Presentation

Injectable and sensitive drugs can’t be sterilized the same way that a pill can because the heat would destroy the compound, so they must be filled into their respective containers in an extremely “clean” environment. Just like with semiconductors, the most relevant threat in this process is the human being so isolators (such as the ones SKAN sells) help avoid any contact whatsoever with a human being:

So, an isolator is ultimately a tool that allows pharmaceutical companies to safeguard the drug’s contamination through the fill & finish process. Skan is the global leader in high-end isolators with a 35-40% market share.

Why it caught my attention

If you’ve been following my work for a while and you have seen my portfolio (paid subscribers know), you’ll know that I am pretty bullish on the secular tailwinds that SKAN can potentially benefit from. The company is poised to enjoy two main tailwinds:

1. Growth in injectables medicines (well documented and evident in the pipeline due to the rise of biologics)

2. More stringent regulations stemming from politicians wanting to regulate more and the increased complexity of biologics/ADCs

Pharmaceuticals like biologics, ADCs, cell and gene therapies…will most likely be delivered in an injectable format and will also face very stringent regulations in terms of contamination. This means that the demand for high-end isolators should theoretically grow as complexity rises, and this is precisely where SKAN excels. I think the trend is inevitable (my portfolio surely believes so!) and that many companies that potentially benefit from said trend are trading at attractive valuations. SKAN is undoubtedly a cyclical company exposed to the industry’s capex cycles (it has not been pretty over the past few years) but it’s currently trading at forward EV/sales under 3x despite holding a solid competitive position in a critical part of the value chain.

This doesn’t seem incredibly cheap, but it’s at the low end of what the company has historically traded for. So, three things ultimately caught my attention:

1. The secular tailwinds of the industry (already knew this)

2. SKAN’s role in the supply chain and its strong competitive position

3. The valuation

Companies like Danaher have been claiming for quite a while that the industry has underinvested in capacity after having digested the pandemic overcapacity and that a capex supercycle is “around the corner”:

The Capex upcycle has been around the corner for a while now, but we have started to see some green shoots. If the cycle is finally upon us, it bodes pretty well for companies like SKAN as they are exposed to a great degree to the capex of its customers. We’ll see.

What I like

I liked several things about SKAN:

• It’s a good business with a leading position in its core market and “expanding” into several interesting adjacencies like Pre-Approved Services (other adjacencies do seem less “core”)

• The company is preparing to launch a service called Pre-Approved Services that should materially shorten the validation time of its equipment. This should shorten validation timeline and should grant SKAN more pricing power and a better lock-in

• It participates in an industry that I believe will enjoy considerable tailwinds going forward

• The company is currently in a cyclical trough

• The consumables/services mix is increasing. Management believes that services and consumables as a percentage of revenue will increase 800 bps over the medium term, something that promises to be pretty accretive to margins as S&C margins tend to be almost triple those of equipment (not rare in razor-razorblade business models)

• Management believes that sales will grow mid to upper teens over the mid term (I imagine they are expecting an upcycle and wouldn’t take this as through-the-cycle growth)

What gives me pause

The main thing that gives me pause is execution and the financials. The future SKAN Group might look a lot better than it looks today (this is what we should care about as investors) but the reality is that profitability has been considerably impacted in FY 2025 and that it’s a cyclical business. All good so long as it’s indeed a cycle and the business eventually recovers. I must say that the guide for FY 2026 sort of confirms that the 2025 figures might have marked the “bottom”: management expects upper teens growth and a strong recovery in EBITDA margins.

The other thing that gives me pause is the “moat.” Even though the company has a head start in terms of high-end isolators, it’s not alone in the market and there are no “drug-master-file” style switching costs.

What I am watching

I am looking to learn more about the company and understanding whether the ancillary services the company is introducing are a game changer or not.

Let’s now jump into the next company which I’d say is the one that excites me the most in this issue.

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Markets were flattish/down this week despite several relevant news around two things that should theoretically matter quite a bit: interest rates and war. I’ll talk about these topics in the brief market commentary.

Without further ado, let’s get on with it.

Articles of the week

I published one article this week, an in-depth report on the robotics industry.

I go over…

• My framework to understand the industry

• The potential opportunity

• Who participates in each segment

• What segments seem more appealing from the POV of a long-term investor

• And much more

The goal is that you understand the industry well after reading the article and come out of it with a name or two that enjoys competitive advantages within the sector. Here’s the industry map:

The result of the report is that I will start a new position on Monday. I explain my reasoning in the article.

Without further ado, let’s see what the markets did this week.

Market Overview

Markets were down/flattish during this short week (due to Juneteenth holiday):

It was a week in which the Fed made the headlines again (yay). New Fed Chair Kevin Warsh shared that the committee had decided to leave rates unchanged and gave a speech that the market interpreted as hawkish (i.e., theoretically not good for risk assets). 9 of the 18 members now expect rate hikes in 2026. When Trump got confronted with this, he said that “it is what it is” which is a significant departure from what he claimed when Powell wanted to raise rates! I don’t have a clue about what rates will do this year, but looking at my portfolio’s composition, I don’t think I have to worry much about 50-100 bps higher or lower interest rates.

There was also news around Iran, as the US signed the official peace deal in France this week. Shortly after signing it, Israel attacked Lebanon, which resulted in yet another “closure” of the Strait of Hormuz. This evidently caused oil prices to decrease significantly:

This bodes well for inflation starting next year, but it’s also funny because many claimed that oil was unequivocally going to $140-$200 per barrel (this happened not long ago). Oil bulls and permabears were once again wrong, and while they’ll eventually be right, I believe that the timing also matters when you are going against a secular trend. This is precisely why I look to invest behind secular growing themes: it makes timing significantly less relevant! (albeit not totally unimportant).

So, plenty of relevant news this week about things that theoretically matter a lot to markets (interest rates and war) but despite all this the indices did not do anything crazy.

The industry map was mostly green this week driven by semis (as concerns over Anthropic and the US government eased):

The fear and greed index remained in fear territory:

Company-specific news

Read more

Without further ado, let’s get on with it.

Many investors make the same mistake over and over again by freely interchanging growth and valuation. Even though these two variables are intrinsically related…

…the reality is that it’s tough to make a valid valuation argument if growth is nonexistent. Can one do well by investing in low-growth businesses trading at apparently low valuations? The answer is evidently “yes,” but no-to-low growth comes with several drawbacks. For one, it’s incredibly difficult for management to add value when there’s no top-line expansion. Furthermore, in a world “full” of growing businesses, it’s likely challenging to ever get the market interested in a stagnant one (i.e., multiple is likely to stay lowish unless the market decides to treat it like a bond proxy).

I’ve come to this realization the hard way: by losing money on several low-growth but “resilient” businesses. These unforced errors eventually led me to set a hard rule: I will not invest in businesses with meager organic growth (defined as growth below (or too close) to GDP growth) regardless of the investment thesis. This simple rule shrinks the investable universe significantly (not many businesses are able to outpace GDP growth consistently) and increases the optical multiple one has to pay, but also significantly reduces the value trap risk.

Step 1: realize that growth is a non-negotiable variable in future value creation. Check.

Step 2: find themes or industries that enjoy secular growth to make the job easier. This article.

While you can find growth businesses pretty much across any industry, it’s much simpler to swim with the current at your back. I see a few macro trends shaping the next decade and I believe that the Best Anchor Stocks portfolio (my personal portfolio shared with subscribers) is adequately positioned across many:

• Complex biologics: large, complex molecules are increasingly dominating the drug pipeline, requiring highly specialized and stringent manufacturing and administration processes. There’s significant exposure in the Best Anchor Stocks portfolio. I believe getting exposure to this theme is pretty cheap right now.

• Infrastructure renewal: physical assets across the developed world have aged far past their useful lives and must be replaced. To this, we must add the exponential power grid demands driven by the AI data center buildout. Even though this has been a long-standing trend, the reality is that pace has failed to pick up. There’s light exposure in the Best Anchor Stocks portfolio.

• Defense & Reshoring: in an increasingly polarized world, globalization is fracturing, forcing countries to make strategic decisions across defense and local supply chains. There’s minimal exposure to defense but a more considerable exposure to reshoring in the Best Anchor Stocks portfolio.

• Semiconductors: no matter what structural trend you look at, it likely can’t function without an increasing number of semiconductor content. There’s considerable exposure in the Best Anchor Stocks portfolio.

• Aging populations: the population is aging fast, straining health systems and driving massive demand for cheaper, outsourced or alternative care delivery. There’s no exposure in the Best Anchor Stocks portfolio, and I believe this trend suffers some hurdles (like regulatory pushback and strained budgets).

• Specialty testing & certification: as regulations tighten and social media amplifies corporate missteps, independent certifications are becoming critical for mitigating reputational risk. There’s light exposure in the Best Anchor Stocks portfolio.

• Physical AI and the rise of connected devices: crashing hardware costs and soaring computational power have made the unthinkable a reality: a world where we live and work alongside millions of autonomous, connected devices. There’s considerable exposure in the Best Anchor Stocks portfolio, but I believe this promises to be one of the main macro-trends of the coming decades.

You can agree with these to a greater or lesser extent (if you can think of any other feel free to leave it in the comments), but the reality is that these are secular themes that deserve your attention as an investor. Identifying these, however, is just one side of the coin; valuation/timing is the other. The objective of this article is to dive deep into the last of these: physical AI. I believe Physical AI will shape the next decade, riding the kind of S-curve that every investor strives to find. There’s another thing that makes it interesting: it’s vast and made up of a wide variety of niches. This means there’s potentially a lot of ways to gain exposure to the trend.

When everything clicked

ChatGPT was not the first commercial LLM (Large Language Model) to see the light, but it was indeed the one that got the AI revolution started. OpenAI’s flagship LLM was launched in November 2022, achieved “verb” status at the speed of light, and soon became the fastest-growing consumer-facing product ever. Anthropic joined the party later and both went to defy the law of large numbers:

Source: Coatue

Not only is life “unthinkable” today without LLMs, but they’ve also enabled a whole new wave of technological frontiers. The first one is agentic AI. AI is no longer encapsulated in an LLM; it’s now able to retain context and conduct tasks in the digital world just like any person would, but faster…and cheaper (sort of)!

While we are still in the early innings of the agentic frontier, the next frontier is already upon us: physical AI.

So, what is physical AI and why is it “suddenly” possible? Even though the world is currently transitioning towards powerful AI digital agents that promise to substitute (or power) human labor, the crude reality is that these agents are only able to operate in digital environments where physics is not even a consideration and the cost of failure is manageable. But, what if we wanted to unleash these digital agents in the physical world? Things get a tad more complex.

From the screen to the real world

Physical AI can be understood as a digital agent that operates in the real world. This apparently minor transition changes everything and comes with a comprehensive set of risks/threats/obstacles, but also with its fair share of opportunities. We could understand Physical AI as a continuous loop of perception, interaction, and reaction.

Humanity has not suddenly woken up to physical AI; a concerted effort throughout decades has made this frontier possible. We’ve gone (in my view) through four stages:

1. Perception: we first needed a way to recognize and classify real-world variables. This became possible with sensors, cameras, analog chips…but this information was not entirely useful unless we were able to interpret vast amounts of heavy data and (very importantly) capture the sufficient amount of data (either real or “generated”) to mimic the real world

2. Generative AI: then came LLMs and with it the ability to interpret vast amounts of data (both structured and unstructured). Perception data (considering it was vast enough) was suddenly useful thanks to compute. Generative AI also came as a way of processing, synthesizing and even creating perception data (thank you, GPUs!).

3. Agentic AI: before being able to jump into the real world, the systems needed to be tested in the digital world so we started to find ways of automating digital tasks.

Join 1,2, and 3, and we suddenly had all the ingredients to make physical AI (stage 4) a reality. Now, physical AI comes with a pretty relevant obstacle: the tolerance for mistakes is very low. This means that the historical process of trial and error that has been so prevalent in the digital realm is no longer valid; physical AI must be almost mistake-free before making it out to the real world. So, how can we prevent these failures?

Let’s begin by taking a look at a couple of interconnected terms (I’ll talk about these throughout the report)…

• Long tail problem

• Data scarcity problem

• Sim to real gap

• Moravec’s Paradox

Let’s start with the manifestation of the problem. Moravec’s Paradox states that what is easy for humans is tough for computers, and vice versa.

LLMs are capable of conducting tasks that would be impossible for humans, but robots have struggled to conduct apparently “easy” human tasks like walking on uneven ground. Solving Moravec’s Paradox historically proved challenging due to the data scarcity problem. We ultimately lacked physical data good and comprehensive enough to train physical AI in real-life environments where unpredictability is a given. Now, you might think that there’s enough data in the world so that a robot can learn how to move, and while this is true, there’s also a long-tail problem. What does this mean? That there’s a lot of base case data, but very little edge case data. This is acceptable in the digital era where edge cases can be solved as one goes, but not in the physical one (at least not entirely).

With little margin for error, the lack of edge-case training data could lead to disastrous consequences (even if rare). Now, hold up! The industry is slowly but steadily bypassing these limitations. Let’s understand how by comparing physical AI to a human body.

The anatomy of physical AI

Physical AI spans three main “applications,” (humanoids, industrial robots, and autonomous driving) but I am going to focus on humanoids to explain my framework. Even though these three can be considered different “applications”, physical AI systems can ultimately be understood using the same framework of perception, interaction, reaction, and reinforcement learning.

Physical AI is ultimately the fusion of digital AI (“intelligence”) with physical capabilities, and that looks a lot like us humans (sort of). I believe there are several parts to a physical AI system that can be mapped to parts of our body:

• The Brains can be understood as the robot’s mind/model. This is ultimately the decision-making tool. Just like for the human brain, there are two parts to the brain: high-level thinking and low-level reflexes. Maybe System 1 and System 2 sound more familiar if you’ve read Kahneman’s ‘Thinking Fast and Slow’.

• The training ground refers to the virtual worlds used to train the brains before they touch the real world. Here lies the main problem for physical AI, as discussed above. Most of the training ground (unlike for humans) could be considered “pre-natal” as these systems have to be quite polished before making it out to the real world. Humans are allowed to make some mistakes which we end up calling “experience.”

• The muscles and bones refer to the hardware, the actuators, and all the physical parts that ultimately compose the humanoid’s structure.

• The senses and the nervous system work hand in hand with the brain and relate to the sensors and cameras that allow the system to interact with the real world and also to “feel” what’s going on inside its body.

• The immune system is what keeps the system healthy from unwanted intruders. We could understand this as cybersecurity, regulation…

So, at the end of the day, a humanoid doesn’t pretend to be much different to what a human body actually is:

Source: Made by Best Anchor Stocks with Gemini

I’ll dig a bit deeper into each to understand what companies participate and who is poised to win as the industry rides the S-curve. The best scenario would be to find a picks-and-shovels business, and luckily for us, there are a few (but not many) that are really “investable.”

What’s at stake and why now?

Before jumping into the ecosystem’s components, I believe we should try to size the opportunity. Many estimates typically treat the largest market (AVs) separately and, even though I’ll also focus majoritarily on humanoids, the AV market is expected to be huge. As one would expect, estimates vary tremendously, but many believe it’s a market worth trillions in under a decade, growing at a 20%+ CAGR from current levels. The AV opportunity is typically “analogous” to the robotaxi opportunity.

I’m also not going to spend a lot of time on industrial robots because it’s the most “mature” market and where growth is the slowest. The main reason is that a lot of industrial businesses (especially across automotive and electronics) are already significantly automated. Now, the humanoid opportunity will most likely present itself in the industrial realm, further automating human tasks in these businesses (i.e., the humanoid opportunity rests on automating more of the industrial base). For example, Texas Instruments’ CEO believes that we are not far from seeing humanoids walking around their fabs:

The industrial robot market is estimated to grow to around $60-70 billion by 2030, but the IFR (International Federation of Robotics) admits that this only considers robot sales and not the entire ecosystem that surrounds them. They believe that the real market might be 2x-3x larger when accounting for the entire ecosystem, so around $120-$210 billion by 2030. A pretty significant market, but nothing that should get people too excited in the trillion-dollar-industries era…

It’s also worth pointing out that several of the picks and shovels companies that sell components/ecosystems to industrial robots also participate in the other two segments, making their potential target market extremely large regardless of the “meager” growth in industrial robots.

Let’s jump now to the most speculative (but also attractive) market of them all: humanoids.

Tesla Optimus

There are several ways to arrive at market size estimates here, and these can be separated as recurring and one-time. Some size the market with this simple formula:

While this methodology can potentially lead to astronomical numbers, the reality is that it’s not a great method to size the opportunity because it severely understates it; why? Because it only captures hardware sales. Humanoids today go for upwards of $100k, but to make them accessible they’ll most likely need to come closer toward the $30-$50k area. Assuming 5-6 year replacement cycles, this market is likely going to be large, but far from the revolutionary numbers that one sees out there.

The above is the equivalent of measuring Apple’s opportunity just based on hardware sales but ignoring its services segment which is recurring and currently makes up more than 30% of total sales. As in everything in tech, the most likely scenario is the transition to a razor-razorblade model, which in the case of humanoids makes a lot of sense and leads us to the second estimation method.

The second way TAM is estimated (which also leads to a significantly larger number) is through labor/task substitution. I would consider this to be the most likely scenario because I’d imagine that the value add of a robot goes far beyond the sale of its hardware and the industry would like to take its fair share of value by transitioning towards a Robots-As-A-Service (RaaS) model. The math here is pretty straightforward (albeit the assumptions are pretty speculative):

1. Make assumptions around what % of labor (or what % of tasks) get substituted by robots in a reasonable timeline (will likely face some regulatory backlash)

2. Assume that humanoid providers keep a portion of the value add

So, for example, if a humanoid is substituting someone who made $50k a year, then maybe the humanoid provider (or the apps that sit on top) can make $20-$30k every year from that robot (+ the hardware sale). Note that these estimates might prove to be conservative considering that $50k is likely on the low end of the salary spectrum in developed economies and that humanoids would be able to run multiple shifts per day, but it’s just illustrative.

This is a win-win scenario for the humanoid ecosystem, the robot acquirer, but not for the worker (which is why politics will most likely be a relevant consideration). We could somewhat compare it to the smartphone industry: there are hardware providers who monetize the installed base by offering 1P services or acting as a toll booth on 3P services. The humanoid industry can develop in two ways which are analogous to the Apple/Android strategies (I’ll discuss it later). I don’t know how monetization will evolve in the future, but in my mind two monetization avenues make sense: subscriptions for renting the Robots plus an added service fee on top depending on the skills you want to rent (maybe these will come from external and internal providers, just like we have 1P and 3P apps on the phone).

This is evidently pure speculation, but Morgan Stanley makes the following assumptions for the humanoid industry:

• 13 million humanoids in 2035 (mostly in tasks in factories and warehouses)

• 24.4 million units by 2036

• 1 billion units by 2050 (10% of which are in domestic cores)

This is literally what an S-curve looks like…slowly at first, then all of a sudden. As humanoid pricing drops, one could argue that adoption will grow significantly (this is a tale as old as time in tech).

I believe the assumptions are pretty aggressive, but even if we assume that there will be “only” 10 million humanoids by 2035, at an average yearly ASP of $20k, that pencils out to a $200 billion market. Of course, if one agrees with Morgan Stanley’s 1 billion unit estimate and assumes a $20k ASP, that’s a $20 trillion market by 2050. Penciling out a given number for the industry is pretty much impossible, but many industry participants agree that it’ll be in the trillions and I see no reason why it’s not possible (careful with asking a barber if you need a haircut though):

I think, however, that Morgan Stanley’s estimate is tough to believe considering that the working age population across developed countries is around 1.1 billion and that the total market for labor is around $40 trillion. Do humanoids realistically capture 50% of all labor? I have my honest doubts considering that they’ll face political backlash before getting even close.

The working age population rises significantly if we include non-developed countries, but ASPs will most likely have to come down considerably for these to come into play. Now, all this said, the humanoid market today is in research-phase, so the growth opportunity is pretty large regardless of how one wants to spin this and “getting cute” about whether it’s $5 trillion or $10 trillion will probably make us miss the forest for the trees.

Now, it’s also worth noting that we should take these estimates down a notch when sizing the potential opportunity for Western producers. Morgan Stanley believes (imho, rightly so) that a significant portion (upwards of 30%) of these robots will be housed in China, which potentially means that they are out of reach for the western supply chain due to geopolitical concerns (China is, btw, already building its own ecosystem of humanoids, led by vertically-integrated humanoid producer Unitree).

So, the market promises to be huge, but investors are not blind to the opportunity with things starting to get funded pretty aggressively and many pure-play robotics companies experiencing multiple expansion in public markets. In 2023, robotics companies raised around $13 billion:

That number (according to Dealroom) is $57 billion YTD, which annualized is around $114 billion or roughly 9x the amount barely two years ago. This shouldn’t be surprising as timelines compress. In 2023 we barely had “solved” digital AI and physical AI remained a distant dream. It’s not a dream anymore, is becoming a reality:

Jensen tends to be early, but not wrong!

Let’s now take a more in-depth look at the ecosystem to understand how it works, who participates, and who is poised to win in this trillion dollar opportunity.

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The Brains - The necessary inflection

The brains of a humanoid robot are the cognitive layer of physical AI. Humanoid brains were historically dominated by hard-coded rules that failed in a changing world. Physical AI required an adaptable model, so VLA (Vision-Language-Action) models became a reality. Google DeepMind released RT-2 in 2023 which formally introduced the concept of VLA:

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Both indices were flattish/up this week but there was no shortage of news. From the potential restart of the war, to AI’s political woes, and going through Adobe’s earnings and SpaceX’s IPO. I go over all of these things in the market commentary section.

Without further ado, let’s get on with it.

Articles of the week

I published one article this week: SpaceX (SPCX): Defying Gravity.

Best Anchor Stocks

SpaceX (SPCX): Defying Gravity

For those of you who don’t know, I run a podcast called +FlowKCash with my good friend Javier from Edelweiss Capital Research…

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2 months ago · 8 likes · Best Anchor Stocks

I recorded a podcast episode with my friend Javier from Edelweiss Capital Research and thought it would be a good idea to translate the transcript to English. We go over pretty much everything you need to know for the now-live IPO:

1. How SpaceX made it: the rockets that exploded, the contracts with NASA, Starlink…

2. The current segments: $19B in revenue, 10M Starlink subs, the xAI merger…

3. The future business: space datacenters, Mars, humanoids…

4. Red flags that nobody is discussing

5. Valuation scenarios

I continued working this week on my in-depth report on the next technological frontier which I expect to publish next week.

Without further ado, let’s see what the markets did this week.

Market Overview

The indices were up this week, but pretty flattish:

Several interesting things happened this week. For starters, the war in Iran was close to “restarting.” The truth is that the war never really ended despite many investors totally forgetting about it, but Trump cautioned Iran and claimed that the US would strike the country and take Karg Island if a deal was not reached. That was until he saw that the stock market did not like the escalation and decided to walk it back claiming that they were close to a deal and that strikes had been called off (can’t make this up!). Markets rallied. It’s honestly pretty interesting (and a great case study) how Trump has found the infinite money glitch. The war has been called on and off a couple of times, and even though it continues, markets are considerably above where they were trading in April and nobody seems to remember that there’s a conflict in the Middle East. Funny how that works.

Politics were also the protagonist in another relevant event this week. Anthropic announced that Fable 5 (its new, most capable model) had been banned by the US government for foreign nationals (including those living in the US and foreign Anthropic employees). Wow!

I don’t know what will happen on Monday, but two things seem clear…

1. Looks like it’s bullish software (at least conceptually) because it signals that politics are already limiting AI’s power

2. Probably leads to many countries trying to develop their own AI models

This is the AI bear case and my hunch is that the AI trade bleeds on Monday (I might be very wrong). Even though many confidently claimed that AI had no limits…they forgot the most relevant and never-ending limit: politicians. It’s interesting because Dario Amodei (Anthropic’s CEO) had been claiming for a while that AI would destroy a lot of jobs. Interesting strategy considering that he was ultimately telling politicians that AI would interfere with their employment campaigns, and well…that did not play out well. This was honestly something that one could see coming…

Anyways, this is likely just the beginning of the story so we don’t know what will end up happening, but very interesting to see that politicians are already meddling with AI long before we achieved AGI. In this case it wasn’t because AI was destroying society but because the US sees AI superiority as an important geopolitical tool, but regardless of how you want to spin it, the conclusion is similar. Now, what’s interesting is that if this creates significant drops in the stock market, we might see Trump walking it back. Politics are always a two-way road!

Speaking of software, Adobe, one of the most punished software stocks, reported earnings this week. The stock dropped considerably the following day (even after falling considerably the day before) despite what appeared to be strong headline numbers.

The company beat both the top and the bottom lines and ARR growth accelerated. Now, this acceleration needs context. ARR growth did indeed accelerate from 10.9% in Q1 to 12.5% in Q2, but the recent acquisition of Semrush was partly responsible for this, adding $480 million. Excluding Semrush, organic ARR growth actually decelerated from 10.9% to 10.5%. To this we must add that Adobe’s management maintained the ARR growth guide of 10.2% for the full year even after the inclusion of Semrush (so they implicitly took it down organically). This means that they expect ARR growth to decelerate significantly in H2. Now, while this sounds very negative, management provided some context:

What management is ultimately claiming here is that they are focusing more on user growth than leaning on monetization levers. This may well be the best long-term strategy, but investors must still make a judgement call here. There are two options. Adobe is expanding the freemium growth strategy because…

1. They actually want to focus on freemium growth

2. They have no choice but to do so because they are finding problems to monetize

I wouldn’t rule out any of these and as a long-term investor I’d choose the first one all day long, but I believe it’s reasonable for the market to doubt the strategy when both the CEO and CFO simultaneously leave the company.

I honestly think the sell-off might have been overdone and that sentiment is at all-time lows in Adobe, but I’ve heard a lot of people say that, at the current valuation, Adobe is a good investment even if organic growth goes to 0%. This, imho, is a pretty dangerous thing to claim because if organic growth goes to 0%, Adobe would most likely have a pretty dangerous talent problem. Probably no worthwhile engineer would want to work for a no-growth business.

I’ve seen a lot of people too negative on Adobe, but also a lot of people that are clearly emotional holders of the stock. It’s fine to own something and admit that earnings were not perfect, and it’s also perfectly fine to not own something and admit that there were green shoots in the earnings. I used to own Adobe, sold it a while ago, and have decided to stay on the sidelines for now. When a CEO and CFO leave in such a “disruptive” scenario, it’s not rare to find more than one cockroach in the kitchen, but we’ll see.

Then we also had Space X’s IPO! The stock rose more than 20% in its debut and is now trading considerably above the $2 trillion mark.

I believe the valuation is pretty stretched at current levels, but I have no clue what it will do over the coming months (if I had to guess I’d say that it goes down, but who knows). Recall that if you are interested in learning about the company (a good idea before it gets to an attractive valuation) you can read my latest article (free to read):

The industry map was mostly green this week outside of the Mag 7:

Despite flattish to up markets, the fear and greed index dropped more and remained in fear territory:

I trimmed a position this week

This week I decided to trim a position. The stock is almost a 2 bagger for a 30% CAGR but it’s simply very challenging to make a valuation argument at current levels:

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The podcast is in Spanish, but we thought it would be a great idea to translate the transcript of this week’s episode to make it available to you. The reason is that it was a special episode about Space X and what is likely to be the largest IPO in history.

In case you want to watch it overdubbed by YouTube, here it is:

We touch on several topics…

1. How SpaceX made it: the rockets that exploded, the contracts with NASA, Starlink…

2. The current segments: $19B in revenue, 10M Starlink subs, the xAI merger…

3. The future business: space datacenters, Mars, humanoids…

4. Red flags that nobody is discussing

5. Valuation scenarios

You should understand all that there is to know about the IPO after reading this. That’s the goal.

You can read this article for free. If you like what you read, consider becoming a paid member to get access to…

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The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Next up will be a comprehensive report on a macro-trend that will most likely be with use for the coming decades.

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Introduction & Contextual Framing

Javier: Today’s episode of +FlowKCash is a special about SpaceX, following its imminent IPO. We will talk about its history and the segments that compose it. In addition, we will discuss everything they want to build in the future, from data centers in space, terrestrial transport with rockets, bases on the Moon, and even a city of 1 million inhabitants on Mars. Lastly, we will look at the things that don’t smell good, the risks of investing at these valuations, and what our projections are for the future.

Leandro: Good morning to everyone and welcome to episode number 39 of +FlowKCash. Today we have a special episode. We already did a teaser last week. Today we are going to talk—well, everyone will have seen it already—but today we are going to talk about SpaceX because this is being published, if I’m not mistaken, two or three days before the IPO. I don’t know if the IPO also coincides with the start of the World Cup? In the end, it’s an important week.

Javier: Yes. No, it’s a universal moment. A universal moment.

Javier: Yes, let’s talk a bit today about everything, right? In the end, the idea is that the people who listen to the episode leave here with a reasonable idea of what SpaceX does, where it comes from, and also a bit of what we think. For now, we have the regulatory document, the S-1, which is the prospectus companies have to publish before going public. We are going to base our discussion on that, and also a bit on the history and on Elon’s vision, of course. Leandro, man, it’s very important. We are going to see that the valuation is a key point.

Javier: We are going to have a presentation for those of you listening. It’s not necessary to see it, we are simply going to have it as support, but it’s good because it gives a visual image of many things we are going to talk about: the different rockets, the numbers, and so on. Although we are going to mention everything, it also gives you an idea of how things have evolved in a visual way—really seeing what they have been achieving.

Javier: Leandro, we have to remind people of some things, right?

Leandro: Ah, yes, I had forgotten. It’s just that it’s a SpaceX special, you can’t talk about anything else.

Javier: Remember that we are recording for the second time. We are recording for the second time in the morning, and Leandro is still waking up, it seems.

Leandro: Remind people that if you like it—and I think especially this episode is a good one to share—if you think that people might be interested, because even if you aren’t very interested in investments, this episode can probably interest you. Also, if you want to become members of the channel, we have the option enabled, okay? We want to thank the two members we have. For now, they are few, but in the end, everything helps, right? We do this selflessly because Javi and I really are interested, and we like to talk about these things, but obviously right now the podcast is an expense. We are going to jump directly, Javi, if you think it’s right, into the history of the company.

Company Origins & First Principles Thinking

Javier: Come on, yes, we’ve told it a bit, right? We’re going to start with the history, how SpaceX has arrived up to here, because it’s a pretty incredible history. Moreover, it gives you a bit of context to understand the S-1 or the prospectus for the people who want to take a look at it, and the tone it has. It’s a slightly unusual prospectus, I would say.

Then, we will see what SpaceX does today, where the money comes from, and how the current businesses work. We are going to see what they want to do in the future because it’s a bit of science fiction, not suitable perhaps for cynics or non-visionaries—meaning it is not suitable for the majority of investors. But the same could have been said about SpaceX a few years ago for the people who invested in the private market at valuations that in their day seemed relatively quite crazy. Here we are today with an expected IPO at 1.75 or 2 trillion. Finally, we are going to look at some things to give a bit of criticism to Elon too, right? Some things that smell bad, without filters, and then we are going to finish by talking about the valuation, our thoughts, and there we can enter into a bit of a discussion.

Javier: So we start with the history. This all started in 2001. Musk has just sold PayPal to eBay for 1.5 billion dollars. He is 30 years old, he obviously has more money than he can spend, and based a bit on how he had grown up reading science fiction books and his own interests, he decides that he wants to go to Mars. Not that he wants to go to Mars himself personally, although that too, but rather that he believes it’s important for humanity to be an interplanetary species. Since he is a guy who is, in the good sense of the word, a bit crazy, he starts to talk with NASA, and NASA tells him that they don’t have a budget for missions to go to Mars.

Then Elon, the way he acts, says, “Well, then I’m going to buy a Russian rocket.” He goes to Moscow, he meets with the Russians, and the Russians want to sell him a converted ICBM rocket for about 8 million, okay? Musk thinks that it’s a bit crazy, and in fact, on the third trip he makes to talk with them, they double the price to 16 million, meaning they were pulling his leg a bit. Then Elon, on the flight back on the plane, takes a napkin and starts to calculate from first principles, as he does many times, how much it can cost to build a rocket from scratch by hiring the engineers. That is basically how SpaceX is born. June 2002, initial capital, 100 million from Elon himself.

Leandro: For people who don’t know, SpaceX is Space Exploration Technologies, the official name of the company.

Javier: The thesis that Elon has at that moment is: if the cost of accessing space drops by many orders of magnitude, humanity can become multiplanetary. It’s a thesis of first principles. It’s not “the launch market is worth X billions,” it’s “the cost of steel, fuel... it’s an abstraction of the price of the rocket.” Why? Because rockets are only single-use. For example, if you make rockets reusable, then obviously the unit price of launching collapses. And if the unit price of launching collapses, then space opens up to potential new projects.

Leandro: This is, in the end, Javi, how technology works in general, and what Moore’s Law has achieved, which we’ve talked about in other episodes. In the end, if you lower the barriers to entry, markets are created that today are impossible to imagine because they are prohibitively expensive.

The 2008 Financial Crisis & Near-Bankruptcy

Javier: And obviously, all this has not been easy, nor does it continue to be easy. SpaceX, until 2008—we are talking about the financial crisis almost 20 years ago—had a pretty fucking hard time because it started at a tough time to finance a project like that.

Leandro: That’s another thing, and now we’re going to see it. It’s just that they were on the verge of going bankrupt several times. Three times.

Javier: So they start with their first rocket, which is the one they called Falcon 1, and they do three launches and three failures. The Falcon 1 exploded once from an engine failure, another time a poorly adjusted screw, etcetera. By that time, we are talking about 2008, Elon had already spent almost all his money, the engineers weren’t getting paid on time, and the company was literally on the verge of bankruptcy—add 2008 to that. Then they launch the fourth Falcon 1 rocket in September 2008 and it is successful. The rocket managed to orbit around the Earth, okay? It is the first private rocket that manages to orbit the Earth.

Weeks later—notice that we are in 2008—NASA gives SpaceX a 1.6 billion contract to supply the International Space Station. SpaceX survives, but by the skin of its teeth. This is quite important to understand the mentality that the company has. SpaceX has almost died three times, and Elon himself said that in 2008 the company had like a 10% probability of surviving. Nonetheless, it iterated, it moved fast, and they achieved it. The same has happened to him with Tesla, basically the same has happened to him with all his companies.

Leandro: Yes. I mean, in the end, companies, especially technological ones that we see today, many people look at them and take for granted how easy it is to get there. But along the way, many others have been left behind that, for X or Y, for the same reasons these have triumphed, have failed.

Javier: Yes. And we will see one day when we talk about Nvidia, which won’t be long, we will see that Nvidia was on the verge of going bankrupt a lot of times too. Great businesses have been on the verge of going bankrupt. It’s something logical, and more so when spectacular things are done like the ones these people do, right?

Disrupting Launch Costs via Falcon 9 Reusability

Javier: So, after the NASA contract came a period in which they really started to execute. Ah, by the way, I forgot to change it—for those of you who are watching this, here you can see a bit of the evolution of SpaceX as a desktop background.

In 2010 arrives the first flight of the Falcon 9, which is the rocket that changes everything. Not only was it a better rocket, it was a rocket that was designed to be reusable, and that obviously was something revolutionary. Everyone in the industry thought it was impossible to land a rocket back. There is a video of the CEO, I think it’s from Ariane, which is a European rocket company, who literally laughs at Elon and his intention to make rockets reusable—literally laughing. Well, in 2015, they are also...

Leandro: Javi, as you said before, what Elon wanted was to lower launch costs. This is obviously key, because the problem with launches into space is that when you lose the rocket, a lot of money is lost.

Javier: Of course. We are going to see a bit how the launch cost has been dropping. In fact, in 2015 they are able to land a booster for the first time on land. In 2016 they land it on a barge in the ocean, and in 2017 they reuse one of those boosters for the first time, okay?

What does this mean in numbers? Today, 84% of Falcon 9 flights reuse the booster, and the same booster flies up to 25 times. Imagine the cost reduction that generates, right? That is a bit of what we are going to see now. Reusing a rocket 25 times makes the price go from about $54,000 per kilo that you launched before with the Falcon 9 down to $2,700 with the reusable Falcon 9. We are talking about a 95% reduction, okay? To give you an idea, a duopoly that existed called United Launch Alliance, which was basically a duopoly between Boeing and Lockheed, charged between 350 and 500 million per launch. SpaceX charges 67 million for the same destination, okay? Obviously, the market has noticed this, and in 2025, for example, SpaceX did 165 launches, which is 52% of all orbital launches on the planet. One out of every two is from SpaceX today.

Leandro: Today SpaceX would be the lowest-cost producer in the industry.

Peer Analysis: SpaceX vs. RocketLab & Manned Spaceflight

Javier: Yes, there is data, for example, we haven’t talked about it yet, but you have RocketLab. It’s a much smaller company, I think it’s at a 90 billion valuation with 500 in revenue, but losing money. Nonetheless, for example, RocketLab has rockets that are much smaller, but their attraction or value proposition—they aren’t reusable yet and so on—is that their rockets have a relatively low cost, and moreover, they make it dedicated for you. That is, if any company wants to launch something, they contract directly with them. It’s not like in a shared launch capsule where there are different satellites from different companies put into the orbit that is required. These guys from RocketLab do it dedicated for you. They are much smaller rockets, but what happens with these larger rockets like SpaceX or Blue Origin or any other is that many times you have delays. If you have a problem, then it delays your entire line of clients. So it’s not specific for you, you are simply working with many more clients, right? What RocketLab does is simply give you the priority because you are the only client per rocket, so to speak, at a price, obviously, much more expensive than what you can get here, but with that added value.

Javier: While the Falcon 9 was already starting to dominate the commercial satellite market around 2020, it also launched the first manned mission of SpaceX with two NASA astronauts going to the International Space Station in a capsule designed also by SpaceX called the Dragon. Since then, basically SpaceX has been NASA’s only orbital taxi, up to nine missions that they have carried with this Crew Dragon, as they call it. I suppose many of you will have heard, in fact, that SpaceX had to go rescue two astronauts that the competition, the Boeing Starliner, left trapped in the International Space Station 9 months ago because the capsule had structural problems. It’s almost acting as a savior for the screw-ups of others. A business that emerged as a result of this quasi-monopoly that SpaceX has with the theme of launches—and which is a bit, I think, for the people who are interested and want to invest in SpaceX—the thesis is: look, having efficient rockets at the lowest production cost is a massive barrier to entry. It’s very complicated, it’s not as easy as simply generating software. It’s something very complicated to build. If this gives you a monopoly on launching into space, basically everything that happens in space goes through you.

Leandro: You are the tollbooth for journeys into space, a critical infrastructure, if the space economy really develops at some point. Then you are a tollbooth, and how much is that worth?

Javier: Well, it seems like one, almost two trillions, Leandro.

Leandro: Yes, it’s true. If I’m not mistaken, SpaceX was the first to land an orbital rocket in the year 2015, and I think in the S-1 it says that they have a 10-year advantage because it hasn’t happened again, or another company hasn’t done it until the year 2025, could it be? Or something like that I seem to remember reading.

I think there are some Chinese companies that have achieved something.

Javier: There are some. I mean, in the end, it has been a monopoly for 10 years, right? It’s true that it carries an advantage, but now it does seem that they are matching it somewhat in terms of being able to lower the launch cost.

Javier: Sure, but we are comparing—later we are going to see the different rockets—we are comparing Falcon 9 with what some Chinese companies are achieving now, or you could say Blue Origin with the New Glenn and so on, which are still a bit obviously exploded. In the end, the 10 years of advantage, you carry it anyway. The thing is that it wasn’t just that it carried 10 years of advantage, it’s that nobody had even been capable of achieving what you had done in 2015.

Starlink’s Global Dominance & Satellite Economics

Javier: And now with the Starship, which is the last one you see there, the launch cost drops significantly. We are going to see it. It is even expected that they will be capable of lowering it even more, still. Okay, now we’ll talk. Before, I wanted to talk because it goes a bit earlier in the timeline, the theme of Starlink, which I suppose many people know, right? In the end, it’s the capacity to have internet via satellites with broadband for everyone, basically. When they launched it in 2015, the reaction of the market in general was, as always, skeptical. OneWeb had already tried it, Teledesic tried it, Iridium tried it, and all of them failed, or the use cases were relatively very niche, smaller, not something really very scalable. The difference, obviously, is that SpaceX could launch its own satellites with its own rockets for a fraction of the cost that any previous competitor had faced. That has made it so that today Starlink, or SpaceX, has 9,600 satellites in orbit, which is crazy, Leandro. Because if I tell you they have almost 10,000—they have lost some, they have launched I don’t remember if it was 12,000 or 15,000, 12,000 I would say, but they have about 10,000 satellites in orbit—what percentage do you think that is over the total of satellites in orbit around the Earth?

Leandro: Look, I don’t have the remotest idea, but I’m going to say 70% almost.

Javier: Correct.

Leandro: Oh, well look, it seems like I knew it, but I had no idea.

Javier: It’s almost 70%, it’s almost two-thirds of all the satellites there are. We talked about it in a program, in fact, now I’m going to give you a piece of data that I’m sure you do remember. It’s crazy to think that two-thirds of the satellites there are in orbit are from SpaceX and Starlink. They already have 10 million subscribers to the service and they are present in about 125 countries. The numbers, in fact, have been quite powerful. They have gone from 500 million in 2021 to 11 billion in revenue in 2025. It’s almost 22x in 4 years. Obviously, we are talking about a company that is going to come out at almost 2 trillions. 11 billion is not much, but let’s separate a bit the valuation from what they are achieving and the growth they have had with things like Starlink, okay? The theme of this that I was telling you about, let’s remember a number that we talked about when we discussed data centers in space, we mention it again because of the 10,000 they have, they have requested authorization to launch up to 1 million. 100 times more. Okay, we leave it...

Leandro: Let’s see, but if you think about it and launch costs are reduced so much, in the end, it’s just that for the same price you can launch that. This we will talk about a bit later in future projects and the things that they want to do or that they propose that they can do.

Starship Mechanics & Evolutionary Engineering

Javier: Finally, in this part of the history, is to talk about the Starship, which is the rocket that comes to change everything. Really they started to design it and build it in 2019, and basically Starship is the largest rocket ever built. It’s 120 meters in height, it can carry 150 tons to low orbit—to give you a bit of context, the Falcon 9 carries 22.

We are talking about seven times the amount, and they want to make it 100% reusable, both the booster and then what comes to be the Starship, which is the top part.

Leandro: Because on the Falcon, Javi, for now, the only thing that’s reusable is the booster but not the rocket as such, or how?

Javier: No, both parts are reusable.

Leandro: Okay, okay, okay.

Javier: In Starship they have managed to catch it. Have you seen it, surely? If someone hasn’t seen videos of how they are capable of catching the booster back to Earth, see it because the truth is that it’s spectacular. For now, the booster yes, they have recovered it. The Starship, sorry, not yet, but it’s in the project and that is the theme—as you know, these things take time.

The development of the Starship has cost 10 billion, not bad. They had 11 test flights. The first flights obviously exploded and even some on purpose. At SpaceX they say that if it doesn’t explode, you aren’t learning fast enough. What does the Starship do to the cost per kilo? If the Falcon 9 lowered the price from 54,000 to 2,700 per kilo, Starship aims to lower it to less than 100 per kilo, another factor of 27 times reduction. It’s just very crazy. For this, obviously, the Starship would have to be fully reusable. When accessing space costs you less than almost a transatlantic flight per kilo, the economy maybe reorganizes itself, right? And things that didn’t make sense to do today—we could say data centers in space, factories in microgravity, or space tourism—maybe they start to work economically. But the truth is that the Starship still hasn’t entered into service and moreover, they go with a lot of delay, like almost everything in general, so you have to take it into account too, okay?

I bring you a bit, to finish with this long introduction, how the valuation of SpaceX has been changing and what financing rounds they have had.

They have raised more than 10 billion in private capital. Let’s remember that for this IPO they propose to raise between 70 and 80 billion, okay? They have done series from 2008 until a series N in 2025. They have been raising capital, as you can see there, almost always, because in the end, there’s no choice. As many of you know, their investors include everything from pension funds, like the Norwegian pension fund, to Google, among many, many others. In each round, almost the valuation has more than doubled. Always Elon said that he didn’t want to go public. I don’t know if you remember when Tesla had problems, not problems where the quote dropped and so on, and Elon always said that he proposed even taking it off the market. He didn’t want to ever take SpaceX public, and look how things have changed. It’s also true that raising 80 billion... I understand that he wouldn’t have many problems in raising them in private markets, especially now, but he has decided to take it public. I can’t tell you very well why, because I don’t know. If you want, we can discuss that.

Public vs. Private Markets & The xAI Acquisition

Leandro: Let’s see, later we can talk about it, but it’s also true that he takes it public but it continues to be a controlled company. I mean, it’s not a public launch as usual of what we are used to, I would say.

Javier: That’s true. It’s also interesting that he has changed his mind, not wanting to have it public, now taking it out. Obviously he has the power, so it matters little, quote-unquote, but you control less... well, you don’t control the valuation, that’s the truth. While in private markets, you have much more power. In the private market, he controls the valuation because you don’t see it. Well, yes you see it, but when you have to raise money you have to put a valuation. What happens is that I think the demand that has always existed in private markets has been much superior to the supply, so you can put the valuation that you want.

Leandro: Yes. And I would say that in private markets it’s much more difficult for a narrative... you have a lot of time between financing rounds, or you can dominate the narrative in a very different way than in public markets where suddenly you find yourself with a narrative against you and the price starts to react on a daily basis.

Javier: Yes. And finally, to talk about the timeline that we were mentioning, because there have been a couple of facts that don’t come out here since this only goes until 2024, but as many of you know, in recent years things have happened that are relatively important. We talk above all about xAI, which came when in 2022 Elon put the blanket over his head and bought Twitter for 44 billion. I don’t know if you remember that era, because Twitter now is part of SpaceX. We are going to tell a bit what has happened today in case there is anyone who hasn’t found out.

So, we are in 2022, Elon, to defend the capacity of people to... how do we say it? How did he mention it? Freedom of expression. Sorry, I was going to say, to defend freedom of expression, Elon decides to put 44 billion to buy Twitter and to end all the Woke ideology. Obviously, he didn’t put the 44 billion entirely himself, but he did put part, and then he raised capital and debt on the part of many investors, 44 billion. He renames Twitter to X, that surely we all know, with the idea of building a superapp in the style of WeChat. Advertising revenues collapse from 5 billion in 2021 to two in 2025, a drop of 65%. It’s very crazy.

Leandro: I must say, Javi, as a user of X, when Elon bought it, the first months you could tell a lot that the application was worsening, that was so. You noticed the change a lot. Evidently, he was also doing it with much less staff because it was like a disruptive process. He had fired a lot of people, thought it could be done with much less, and yes I must say that the application lately you notice that it’s improving quite a bit. Many people complain that the content is worse. Well, but that’s the human being. If you see the content there is in reels on Instagram, each time it’s worse or more nonsense. But it’s because of what people see, it’s not the fault of the one who puts the means of distribution.

Javier: Yes, that’s a debate that could be very long, truly, but yes, it is the fault of distribution because in the end it’s pushing those things, but it’s pushing those things because it knows that’s what keeps people in the application, it’s not doing it for any other reason.

Leandro: Yes.

Javier: So, let’s go back to the financial case. Think of the investors who put money in the purchase of Twitter—from Andreessen Horowitz to the Saudi funds, to say some—they were sitting on enormous losses. The value of Twitter as a brand had dropped completely, and Elon doesn’t like when his investors are losing money, that’s something that at least you have to give him. Then, in 2025, you already know that X or Twitter started also to develop its own language model, an LLM, and changed the name of the company from X to xAI. What Elon decides in February 2026, 6 months before the SpaceX IPO, is that SpaceX is going to acquire xAI in an operation completely with shares, valuing xAI at about 300 billion. He had bought it at 44, now it’s worth 300.

And he was valuing then SpaceX, all the part of Starlink and the rockets, at a trillion. So joint valuation 1.3 trillion, now it’s going to come out at 1.75, going up. Conclusion: the xAI investors are happy. Everyone is happy because now you are integrating vertically your artificial intelligence platform with SpaceX.

Leandro: Which there, Javi, do you think... I mean, I, for example, think of the three segments, right? Which we have already commented on a bit. We have the launch part, like the pure one of SpaceX. Then we have the communication part, which would be Starlink, and then we have xAI, the AI/X part. I understand completely the synergies between SpaceX and Starlink. In the end, this launch method is vertically integrated into the part of Starlink, but it costs me much more... I mean, evidently in the future you can see connections, because if you start to launch data centers into space, the xAI part can also be understood. I didn’t understand the rationale for the X acquisition until you told me this about the investors, which now I understand much better—I understand much better the motive for the integration of xAI inside SpaceX.

Cash Burn, Compute Infrastructure & The Anthropic Deal

Javier: Now I’m going to give you another motive. xAI was burning almost a billion a month, okay?

Leandro: Okay.

Javier: In infrastructure expenses, the compute, creating a laboratory like it can be an Open AI or an Anthropic, plus all the infrastructure layer because they have mounted Colossus, which is the largest data center in the world. That burns a lot of money and Twitter wasn’t working well—later we are going to see the numbers also of Grok and how many users it has and so on—but you were burning money, the money runs out. However, SpaceX was profitable and it generated cash. What do you do? You merge them, problem solved.

Leandro: And now we are going to see. SpaceX is profitable because of Starlink, right?

Javier: Correct, correct. Now we’ll see the numbers for each one. And what you have said, right? The potential synergies in the future. In the end, Elon has always been characterized by trying to integrate vertically and the vision he has obviously in the end is that AI is going to allow him also to iterate much faster all his designs—what we have mentioned of rockets, data centers in space, etcetera, simply holding an empire.

I think you also have to think about it from the point of view that Elon also has Tesla, because with Tesla, you are seeing Terafab. You are seeing how even arriving at the fabrication of the chips themselves... vertically integrated to the extreme, to the point that people say, “This guy is stupid.” But in the end, he can be stupid or he can be a visionary. We aren’t going to know until we see the future, but that’s another of the reasons. Right now the betting markets give, I think it’s above 70%, that Tesla and SpaceX are going to merge this year. I don’t know if it’s this year or the next, but in the next 12 months, 70%. It seems like it’s, quote-unquote, pretty clear that they are going to merge, and then you have the Holy Trinity almost mounted there. I was commenting this to you as a result of... I forgot.

Javier: No, I don’t remember. Now it doesn’t come to me, but later it will come to me I think. Later it will come to me.

So we are going to start to see now each of the current business lines to understand a bit where they come from, where they go, how it’s growing, to then understand a bit also the valuation and see if this makes sense or not, okay? So let’s start. By the way, for the people who are watching it, we have especially quite a few slides for the SpaceX part showing the differences between the Falcon 9, how the launch cost has been dropping, all that type of things that we aren’t going to comment on very in depth because we don’t have time.

But if anyone wants, simply we are going to pass them as we talk, and if anyone wants, pause it and take a look at the data because there are interesting things simply to have a bit more knowledge, okay? And whoever is listening, it’s not necessary because they can go in to look at it later, but the important data more or less we are going to mention, right? So we have here the main numbers of the space segment, which are the launchers, basically, and we have a business as we can see it where we only have the data for 2023, 2024, 2025 and how the first quarter of 2026 evolved compared to that of 2025. They report what is the amount of kilos that have been launched into orbit, the number of launches, and what are the metrics both of revenue and of operating profit or adjusted EBITDA. You already know that EBITDA in these cases that are so capital-intensive, and on top of that adjusted, I wouldn’t take them into account to understand how the business really works, right?

There are things that draw one’s attention. Obviously, the number of launches has grown, but it’s not crazy either. We can see that in 2023 they launched 100 rockets, in 2025 170, and so far in 2026, for example, they have launched less than in 2025. The market currently is what it is, it’s not something super booming either, nor does it grow at very crazy paces. The same look at the revenue. Besides, we have to think that if SpaceX is launching Starlink without stopping, although the number of launches increases, if you launch for yourself, that doesn’t generate revenue. That’s why we see, for example, that in 2026 the revenues have dropped, for example, with respect to 2025.

Leandro: I mean, Javi, launches are counting also their own?

Javier: Sure.

Leandro: Okay. They launch their own but they don’t generate revenue. Ya, ya, ya. It seems to me the KPI is fine, but it would be better if you saw the launches that generate revenue versus those that don’t.

Javier: Well, you could say that then they generate revenue for you through Starlink, you know? So yes, yes. As you can see, the operating losses are almost the same as the revenue. You generate 600 million almost in... sorry, no, I made a mistake, it’s 600 million and in revenue, you lose more or less... 600 is basically the number. It doesn’t make sense. In the end, this is a segment that allows you to do the rest of things, at least in the Starlink part, right?

What type of launch are they doing here? In the end, commercial launches, satellites for companies, governments, telecommunications operators, you have government contracts with NASA, with the Department of Defense. The Falcon 9 continues to be the rocket that you use the most, with 165 launches in 2025. You have the Falcon Heavy, which is basically the same capsule on top but with almost three times the boosters, and the Starship, which obviously still is in the testing phase, right? It’s important to know that the most important client is the United States government, the Department of Defense, and what is the interesting thing about this business?

In the end, it’s what we commented on before, that it’s almost a tollbooth that many companies or governments or whoever have to pass through to be able to launch things outside, okay? It’s as easy as that. Obviously, when the Starship is in operation, it’s going to cannibalize the Falcon 9 too, because it’s simply going to be much cheaper. So you have to take it into account.

Without further ado, what was said, I’m passing some slides so that people see it, and here you can see the difference between the Falcon 9, Falcon Heavy, Starship, and some differences. Well, I pass them forward, okay? Whoever wants to, stop it. And above all, Leandro, when later we talk about valuation and you tell me something about whether it’s very expensive or whatever, I’m going to tell you how much this is worth because the images are spectacular. I repeat again to the people that if they haven’t seen truly how they catch the boosters and so on, it deserves to be seen, or it deserves to see a launch. Finally, to finish the space part, it’s a bit to show you... I don’t know if to say that it’s the culture of Tesla or SpaceX, or it’s a bit how Elon works, which is, I think, independently of whether you believe that his companies are overhyped or very overvalued or whatever...

Leandro: You know what happens? I think here it happens a bit—and I’m going to mention another company—what happened with let’s say with Palantir. In the end, when Palantir was, let’s say, at $10, everyone said that it was overvalued because it quoted at multiples of 60 times. Okay, people continue saying it today when it’s trading at $150 because the multiple continues to be high, but what is evident is that at $10 it wasn’t overvalued. You can’t have the two points of view because in the end, yes, the multiple continues to be high, but if you take the $10 and take today’s numbers, it wasn’t overvalued, right? Because they have grown above what everyone expected. I think that with Elon’s companies it happens a bit the same. In Tesla, many people say, “No, it’s just that it’s hyper-overvalued,” okay, but the same one who says it today was saying it 15 years ago when things are already quite different, right? So there have been advances too, and the bears from 10 years ago maybe weren’t right, which doesn’t mean that today’s aren’t right. But you also have to take it into account.

Javier: Yes. All this is quite complicated. I agree. How much is what Elon is building worth? I don’t know if it’s two trillions. It’s hard for me to see it, but maybe we are mistaken. I also would have told you 3 years ago that 300 billions was crazy.

And here we are discussing if two trillions... Is the market crazy? I don’t know, but independent of that, we leave that for the end. I think that what he is achieving, what he has achieved, right? Although he has gone with many years of delay, because that is a fact, what he has achieved is incredible and that is what we are trying to tell here, and then we’ll see if the valuation makes sense or not. But this is the evolution that the Raptor engines have had, which seems to me spectacular, how they have been evolving it.

It’s very interesting to read also the biography of Elon. Have you read it, Leandro? I suppose so.

Leandro: No, no, I haven’t read it.

Javier: It’s worth it. How the guy tackles all these types of problems, or how he thinks about problems. I think these images of the three engines, the evolution, is a clear example, okay? It’s quite spectacular. I think this image is very visible, that’s why I put it in.

Come on, let’s go to the part that is a bit the crown jewel, in fact, the one that generates benefits, what is financing the rest of things, which nobody believed, but here it is. It’s that maybe what people don’t understand with Starlink is that each new generation of satellite has more capacity and you have lower cost per bit. That means that as you go replacing the constellation, the margin of the business improves automatically, and more obviously the adoption, but you don’t need to grow much to improve profitability.

Leandro: I, in this, Javi... I in this segment have my skepticism. I mean, it doesn’t seem reasonable to me, in the same way that it doesn’t seem reasonable to me to look at the losses of the space part because really many of the losses you are assuming them to generate benefits here in the Starlink part. Neither does it seem reasonable to me to take Starlink, take the profits, and say, “Look at how profitable it is.” Because in the end, you need the other part to be able to make it real.

Javier: Yes, yes, yes, yes, correct. It’s correct.

Leandro: And then also that Starlink today is a monopoly that is not going to continue being so. I mean, those are the two things that would squeak at me most about this part, but evidently from today’s numbers it seems like a very good business.

Javier: Yes. Let’s see, sure... I think you have to take both as consolidated, right? In the end, I mean, I don’t know how they will be accounting for it, I’m going to be honest, if they are putting the costs... maybe here we have the costs, they charge it to the space segment. It could be, sure, I’m not sure, so I’m not going to launch into it, but you can consider both and be able to have a better idea. Nonetheless, we can see how basically the number of Starlink subscribers has doubled. It’s also true that they have started... we told it in the case of AST, we told how Starlink was going also, which is a bit the value proposition of AST directly to the phone without need for the antenna and so on that Starlink had before, and they have collaborations with... right now I don’t remember if it was T-Mobile in the United States or which was the operator they were using to give this service, right? I am also a bit skeptical. Now the movement that Starlink is making is trying to go directly to the phone so as not to have to have all the additional hardware. It’s a different functioning, okay? And it’s still in the development process and launching the new constellation of satellites. There is a lot of stuff to disentangle there, but it’s wanting to have an approach to the business model relatively similar to the one we told in the case of AST, which was a few programs ago, okay? In case anyone wants to listen to it.

Leandro: Yes, if I’m not mistaken, Javi, Starlink is direct distribution, while AST is distribution through mobile operators, so I would understand that at first Starlink is going to have better margins for the fact of not having to pay a “commission” to anyone.

Javier: It should, yes. No, two things. Yes, Starlink originally was direct distribution, now Starlink with the directly-to-the-phone is going through T-Mobile in the United States, and it also has partnerships with... similar to AST, which I think there are many people who say, “No, it’s just that AST has directly the partners with a lot of operators.” Yes, it’s true, and in fact they form part of the shareholding, but in the case of Starlink, for example, it already has also 27 partnerships with operators, Deutsche Telekom in Europe, for example, it rings a bell that it also has it with AT&T.

Leandro: I mean, I think that here what you have to see is in the end, Starlink before was alone and now you have AST coming, you have Amazon Kuiper... in the end, more are coming and you don’t have an exclusive distribution agreement. In the end, if the technology becomes commoditized, they will use one would think the one that costs less.

Javier: It’s true that how they are approaching the problem of providing this service between AST and Starlink is different. AST are few mega-large satellites; Starlink are many satellites. To be completely sincere with you, I don’t have a clue which proposition is better. I mean, I understand that each one has its advantages, its inconveniences.

Leandro: And if we look at the future a bit, I evidently here yes that I see synergies with the Elon ecosystem because if you are building humanoids and autonomous cars, you need connectivity in any place always. So there I can see a certain synergy, right? Which in the end is part of the vertical integration that Elon looks for.

Javier: Yes, later we see it a bit in future projects, but that’s the idea, right? Well, I’m the same, passing several images. We aren’t going to enter into detail on each one of the different satellites, the different versions and how they have been improving, okay? And we are going to pass this.

Look, this is a bit the footprint they have and so on. Well, for whoever wants, let them stop it and take a look. Let’s go...

Leandro: Interesting what we commented in the episode of ASTS. We said “Hey, yes, but if the use case of this is for less developed geographies, the revenue per user is not going to be able to be very high.” And that is seen in Starlink, right? Because they have been expanding to less developed geographies, and the revenue per user has been dropping in a relatively consistent manner.

Javier: This is something that has happened in cases as simple as Spotify or Netflix. Since growth comes from emerging regions, you see that the ARPU has remained constant or has even dropped prices in developed markets. That’s simply part of how this works, okay?

Finally, the part of artificial intelligence, which as we have commented before, basically it’s three businesses in one. You have X, Twitter, with advertising, which generates about 1.8 billion a year. What we said has dropped from five since 2021. It has the subscriptions... well, no, that would be the second business, which would be X Premium and Super Grok. X has like about 4 million premium subscribers, which is not that much, I would have thought it was more, and about 900,000 subscribers to Super Grok, a month, $30 a month respectively, well, you have combined revenues that are quite modest. By comparison, ChatGPT has I don’t know if more than 15 million users, meaning quite far, right? And in fact, staying a bit behind.

And finally, you have the layer of computing infrastructure, the Colossus, that SpaceX has like 325,000 Nvidia GPUs under management, and just before the IPO—and this is quite interesting because the bulls of SpaceX took it as a super, super bullish piece of news—the fact that xAI has signed a contract with Anthropic of 1.25 billion a month to use part of the infrastructure until May 2029, okay? And people say, “Holy shit, how smart Elon, who has offered that capacity he had.”

Leandro: In the end, he has become a hyper-scaler just like that out of nowhere.

Javier: Yes. And the theme is, “Wow, what a guy, how he saw it coming, how good. These are 1.25 billion more a month. Incredible.” Sure, but what this tells you is that Grok is not working as expected. They built capacity to spare, correct? And it is detrimental to Grok and its development of artificial intelligence that it’s not going as well as they had planned. And well, I mean, so that we see how the narrative can be used in any way. If they didn’t have that capacity or because it was being used by their own business, maybe they were giving worse numbers in theme of revenue, or even yes, because maybe they go out a lot at losses, but nevertheless, the business would be going better than what maybe it’s going now. I don’t know if I’m explaining myself but...

mean, so that we think about it, 1.5 billion coming from Anthropic a month assumes about 14 billion annually, which is almost doubling the revenue that SpaceX does. Just for this, so that we are conscious of the numbers so small, quote-unquote, of which we are talking, that SpaceX is still taking in, that only... and if you put it at 3 years, well, that’s about 45 billion in 3 years, the contract, which later can be canceled along the way or whatever, but it’s quite significant if you look at the current numbers.

Financial Analysis: Consolidated Margins & Aggressive CapEx

Javier: And finally, we have the consolidated numbers. What we said, last year they did 18.6 billion of revenue for some operating losses of 2.5 billion, and this is going to shoot up this year because this is not consolidated yet, xAI, which as we have seen, has some losses in the quarter of 2.5 billion.

Leandro: Well, these are the numbers for the first quarter of 2026. We see the business has grown 15%, I mean, it’s difficult to justify a multiple of 50 times revenue, I think it is if we take 20 billion depending on the valuation that comes out, but about 50 times revenues with a business growing at 15%. Obviously, who knows what is going to happen in the future and what Elon is going to manage to do if he truly lowers launch costs so much.

Javier: Well, it’s much more, right? Than 50 times they are going to do this year, they are going to do almost 40 this year or close to 40. But it’s what was said, that now you generate revenue for Anthropic because another part of your business is not going so well is positive, right? That’s why I say that the multiples, it’s relative what it means, but if you do 40 billion at 2 trillions, 50 times. Okay? And the last thing I wanted to show you was the CapEx.

Leandro: Well, the CapEx has fascinated me because in many companies you think, “Ah, look, the CapEx is...” in hyper-capital-intensive companies, the CapEx is a 20-30% of sales. How much is it for SpaceX, assuming that they are going to do about 40 billion in 2026 or 30?

In the end, it’s more than one times revenue, the CapEx, right?

Javier: No, where? Let’s see, it has 18 billion of revenue and CapEx of 20 billion in 2025. Ah, okay, yes, sorry, you’re right. Yes, correct. Crazy. Correct. And later we are going to see some very interesting things regarding CapEx, because in the launch part they are accounting for some rocket development expenses, they are passing them through the P&L as research and development expenses instead of capitalizing them, okay?

Leandro: To me, at first you tell me that way and it seems to me a more conservative accounting in the sense that you are assuming that all of it you lose and that it doesn’t report revenue to you. But maybe at this moment what they want to show is, “Hey, right now I’m losing money but I’m not spending so much on CapEx to generate future profits.”

Javier: I don’t know, it could be... you can see it both ways as you want, but yes, they have spent in the first quarter of 2026 10 billion. Annualize it, it’s almost 40 a year, which is basically what we expect them to have in revenue. We all understand now why they are raising 70-80 billion, right? Yes, it’s clear. I mean, it’s necessary.

Theoretical Markets: Satellite Scaling & Lunar Infrastructure

Javier: Come on, this we can leave it here and we are going to talk a bit, Leandro, about future business lines, what the prospectus says a bit of the things that can happen, okay? And all this, of course, it’s important to understand that the key to everything is Starship. When you are capable of carrying a cost of 1 kg of weight into space passing from $2,700 current to less than 100, that is the key to everything and that is what has to happen to start to build everything they are talking about. Because we are talking about, for example, data centers in space, which we have an episode in which we talk about that, we talk about the physics behind the opportunities, and why truly it makes sense from a point of view of first principles, if you want to say it, but also what are the risks and the difficulties of achieving it, and we have talked about it. So I would recommend that if you are interested in this part, that you go see that one because there we explain it a bit more thoroughly and it doesn’t make sense that we repeat it now.

And this is what I was telling you before too, about the petition that SpaceX has made to the FCC to reach up to 1 million satellites in space from the 10,000 current, let’s not forget. We have commented on it before, it’s Starlink. This doesn’t come out directly in the S-1 but obviously it’s one of the main reasons for which Amazon also is in this war to have capacity of connectivity from satellites to potentially control an, quote-unquote, army of humanoids, right?

Leandro: It’s the capacity of the satellites that Amazon already is putting it from this point of view. If I am capable of having a network of satellites in space, my data center clients know that there is always a backup to the connectivity problems that can happen on Earth and that it can always be operative, that in the end, the failures in data centers cost billions of dollars every time they occur.

Javier: Later it’s also important to take into account, and it’s a bit, I think, where things are going. You know that the American government has said now that it wants to have a base on the Moon. I think it’s as space starts to become a part of the critical infrastructure, be it for commercial infrastructure, the armies obviously want to have a position there, and yes that truly it could become a strategic asset to control space, quote-unquote, right? And now I’m going to give you a couple of comments in that regard. The first thing you have is the lunar base, what we have said, simply operational to extract resources, potentially water ice from the poles, produce propulsion fuel, use the Moon simply as a gas station. If you can produce fuel on the Moon with lunar resources, you can refuel spaceships without having to raise fuel from Earth, and that multiplies by a lot the operational radius that you could have in the solar system. I know that we are talking about craziness, but in Elon’s head, these aren’t crazies, these are things that are going to happen. We’ll see when, but they are things that are going to happen.

Leandro: And I must tell you that I also am convinced that they are going to happen. I mean, we don’t know when.

Javier: Yes, there is the theme of jurisdiction and property in space. There is a treaty from 1967 that says that no state can claim sovereignty over the Moon, but it doesn’t say anything about private companies, and SpaceX is on it, obviously, right? Then I suppose you have seen images also of...

Leandro: Sure, Javi, you are telling me that it’s two trillions, but you have the Moon. Maybe it’s not so bad... Moon, and the next thing, Mars... it’s not so bad, eh?

Javier: There we go, a trillion each.

Rocket Earth Travel & The Mars Colony Timeline

Javier: Also, apart from this, you have... I don’t know if you have seen they brought out in one of the last presentations like launchers from the Moon. Obviously, gravity is much lower, you have like a catapult basically and it’s capable of sending... Well, they also have in the S-1, it comes out also, journeys point-to-point on Earth with rockets. What happens if you use a rocket to go from New York to Tokio in 45 minutes? They claim that Starship can do that. Technically the numbers work at Mach 25. Obviously the initial target market would be luxury travel, high-level executives, military obviously, the Department of Defense for sure has interest in being able to move troops and equipment to the other side of the world in half an hour. In fact, there exists a program called Rocket Cargo on the part of the American army, and SpaceX is in it. And SpaceX says that for the mid-2030s it could have some route operational. We’ll see, because if they say mid-2030s, maybe it’s mid or late 2040s, but imagine boarding wherever and in half an hour being wherever, basically, because it doesn’t matter because you arrive in a moment. They are science fiction ideas, but well.

And then you have, of course, Mars, which has always been Elon’s dream and it continues being there. What the S-1 says in reality is... I don’t know if you know it, but the launch windows from Earth to Mars due to the alignment of the planets and being able to catch the correct orbits to be able to use the different orbits and be able, in fact, for it to be effective... The launch windows from Earth to Mars open only... they happen every more or less 26 months, and 2026 is one of those years in which there is a window to be able to launch to Mars, and they have as an objective to launch the first uncrewed cargo mission to Mars this 2026. It has surprised me to read it because it seems very soon, no? They talk also of the first manned mission in 2028 and an initial city for the decade of 2030. City, okay?

And in fact, Elon Musk has...

Leandro: We have to solve, Javi, we have to solve the housing problem.

Javier: Yes, Mars, there is space, and on the Moon too. In the incentives of Elon for his remuneration package, he has 15 blocks which are activated with different milestones. The last of them, for his retribution to be equivalent—because it’s also through shares and so on, but it would be the equivalent of a trillion dollars—would be to have 1 million inhabitants on Mars. It’s very crazy, it’s very crazy.

Leandro: And this, what year... in what year would it be unlocked or is it by KPI without limit of years?

Javier: I think it’s without limit of years. Another is a valuation, I don’t remember now if it was of 7.5 trillions or something like that, it has different tranches, okay? But the last would be a million of inhabitants on Mars. So that we see where the guy goes.

Leandro: In the end, if you see this, it’s evident that Elon is a small child trying to make his dream reality, and probably he has achieved it up to a point that nobody would expect that he was going to achieve it 10-20 years ago. And here we are, right? At the same time it seems like craziness, but he has also earned the right for people to believe in him, I think.

Javier: Yes, I totally agree. You also have to be very conscious that what Elon cares about is achieving this, not what the share does. The share is a means.

Leandro: Yes. The companies are a means for him to be able to finance it.

javier: Yes, and he is focused on achieving this, which is his vision of what humanity needs, and for it he goes. That’s why you have to be careful, right? And now SpaceX goes public precisely because it’s a good opportunity to raise a mountain of capital to be able to do these things.

The Tesla/SpaceX Conglomerate & The Terafab Joint Venture

Javier: Finally, and related to the slide we have here, these are Elon’s companies:

SpaceX with xAI now together, Tesla, what we talked about before, potential to merge them both, it would make relatively quite a bit of sense. And this is also important for investors. Ah, now I remembered! Do you remember that before I told you that something I had forgotten? Now I’ll tell you. Now I have it here in the notes. So, two important things. Well, and already to also show on this slide, we have the theme of the Boring Company, which I think is not gaining much traction, but above all Neuralink. Maybe one day we have to do an episode about Neuralink, because what Elon is doing is another madness, very crazy, and they have achieved things that are spectacular already—very, very crazy at another completely different level.

Well, the case of Tesla and SpaceX and their possible union in the coming months makes a lot of sense, probably for him. In fact, it would be a way that he would be capable of having also absolute control over Tesla, doing a merger. You don’t have to discard it also in that sense, because right now he doesn’t have absolute control over Tesla. That’s why the theme of the remuneration came also, and the courts of Delaware throwing back the remuneration that the board had assigned him, and then the shareholders of Tesla to be able to have control over the company. A merger with SpaceX, given that he has a great political power in SpaceX, would be basically establishing control over the joint company. So it makes sense plus all the synergies or complementations that both can have.

And a very important thing to take into account, and what I mentioned to you before, is the theme of the Terafab that you have mentioned before yourself, and it is the new thing of Elon of wanting to be a TSMC, basically, or at least have the capacity to be vertically integrated and not depend on TSMC for the manufacture of chips. This is a joint venture, the Terafab, between SpaceX and Tesla, in which obviously already enter into conflict... you have two balance sheets, who puts the money, who has then how things are divided. Doesn’t it make sense that you merge everything so that there is no conflict of interest between the two businesses?

Leandro: In fact, I think that the fact that the possibilities of a merger have risen so much is precisely because of the Terafab—the fact that they are of the two companies and everyone has said, “Okay, well if this is the first step for everything to end up under the same roof.”

Javier: It’s just that it makes sense. That is what we have said about the capacity of control over the joint company, which right now he doesn’t have in Tesla—he has quite a bit but he doesn’t have full control. And what I wanted to mention was to all the shareholders of Tesla because I think it’s quite relevant, right? If you are a shareholder of Tesla and it’s going to merge with SpaceX, you have to consider that maybe the merger happens when SpaceX is quoting at whatever—it’s going to come out at 1.75 or at two, but it’s just that maybe in a week we are at three trillions of valuation and Tesla quotes at 1 point something, each one let them estimate what the reasonable values are for each of them. But if they merge it for you at current market prices, you have to be conscious if it interests you to be a shareholder of the conglomerate when SpaceX is valued at the valuation that it’s going to be valued at. It’s a thing also to take into account because I understand that there is a lot of people who listen to us who potentially are shareholders of Tesla and maybe see the valuation of Tesla as something reasonable and that of SpaceX not. To consider, okay?

The Cursor Acquisition & Developer Engines

Javier: The other thing is that there are thousands of things here. As you know, SpaceX or xAI have entered also into an agreement with Cursor. Cursor is an artificial intelligence code editor, to be able to acquire Cursor at a valuation of 60 billion. Already we talk here of billions as if they were peanuts, but it’s madness. Cursor basically is like the Copilot of Microsoft but for developers who know what they are doing, okay? I don’t remember what revenue Cursor had.

Okay, then, why would SpaceX want Cursor? They have arrived at an agreement in which basically SpaceX, or sorry, xAI is using Cursor. It pays Cursor I don’t know if it was a few billions a year with a penalty... with a possible payment of 10 billion if they don’t execute the purchase option at 60 billion. And at 60 billion paid in large part, I think if I remember correctly, with shares. Then, why would SpaceX want Cursor? And it is basically because if you are the provider of an infrastructure of compute for artificial intelligence, well obviously having development tools that artificial intelligence developers use...

Leandro: In the end, I think, Javi, if we think of Open AI which has Codex and in Anthropic which has Claude Code, for me those are the engines of AI right now. If you take that away from them, AI is not reporting so much to you. In the end, yes, obviously it’s a very good tool even if you don’t have the capacity to write code, but really where you are taking off is in Codex and in Code. Then, if you are Grok, the normal thing is that you want something similar for yourself.

Javier: Yes. Well, I’m putting a slide here of what comes out in the S-1 of SpaceX about its TAM... so that you see it. It seems spectacular to me, and besides it has seemed very conservative to me because where is Mars?

Leandro: It seems to me evidently that it can be greater, but I don’t understand a TAM in this way. A TAM I understand it as: this is the current size and this is what I think it can grow to in the future. In the end, because the TAMs are growing, and more for a company like SpaceX, right?

Javier: I agree, the TAM should be current, and then you say that each one, but yes, simply I put it to illustrate. And as you can see, 22 trillions are from Enterprise applications.

Technical Challenges, Related Party Transactions & Cash Runways

Javier: So, I’m going to put this slide which is the last one we have to discuss the rest of things, okay? But it seems important to me so that we see where we are. We are going to talk about some things that smell bad, Leandro, okay? Some red flags. We have... I think we have mentioned almost all, but they are things that for a valuation of 2 trillions, it costs a bit. For example, we have already mentioned it: how much money is SpaceX burning annually? 9 billion in the first quarter of 2026. If things continue like this, it looks like they are going to dilute you a few times. Potentially yes.

Leandro: Yes, totally. Well, that’s one, right? You have to be conscious that the valuation in function to multiples or current fundamental realities is, quote-unquote, unreal. Simply you have to be conscious that one cannot value SpaceX—or it’s not that you can’t, but rather traditional valuation multiples cannot be taken into account to value SpaceX. It can be or not, simply it’s going to lead you to not even being able to consider it because it’s not your type of investment. Or you have to invest thinking simply that interplanetary life can generate new economies and that SpaceX can be... because it doesn’t necessarily have to be the only one, but it could be a great beneficiary of a completely new economy.

Javier: How I see it, the valuation is madness. If you take into account the current environment, yes, it’s madness. The potential market is so large that if everything goes well, the valuation could be very cheap looking at many years out too. And in the end, all the valuation... I wouldn’t say that traditional multiples can’t be used, but rather that the discounted cash flow model depends on how optimistic you are, it’s going to seem very distinct, because you are going to have very crazy growths if in the end Elon manages to make this be reality. But of course, it does seem that the current valuation leaves little margin for error for any of the big bets to fail.

Leandro: And as you have said, besides, another of the risks is that this all depends on Starship. Then in the end, you have there a point of failure. If it works all well, it unlocks many things; if not, it blocks many more things for you than unlocking.

Javier: I would say that Starship seems like it’s going to work because already it is launched, it works. Let’s see what it takes because as always, all this is very complicated engineering, but I think it will end up happening in the next few years. Then, does a demand exist to send such an amount of assets into space? That is what you have to see, right? And then if launching something is difficult, mounting a base on the Moon is much more difficult, and mounting a whole ecosystem up there is extremely hard.

Leandro: Yes. And it’s going to take many years. Then you also have to think that right now the company doesn’t generate cash. It has quite a bit of debt if we consider the revenues and not the valuation. The thing is if at some point the capital market drains a bit, you are in a tough spot because in the end, your engine for creating cash, which is Starlink, is going to have competition in the coming years. So let’s see how it maintains the rhythm of cash generation, right? In the end, it can be that temporarily the objectives are met but they take too long to be met in relation to the liquidity that you have. Evidently, he is Elon and I don’t think he has problems raising money in the capital market, but you never know. In the end, everything can go crooked.

Javier: It’s a very important point because SpaceX has 29 billion in debt that matures in 3 years. Obviously, they are going to raise 70-80 billion now, but of course they are going to burn also 40 or 50, we don’t know. So what Leandro mentioned, there can be a moment in which the capital market really dries up, and it can happen. One would always say that he’s going to be capable of raising because of what he has achieved already—he has demonstrated many things—so he is going to be capable of raising, but we’ll see at what valuations. What I do believe is that it’s very, very probable that there will be a lot of volatility and that in one or two years you are capable of buying SpaceX at another valuation very different from today’s. That would be my bet, very different.

Leandro: You mean 10 trillions, no?

Javier: Yes, and at 500 billions too. Maybe I’m mistaken, but we’ll see, right?

Leandro: These things portray why in investing you always have to do the work before the opportunity arrives. You look at SpaceX at 2 trillions, you can’t make sense of the valuation, well, there is a lot of volatility in the market. I think people aren’t conscious that if they took their portfolio and calculated the dispersion between the maximum and the minimum of the companies in their portfolio, they would be amazed at how shares move within the same year. There can be differentials for companies capitalizing more than half a trillion in the 50 to 60% every year, it’s madness, it’s madness.

Javier: We have commented already before the accounting note about research and development versus CapEx and so on. Another thing, you have to be conscious that not everything Musk touches works. We have, for example, the case of Twitter. It hasn’t worked well, despite the fact that later Elon reinvented himself a bit with the part of artificial intelligence and so on, but Twitter as such, he took it and as a business it still hasn’t taken off, so to speak. You could understand that Twitter was a whim that went wrong. These are whims that some can go out well, and many are going out well, but it can also be a whim that Elon gets infatuated with something that ends up going out poorly simply because he would like to have it.

Then there is some note, for example, related party transactions, which means transactions with interested persons of the company, okay? You have, for example, that SpaceX has bought 130 million in Tesla Cybertrucks, 500 million in Tesla Megapacks, 500 million in Tesla data bought by xAI to train Grok, sorry. Let’s see, it’s a billion and a half... that’s why we say that probably the merger between Tesla and SpaceX ends up happening because this has no... Then you have to be conscious that the fusion of SpaceX with xAI was a bailout, a very, very clear bailout, and also a capacity to put cash flow to be able to invest. You have to be conscious that this type of things can happen with Elon and can continue happening. Maybe investors in SpaceX, if Elon, for example, hadn’t merged xAI diluting the investors of SpaceX, and SpaceX went public, maybe the profitability of the investors of SpaceX would have been much higher than what it is now with xAI, potentially. Then you have to be conscious also that Elon with his universe of companies is going to do and undo a bit at his will. Later, the AI of SpaceX, Grok, has a very, very limited traction, and it is a constant expense of cash too. What is going to be the profitability of those investments? We’ll see. The bulls will say that now giving it to Anthropic is a master movement.

IPO Structures: Float Dynamics, Lockups & Index Rules

Javier: Well, what we commented on before, only 3.3% of the float is going to come out in the IPO, it’s very, very little. There are different lockups, periods in which the investors who are inside cannot sell. Elon has a year, I think, but there are other investors who have 180 days, there are different blocks.

Leandro: Isn’t it that this is going to be madness, the final lock-up?

Javier: Yes, it can be. Depending on where the price of the share is too, we’ll see, right?

The 5% of the shares go to employees and friends, families without lockup, and that means that from day 1 of the IPO there are people with shares who can sell, okay? You have to be conscious of what that 3.3% of the float means. It’s that if there is a demand of about 50-75 billion waiting, competing for that float of 50-75 billion of shares available, the price really can go to any place in the first days. But I expect to see it at three trillions. My bet is that it’s going to go to 3 trillions at some point in the coming days, and when the lockups expire between one year and 2 years, even some more I think, the float is going to multiply too.

By the way, another of the things we haven’t commented on is the change in the conditions that the indices have to be able to buy shares of SpaceX. Normally you had to wait a few months for an index to participate, these companies or a new IPO in the index. This has been changed so that indices can buy SpaceX in the days following the IPO.

Leandro: I thought you couldn’t enter into an index being a controlled company up to a point, but that can be in some European indices or something like that.

Javier: It can be. And in general, the Americans go by the float—meaning capitalization by float—but the specifications have been changed a bit to make room for SpaceX. It is what it is, okay?

Leandro: Let’s see, yes it’s true that as an index, neither can you ignore a company that has 2 trillions of capitalization because then it’s not representative of the market that is out there. That’s so. They are 2 trillions, it’s one of the largest companies in the world.

Multi-Decade Modeling Constraints & Key Man Risk

Javier: Then you have to be conscious of things like, for example, we have talked about data centers in space as a future business, but if you do a bit of mathematics, we have 10,000 active satellites and SpaceX says that it wants to reach 1 million. That requires launching obviously 990,000 additional satellites. The Falcon 9 carries about 60 Starlink satellites per launch of the small ones. With 165 launches a year, which is more or less what it’s doing, those are about 10,000 new satellites a year. To reach 1 million you need 100 years. With Starship, obviously, the cadence and the payload increase dramatically, but even so, you require launches of Starship, hundreds of launches of Starship a year sustained during a decade to reach the million this that we talk about, okay? Obviously, maybe the million, whatever.

What I am claiming is that you don’t know if the Starship 3 is going to come out within 10 years that accelerates it for you in a considerable way. You have no idea. But we are talking about decades in general in all these things, which you have to be conscious of. And if in a year what you say, the stock varies 50-60%, imagine in a decade. Be conscious. The risk of Elon, it’s not necessary even to mention it, right? I don’t even know what to say. Obviously, SpaceX has an incredible amount of engineers who surely are very good, but if something happens to Elon, we don’t know if the thing is worth the same.

Leandro: I would say that you also have to take into account that many of those engineers are there because Elon is there, because they share his vision and share the way in which he does things. If Elon is not there, many of your best engineers probably won’t be there either.

Javier: And well, Leandro, I don’t know, do you have any more things to comment regarding the red flags? Not red flags, but comments like that?

Leandro: Let’s see, I think the business right now is what it is and as we have commented, it cannot be valued with the eyes of the present and the past. Here you have to be a visionary to try to make the valuation make sense, and it can make sense if you make your estimations out to the future. But evidently if you give someone these financial statements without giving them context about Elon and about his vision, they wouldn’t pay 2 trillions. I am pretty sure about this, but of course, the business of investment is about buying profits, future cash flows, not those that are in a regulatory document.

Javier: Yesterday I listened to Ron Baron—Baron Capital, a giant fund in the United States. Ron Baron invested in SpaceX many years ago. I think he is going to buy... how much was it? A billion or something like that that he was going to participate... meaning being already an investor, he was going to buy a billion or more additional in the IPO at IPO prices, and he came out speaking. Basically there is a video on Twitter of half an hour in which Ron Baron comes out speaking and he comments a bit how Elon is and the reason that he gives to be able to invest and believe himself that the valuation is correct, for what gives you permission to participate.

Regarding the valuation, I think we have already mentioned a lot, each one has to think if it makes sense or not. And maybe if you look 30 years out, as always it matters little one trillion than two, almost, but if you don’t want to see your portfolio in 4 years... maybe in 4 years it doesn’t work well. It’s very difficult.

Emotional Capacity & Navigating Drawdowns (The Amazon Paradigm)

Leandro: I think here, Javi, enters the never-ending problem. In the end you see companies that you say, “Okay, the opportunity is enormous,” they seem expensive to you, and you say, “Well, but I prefer to wait for it to be a more reasonable valuation.” That moment may not arrive and then you stay with the face of a fool, quote-unquote. But yes it can arrive, which doesn’t mean that it’ll end up in a different place over the long term. Many people say, “No, but it matters little because then the long term you are going to end up winning.” You say, “Yes, but you have to face a drawdown...” that people say it very lightly, you have to face a 60% drawdown to know what it feels like to be in one, and then it’s not so easy. Many people when they say, “No, if you had invested in Amazon in ‘97 now you would have made 100x times whatever, okay?” Yes, but would you have held through a -90% drawdown in the dot-com bubble? Well, probably not. How many investors held from ‘97 until today Amazon? Well, probably very few. How many investors held Amazon buying it when the valuation was destroyed? Well, probably many more. I mean, in the end, I think you also have to take into account that not only is what is going to happen in the long term, but what is going to facilitate me carrying something in the long term in my portfolio, and for that conviction evidently helps.

Javier: I don’t know if it was in the interview with Ron Baron or I have seen it in some tweet from some famous investor, they mention that buying SpaceX now in the IPO is like having bought Google or Meta in their IPOs, okay? You have to be conscious. Meta came out at 100 billions and Meta, that same first year, I think it went on to a 60% drawdown. What I want to say is that one thing has nothing to do with the other, and you have to be conscious and you have to be careful because….

Leandro: Meta from May to September has a 51% drawdown after the IPO. Well, that in 5 months. The same can happen here, and it doesn’t mean that in the long term it can’t make sense. Who knows, we aren’t saying that it’s going to have it, we don’t know, each one has to... and I don’t think you have to enter into the game of, “No, but it’s just that if you are long-term, that has to matter little to you.” Each one has to know themselves and be conscious of how they manage the emotions of a significant drop. And it’s not enough to have read things about significant drops, you have to feel them. Because evidently when Meta did a minus 50 after going public, probably the narrative wasn’t the best. Then you have to take those things into account and you don’t have to let yourself be carried away also by simplistic arguments of “2 trillions is madness, you have to be an asshole to invest in this.” The two things.

The law of large numbers has been demonstrated to be a fallacy. 10 years ago someone would have said that a trillion was impossible for it to grow more, and we have Nvidia at 5 trillions. You have to be conscious which are the companies that really are capitalizing much more the advent of artificial intelligence, which are the companies that really can implement in their business models artificial intelligence much faster than any small company, etcetera. You have to be careful with simplistic narratives in general.

Industry Shifts: Value Substitution & ASML Unmapped Ocean Logic

Leandro: Yes. What I see in technological themes is that many people look at the law of large numbers but don’t realize that what is being seen is, apart from growth, substitution. If the AI is capable of substituting parts of the labor and software markets, you have to take into account that the law of large numbers doesn’t apply much there because it’s not that value is being generated out of nothing, it’s that a transmission of value is being seen from certain industries to others thanks to technology, right? And here also the same can happen. In the end, if you can do many more things in space than before you did on Earth, it’s not that suddenly a new market has come out and you say, “Wow, the economy can’t take this...” It’s that there are several things that before would have been done on Earth that maybe start to be done in space, and you have to think about it that way too.

Javier: And Leandro, it’s not only substituting, it’s new paths that we aren’t conscious of yet, and above all the blue ocean that opens up that people... that we aren’t capable of seeing and that really can come.

Leandro: Look, this is the best phrase... Well, this on an investor day of ASML, the previous CEO, Peter Wennink, when the analysts wouldn’t stop telling him, “Yes, but always that you give a guidance, some projections are very conservative... they end up being very conservative,” and the guy told them, “Yes, but because as you will understand, if I make better chips, markets will appear that today for me it’s impossible to forecast” I mean, ASML in 2010 or in 2008 cannot give you a projection taking into account data centers because there wasn’t the capacity to have data centers and for AI to be cheap up to a point that so many people used it. That happens above all in technological markets, and that is applicable to why the indices are doing so well, because big tech continues finding new niches in which to enter and grow like crazy.

Yes, that is going to change a bit. I think there is a lot of people who are old-fashioned in the sense that they say, “No, but it’s just that growing like that is not sustainable.” Agreed. I agree that growing at certain rhythms is not sustainable, but we have to take into account that all the history of humanity we have been limited by physical infrastructure. Now it is in a certain way a bit also similar, but what you can scale right now with physical infrastructure is 10 times, 100 times, 1000 times greater than what could be done before. You before to grow many years ago needed capital on the ground, now you don’t need capital on the ground to achieve those same growths. I think the environments are very distinct and you have to take into account the environment in which we are, without going crazy. Because you also see some people who say, “The new industrial revolution, now nothing is impossible, now nothing can stop growing.” Let’s see, neither now is different nor now is equal to before. That’s it. Capital cycles apply today and applied 30 years ago with their nuances, and you have to take into account that there are nuances and that’s it, but also take into account that the human being is how he is. When the narrative is great, bubbles are generated in the market, and when the narrative disappears, depressions are generated.

That is not going to change. Another thing is up to what point bubbles arrive and up to what point depressions arrive, but what is clear is that the human being moves by narratives and by FOMO and that until there are humanoids this is not going to change.

Target Valuation Allocations & Day One Pricing Predictions

Javier: Final question, Leandro. Are you going to go to the SpaceX IPO? Are you going to buy?

Leandro: No.

Javier: Now ask me, Leandro.

Leandro: And you, Javi?

Javier: No, but I could be an investor in SpaceX maybe at some point in the future too, I don’t rule it out. At 2 trillions... Maybe it’s 2 trillions but in 10 years.

Leandro: Never say never in the world of investment. What I do believe is key is what we commented before about understanding how much more or less you think you would be willing to pay for a business before that valuation arrives, because when that valuation arrives, things are not going to be beautiful, no, they aren’t going to be. If you look superficially at a company you say, “I would buy it 50% lower,” but you have looked at it superficially. When the minus 50 arrives, you are going to be saying, “Wow, the risks are very real, it’s not worth the pain.” And you are going to convince yourself not to do it, I think, although it’s worth the pain.

Javier: At what valuation would you buy SpaceX today?

Leandro: I have no idea because I haven’t looked at it enough to have a valuation, but we are talking about 40 billion of sales...

Javier: You have to buy the image that I’m putting for you. For how much do you buy that?

Leandro: I would say that for the Elon premium and optionality premium, I could give you between 300 and 500 billion. I could think about it.

Javier: I am also there. Between 300 and 500 I could put a small percentage like a long bet, and yes, 300-500. Not two. 300-500, yes. 300-500, I think it’s the range in which I would be comfortable. Maybe a bit...

Let’s see where it goes. Let’s see where it goes because yes, my bet is that it goes to 3 trillion. Now you have to tell me your bet, but if it goes to the 3 trillion and we say to buy it at 300 billions, we are in a minus 90. I don’t think it will happen, unfortunately. Where do you think it’s going to go, first day of quoting or first day?

Leandro: I think the first day it does a 30% or a 30-35% and that it doesn’t continue rising, that it starts to fall.

Javier: Two trillions and down, okay?

I am more... I go for the three. Come on, I say it. I would love 300 but I think it goes to 1.5, between 1.2 and 1.5 I think it goes. We are talking about a year, right? Yes, a year. Okay, I say that it’s going to go to 3 trillions and that it’s going to drop below the trillion in the next year. Okay, here remain the bets. We aren’t playing for anything, but here they remain. Very well, Leandro. Well, until here the episode of SpaceX. I hope you liked it, I hope you understand better what Elon’s vision is and what it is that he tries to achieve, and a bit how the businesses work, and we see each other next week with a special guest.

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

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I also wanted to thank everyone who makes this project possible. The KPIs for Best Anchor Stocks are looking good. ARR is up almost 60% YoY with free readers up 20% YoY:

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It was an interesting week in the market as the AI trade began to show some cracks. I discuss why I believe there were additional signs of exuberance this week and why the game of investing is so tough.

Let’s begin with some in-house news.

More improvements to the PMT (Portfolio Management Tool)

Last week, I unveiled the Portfolio Management Tool; a dashboard app for Best Anchor Stocks that I had been working on for a while. Last week, the tool included the following:

• A risk/IRR matrix to understand at a glance how the portfolio is positioned and to help an investor maximize the portfolio’s risk-adjusted return

• My portfolio with weights, returns…

• A transaction log that includes all the transactions and the activity over the last 3 months

• The portfolio’s industry and factor exposure

• The watchlist and how it’s evolving

• An event calendar with all the relevant events for the portfolio companies

I’ve added a couple of new features:

• A portfolio news tab that will be updated weekly with the relevant news for portfolio companies. News come from two sources: AI generated and from the NOTW I publish every week (there’s a tag to show which one is which!)

• An “On the radar” tab where I share all the companies featured on my on the radar series with their respective returns. The goal is to see these businesses drop as for one reason or another, most don’t make it into the portfolio initially

• I’ve added more valuation models

I expect to continue to iterate on the tool over the coming weeks/months but I’d say it’s looking pretty good thus far!

Articles of the week

I published one article this week: the fourth issue of “On The Radar.”

Best Anchor Stocks

On The Radar #4

Welcome to the fourth issue of “On The Radar.” If you want to know what this series is all about, I recommend reading the first issue. I have already shared nine companies across the first three issues, and today’s issue brings another three (one for free and the remaining reserved for paid subscribers). Here’s what you can expect today…

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2 months ago · 6 likes · Best Anchor Stocks

I bring 3 new interesting companies to watch out for:

1. A Swiss industrial with a leading position in a key product in the data center buildout (who knows if the current AI-downturn will bring it back to interesting territory)

2. A cybersecurity company with defensible competitive advantages (and that has positive GAAP earnings!)

3. A rather special serial acquirer (you probably don’t expect the name) with a great track record and in a defensible industry

The goal of the “On The Radar” series is to find interesting businesses that make it into the watchlist and (potentially) the portfolio. Out of the 12 companies I’ve profiled so far in the series, one has made it into the portfolio, and with good results thus far.

I also found it interesting that the series is resonating with subscribers because it brings a diverse set of US and non-US businesses to the table. This is what a subscriber told me this week:

The next in-depth report (not what you think probably)

I am currently working on a comprehensive article about the next technological frontier which I expect to publish soon. The article will explain what this frontier is and will bring a comprehensive list of companies involved (that I believe are interesting).

I continue looking for new companies to add to the portfolio, and even though I am looking at a lot every week, I’m struggling to find anything interesting right now. The same was happening before I published my Eurofins and Rosebank reports in a short period of time, so stay tuned.

Without further ado, let’s see what the markets did this week.

Market Overview

It seems that last week’s NOTW titled “10 signs of exuberance” was quite prescient: both indices dropped significantly this week as money fled the AI trade:

Now, before victory-lapping anything, let’s admit that this drop means ultimately nothing. I mean, both the S&P and the Nasdaq are still up considerably YTD and we know (as a fact) that 5%-10% corrections happen quite regularly in financial markets. In short: this might just be a bump along the road rather than the start of a major crash (this is almost always the case!). I am not a permabear, by the way, but that doesn’t get in the way of trying to be rational. It’s pretty obvious that many things (high beta names and bottlenecks) were quite over-extended.

Despite being significantly diversified across factors and industries, the Best Anchor Stock portfolio has shown good outperformance as soon as trouble started to hit the indices/AI-trade. I believe the portfolio is still pretty cheap and that it should do very well from here regardless of what the AI trade decides to do, but it’s definitely overexposed to healthcare, which is starting to do well (we’ll see how long it lasts!). Healthcare showed an >800 bps outperformance against the Nasdaq this week:

One might think: why not be 100% healthcare if you believe in your thesis? Well, I believe the future is unknowable and being diversified makes sense. Is this strategy of being diversified across factors going to maximize the return of your portfolio? Probably not, but it’ll likely maximize my risk-adjusted return. I could argue (likewise) that the start of the year would’ve been pretty harsh if I had not owned anything in semis/AI.

I believe Friday’s drop surfaced other signs of exuberance. These portrayed that many are not prepared for what might come (because it’s always a possibility that a crash of factor rotation is round the corner). Many claimed that, if you were not down 5% on Friday, “you are a loser.” Even though I get the premise of this claim (i.e., you are probably not exposed to all the things that have skyrocketed in the past few months), I must say that what it actually portrays is that many still believe that they can’t lose. I think this is a very dangerous thing to believe in financial markets.

Yet another sign of exuberance could be found in screenshots. Screenshots did not show great performance but rather people “flexing” by how much they were down (weird flex). If your portfolio was down 20%+ yesterday (I’ve seen plenty of cases) then you are probably not going to make it. Yes, you are going to make a lot of money on the way up by being leveraged long 3-5 semiconductor/bottleneck companies, but the downfall will most likely be quite violent.

I’ve always viewed investing as a “game” in which one must survive over the long-term to reap the benefits of compounding (i.e., one needs to stay in the game). Now, the game is tough because it requires a balancing act; it all comes down to trying to maximize returns while not blowing up. Sounds easy, but there are two sides of the spectrum, and neither of them are great:

1. Maximizing for return too much so that you end up blowing up

2. Diversifying and being extra-safe so that you end up surviving but with subpar returns

Investing is a game of assuming risk. Yes, a game of assuming the appropriate level of risk, the amount of risk that you are being compensated for, but nevertheless risk. Go to too-safe territory and you might end up with poor returns; go to to- risky territory and you might end up blowing up. Balance is key although attention tends to flow to those people who end up blowing up (someone will take their spot eventually).

The industry map was pretty much a sea of red this week with the exception of healthcare and other defensive industries:

The fear and greed index dropped considerably and went from greed to fear inside a week:

Company-specific news

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1. A Swiss industrial with a leading position in a key product in the data center buildout

2. A cybersecurity company with defensible competitive advantages (and that has positive GAAP earnings!)

3. A rather special serial acquirer (you probably don’t expect it) with a great track record and in a defensible industry

All of these businesses get included in the “On The Radar” tab of the Portfolio Management Tool with their respective price evolution since the issue. These are companies that I don’t own but I find interesting, so in most cases what I want to see is stock prices dropping across the board. Some have unfortunately done very well before I’ve taken action and I’ve included one company in this list to my portfolio so far:

So, without further ado, let’s jump into today’s issue!

Belimo Holding (SWX:BEAN)

Brief description of the business

This fourth issue starts with a Swiss company, just like the last. Belimo is specialized in HVAC equipment, and even though this might seem quite boring at first glance, digging deeper is advised.

Two products are responsible for the great majority (+90%) of the company’s sales, and they rely on a very similar technology:

1. Damper actuators: a device that controls the opening and closing of a damper to control the airflow

2. Control Valves: basically the same as a damper actuator but instead of controlling air they control gas and liquid

Even though the above might not seem like rocket science, Belimo has carved itself a leadership position on both products thanks primarily to its focus. Unlike competitors who typically offer them as part of E2E portfolios, Belimo is specialized only on these two critical products. Why are Belimo’s products so critical? Because ultimately the delivery of the HVAC system is entirely dependent on how the actuators and valves work. This is pretty straightforward if we use the human body as a proxy: there’s little use for the heart beating if there are no valves controlling the blood flow.

Due to its expertise and technological advantage, Belimo boasts global market shares in the 20-30% range. So, it seems like a pretty good business!

Why it caught my attention

The business caught my attention for two main reasons. First, the underlying business is good in its own right. Now, the second (and most important) reason was that it’s exposed to several secular tailwinds that could accelerate the business’ growth profile (we are already seeing this play out). Belimo is exposed to secular tailwinds like…

1. Liquid cooling in data centers

2. Semiconductor fabs

3. Pharma manufacturing

4. Energy efficient construction (both commercial and residential)

All of these segments have two requirements, which is precisely where Belimo excels: energy efficiency and reliability. Seeing an apparently “boring” company directly exposed to so many long-term secular tailwinds is great news, but it comes with a drawback that I’ll discuss later.

What I like

There are a lot of things I like about Belimo. Namely:

• It’s exposed to many long-term secular tailwinds (discussed above)

• The founding family still retains a 20% stake

• Management has a significant tenure (the CEO has been serving since 2015), which means that long-termism spans the organization

• Compensation is based on sales growth, EBIT margin, and ROCE, so it’s unlikely there’s a growth-at-all-costs mentality

• The company is currently undertaking a significant capacity expansion plan in the US and Asia, which portrays the believe there’s demand durability

• It has a defensible position due to technological leadership and the high cost of failure of its products

• The company trades in Swiss francs, which one might think that it can continue its long-term appreciation against the Euro and the Dollar (I’m not in the business of forecasting FX, though)

There are lots of things to like about Belimo, but there’s one thing to dislike: its valuation.

What gives me pause

The only thing that I don’t like much at this point is the company’s valuation. Management has set a LT growth target of 6-9%, but it has grown above this target for two consecutive years and expects to do so for a third year in a row:

• 2024: +13% YoY

• 2025: +23% YoY

• Expected 2026: mid-teens growth

This has evidently resulted in multiple expansion, with Belimo currently trading at 9x sales and 45x EBIT. The company has historically traded at seemingly “rich” multiples (likely due to its defensible competitive position), but this seems a bit on the high side:

If I assume that EBIT growths at a 20% CAGR over the next 5 years (significantly above its LT history) and that I exit at a 30x EBIT multiple (still pretty high), my CAGR would be around 10%. It’s not disastrous, but that’s some heavy assumptions one has to make to get to a double digit return.

What I am watching

I will include the company in my watchlist in case the valuation comes back to more acceptable levels. Things can move fast in this market and you can see this in the graph above: the EBIT multiple was close to 30x just this year! Patience will most likely get rewarded, and if not, we’ll move on to the next one!

Read more

You can read this article (almost) entirely for free. If you like what you read, consider becoming a paid member to get access to…

• All in-depth reports (15 companies profiled thus far, and growing)

• Earnings follow-ups

• Other investment related content

• A community of like-minded investors

• Complete access to my portfolio and transactions

• Occasional webinars

The in-depth reports of Stevanato and Deere are free to read to gauge the quality of the research.

Join today:

Subscribe now

Both indices were up this week again, although today I put my “pessimistic” hat on and brought 10 signs of exuberance. I believe that, despite significant optimism in certain pockets of the market, the environment is the exact opposite in other pockets. I discuss what industry I am “overexposed” to and why.

Without further ado, let’s get on with it.

The new portfolio management tool

This week I unveiled the Portfolio Management Tool. I’ve been working for a while on a dashboard app for Best Anchor Stocks and it finally “saw the light” this week (albeit in beta version). The app includes:

• A risk/IRR matrix to understand at a glance how the portfolio is positioned and to help an investor maximize the portfolio’s risk-adjusted return

• My portfolio with weights, returns…

• A transaction log that includes all the transactions and the activity over the last 3 months

• The portfolio’s industry and factor exposure

• The watchlist and how it’s evolving

• An event calendar with all the relevant events for the portfolio companies

The tool is not finished and I expect to continue adding (useful) features. The next thing I’ll be working on is a way to be able to see all the valuation models in one place.

I also held a webinar for subscribers this week, focused among other things on explaining how the tool works. The webinar has been already published in case you missed it.

Articles of the week

I published two articles this week. The first one was Deere’s earnings digest.

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Bouncing along

Last quarter, I ended Deere’s earnings digest with the following…

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2 months ago · 8 likes · Best Anchor Stocks

The company reported acceptable earnings but the market did not like them much. I don’t think the Deere thesis is a one-quarter thesis, but there’s no denying that the stock had run a bit ahead of itself.

The second article of the week was an article in which I shared the 4 companies that I bought this week.

Best Anchor Stocks

I am buying these 4 companies today

The portfolio currently stands at an interesting crossroads. I believe there’s a significant difference in valuation across the companies in my portfolio (similar to what we see in the market). After trimming some positions and bringing my cash balance to around 10%, I wanted to share…

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2 months ago · 10 likes · Best Anchor Stocks

I also included two honorable mentions that I’d had loved to add to but for which the conditions I am looking for are not yet satisfied. I still have a bit of cash and don’t rule out having even more cash if I trim some high-flyers in the portfolio. I know Peter Lynch would say that one shouldn’t trim the flowers to water the weeds, but there are certain themes that seem to have grown ahead of themselves and others that have been left considerably behind.

Market Overview

Both indices were up again this week:

Even though indices are at ATHs showing no signs of slowing down and the fact that I believe that AI is a real disruptive technology that’s here to stay, I do think that there are several signs of exuberance in the market. Let’s go over some of these:

1. Hyper-concentrated portfolios around one theme: every time one starts to see that investors are concentrating their portfolios around one theme (crazy that some actually think that holding 20 names in the same factor is being diversified), watch out. I’ve also seen a considerable amount of one-stock portfolios, which is also a sign that risk management is nowhere to be seen.

2. Leveraged thematic ETFs everywhere: several leveraged ETFs have appeared around topics like AI, memory chips, optics…This is never usually a sign that valuations are low, but who knows!

3. Sell side upgrading companies based on 13Fs: the actions of a very prominent AI investor (who some people claim is the Cathie Wood of the current generation, although I don’t necessarily agree with this) are clearly influencing sell side price targets, which not only is a sign that things are hot, but also doesn’t say anything good about the professionalism of some sell-side analysts.

4. YTD screenshots daily (and investors being “humble”): this might actually be one of the most solid indicators. We are seeing a constant flow of people sharing their YTD returns which in some cases are astronomical (upwards of 1,000%). This would be, in and of itself, a strong sign, but the best people are those who are up 30% YTD and say that “it could be better.” Return expectations are out of the charts, and this is also visible in the following “topping” signal.

5. Stocks that are up 20% YTD categorized as “not moving“. Return expectations are so high that AI-stocks that are up 20%+ YTD are categorized as “stale” or a source of opportunity cost. People are in for a rough surprise when stocks eventually stop returning 100% every month!

6. 13Fs moving stocks double digits: when prominent AI investors reveal new AI positions in their 13Fs or other regulatory fillings, stocks are moving 10%+. This is not a sign of a healthy market.

7. People believe that under no circumstances can the AI trade falter: despite all these signs, some people believe that AI is unstoppable and that it can only go up. The reality is that, despite AI being very real, the AI trade can falter anytime and there are many ways that AI slows down that have little to do with the technology per se. Of course, this doesn’t mean it has to happen but it does show that many are not even considering the potential risks.

8. PTs based on “vibes”: Price targets are being updated based on questionable 2030 multiples. The only thing you need to enjoy such optimistic multiples from the sell-side is being categorized a “bottleneck.”

9. Luxury car dealerships in Korea are full: memory chips are doing so well that Korea is experiencing an incredible wealth effect. This in and of itself is not a sign of anything, but definitely not a sign of a bottom!

10. All the AI/space companies considering an IPO: this is always a strong indicator that things have run ahead of themselves.

None of these constitute a top in and of themselves, but all together I do think they do demonstrate that some things might have run ahead of themselves. Maybe I am very wrong and AI still has legs and stocks will continue going up 20% per week, but what does not seem sensible is to have 100% exposure to AI, more so considering the above and the fact that there are other sectors/industries that have fared poorly and seem very attractive. One of these sectors I believe is healthcare. This is something I’ve discussed several times in the past, but the healthcare industry…

• Is trading at trough multiples on trough earnings after the pandemic

• Is accelerating top lines

• Is pretty resilient to any king of economic environment

• Enjoys a positive skew to AI (more discovery leading to more volumes down the line)

This doesn’t mean that the entire healthcare industry is attractive and we’ll most likely need a rotation for stocks to do well, but I do believe certain pockets are very attractive and this is the reason why my portfolio is significantly exposed to the topic (the entire weight is 94% because the rest is cash):

We are seeing some early signs of this rotation to industries like healthcare and software, but who knows how long it will last.

The industry map was mixed this week:

Source: Finviz

The fear and greed index remained in greed territory:

Source: CNN

My purchases this week

Like I discussed above, I added to 4 companies this week. I added to…

• Two software businesses

• An entertainment business

• A healthcare business

So, pretty varied:

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