But for some reason, there remains alpha within one of the largest companies in the world, and it seems to be available on a regular basis. I’m talking about Meta, which for some time now has traded as an AI loser, despite showing enormous returns, expecting massive forward earnings growth, and maintaining a reasonable valuation.

Why is this Opportunity Available?

With every capex increase over the past few years, Meta stock has traded down. People seem to have PTSD from the Metaverse/VR spending cycles of ‘22. The datacenter capex is substantially different for multiple reasons which I will get into here.

Firstly, datacenters take ~2 yrs to get online, and Meta spent $28b in DC-related capex in 2023, so we are starting to see the first signs of AI-improved ad impressions + pricing. Anecdotally as well, Instagram’s Reels algorithm is by far the best at keeping my attention, as well as others. It is not uncommon that I will open Instagram to find 5+ reels from some friends.

Additionally, their ads are by far the best of any social media platform. X’s video ads are pure slop, and the text posts are completely nonsensical. YouTube’s advertising is pretty good, but I have only ever bought something from an ad on Instagram personally.

Secondly in regards to the AI spend, xAI (and neoclouds) have recently shown that there are multiple paths to monetizing compute, with Zuckerberg himself saying this in Q3 of 2025:

Like almost every week, people come to us from outside the company asking us to stand up an API service or asking if we have different compute that they could get from us. And we haven’t done that yet, but obviously if you got to a point where you overbuilt, you could have that as an option.”

Thirdly, they have massive distribution channels with 3B MAUs on Instagram, and even more across WhatsApp and Facebook. If models are going to be commoditized, and largely homogenous across companies, than distribution channels to customers is going to be a major differentiator.

The Increasing Diversification of Meta’s Business

Google has grown to become such a large company mostly on the back of their core business, but also their “other bets” that have grown into massive divisions. I believe Meta is in the early innings of their own version of “other bets” and I see clear paths to each of these being substantial divisions in their own right.

• Developing their own OpenClaw with MuseSpark

  

• Meta Raybans - AI infused glasses

  

• Massive amounts of compute for the exponentially increasing demand

• VR, AR, Meta AI assistant

So What?

It’s my belief that Meta presents a similar opportunity to Google in early 2025. It’s a company that everyone knows, understands, yet they are missing the forest for the trees. Yes, Zuck is dumping boatloads of money into compute - but it’s already seeing returns. And guess what, if they end up not having a good use for the multiple GWs they plan to bring online, I’m sure Anthropic and OpenAI would be very interested.

For some reason, you can get one of the best advertising businesses in the world for 18x forward EPS. Also it’s growing revenues at 30%/yr. Oh, and they’ve also shown a willingness to buyback shares and get lean when the stock price tumbles. I think once Meta’s products, or AI-related returns meaningfully show up in the numbers, they are due for their own ‘Gemini 3 Moment’ like Google had last November.

In my opinion, once this happens they are very clearly a 30x PE company, with consensus EPS estimates around $35 for 2027, this quickly turns from a $600 stock into a $1000+ stock as soon as next year. Obviously to cause this re-rating, there would likely be a substantial EPS beat, so the stock could well exceed $1000.

The funny part about this is that for Meta, and for the S&P as a whole, 30x earnings has been pretty reasonable. Their average PE ratio since IPO is 29.4x, and the S&P’s current forward PE ratio is 20.9x. Meta is trading like a peer amongst the S&P despite its exceptional results, and I believe this is a temporary mispricing similar to the drawdown in ‘22.

I am personally long Meta, and increasing my position such that it is my largest by far.

Disclaimer: This is not financial advice, do your own due diligence please.

The stock market works the same way. In the dot com bubble, people were (correctly) sure that the Internet would change the world. It did. Yet if you invested in the wrong companies (or at the wrong prices) you could have lost a decade’s worth of returns, if not more. See INTC and others below:

INTC: Not adjusted for dividends, if you bought at the higher levels in 1999-2000, you are still down to this day, two and a half decades later.

Cisco just recently reached the same levels seen during the peak of the internet bubble.

It took ORCL 14 years to reach the levels seen in 2000.

These are the companies that survived the dot-com bubble too, there are countless others that didn’t. We are likely to see companies that don’t survive this cycle either.

What’s the Point?

I’m not mentioning these companies because I foresee some massive downturn in the market. In fact, I am very bullish on AI, and many of the largest positions in my portfolio, like EWY, hinge on the continued performance and demand for AI compute.

I am writing this as a reminder to myself and others to not get carried away with the irrational exuberance that is often seen at the top of bubbles.

Allbirds (formerly a shoe company) recently just pivoted into selling AI compute. The stock is up 300% today (sorry 700% now). These are not normal market moves, and while it could be justified, I think it is rational to flag these as at least mildly concerning developments.

Regardless of whether or not you believe that AI is the real deal, and that it is going to deliver massive returns, you should still be rational with portfolio allocation, and in that effort I have some recommendations.

Actionable Advice

Recently, I have been adding more defensive positions to my portfolio, and I think this makes sense for many reasons. Firstly, they act to lower your Beta, or correlation with the broader market. Secondly, they are more resilient in tough times (like if the Iran War were to re-escalate.)

Thirdly, they help you position for the binary-like outcomes that come with the development of AI. To explain, let’s say AI really works out and replaces tons of white collar workers, leading to mass unemployment. Consumer spending would theoretically fall drastically in this outcome. Consumers would still spend on staples, as they have to in order to survive.

On the flip side, let’s say AI capex falls through. Companies don’t see ROI, LLMs are good, but don’t deliver the economic returns that the massive capex spending necessitates. Humans will still be working, unemployment will go down as companies see that AI isn’t going to replace workers the way they expected it to. Consumer spending goes up in this scenario, and defensive stocks would be fine, if not up more than the broader market.

In conjunction with being long AI, a defensive positioning makes sense to me. The S&P 500 is already ~35% mega-cap tech, so a "neutral" broad-market allocation already carries significant AI exposure. A rough framework: 25% direct AI, 25–35% defensives, with the remainder in the broader market. Obviously this is broad advice and should be adjusted based on age, risk tolerance, etc.

AI works out —> AI positions up, broader market up, defensive stocks flat/underperform

AI doesn’t work out —> AI positions down, broader market down, defensive stocks flat/down less than broader market.

Median outcome (my assumption) —> AI positions up, broader market up, defensive stocks up/flat

Obviously the median outcome is quite vague, but I picture it being a scenario in which AI is successful, delivers returns, but doesn’t quite change the world over the next 3 years. AGI doesn’t come (yet) and you want to be positioned in the picks and shovels (semis) rather than the LLMs themselves.

Concluding Thoughts

This is all to say I don’t really know what’s going to happen. No one does. I would be hesitant to take financial (or any) advice from anyone speaking in certainties on AI. While there are many reasons to be optimistic, there are also many reasons to be cautious. Oftentimes, the truth lies between the two extremes and it is my belief that it is best to be positioned to benefit from the widest range of outcomes. The music is still playing, and it may be for some time. Just be ready for whatever comes next.

Disclaimer: This is not financial advice, do your own due diligence please.

Despite Q1 FY26 guidance of $78 billion, an over 70% YoY growth, NVDA’s forward price-to-earnings multiple has contracted to ~21.4x.

This is significantly below its average of ~39.1x over the past five years. Obviously there have been macroeconomic headwinds that are partially at fault here, but I think NVDA’s fall from higher valuations is interesting.

Looking forward, I am still bullish on GPU demand as demand for compute will only grow from here:

In roughly a year, weekly token usage has gone from ~2.18T tokens to ~22.6T tokens. I only expect this to grow in the near term, especially as large companies are pressured to reduce headcount — inference demand will grow as companies downsize.

This is something I want to devote a full post to in the future, but in looking at the future of white collar work I think a few things are becoming clear:

1. Junior/early career roles are largely disappearing

2. Mid-level employees will become vastly more efficient or will be part of the layoffs

3. Economic rents will shift from humans to models/applications.

The third point is probably the most defensible. When you pay an employee a market rate, that rate has a biological floor — it has to cover housing, food, healthcare, and everything else a human needs to survive. That floor props up labor costs across the board, regardless of the actual productive output of the worker. Inference has no such floor. The cost of a unit of AI labor is compute, energy, and a margin to the model provider — and all three are deflationary over time. When you remove the biological floor from the cost of cognitive work, margins expand structurally, and every company will be pressured by shareholders and basic capitalism to exploit that gap.

What’s important to mention is that this assumes a certain level of bullishness on AI progress. If you’re in the camp that AGI is coming, whatever that means for you, then you likely agree with this assessment. If you have a more conservative view on AI, it’s possible that this calculus won’t be done for a long time.

With that caveat aside, it’s clear that in this scenario, money will flow from firms needing inference to the model companies, namely OpenAI and Anthropic, and those companies will need compute, likely from Nvidia. Today, Nvidia trades at roughly 21x forward EPS, a multiple that assumes datacenter revenue growth decelerates meaningfully from here. But if inference demand follows the trajectory of token consumption, which has grown ~10x in a year, then current forward estimates are likely too conservative.

It’s generally accepted that GPUs have depreciation cycles of about 3-5 years, and Nvidia is also innovating on their products on a regular basis. If compute continues to ramp up, and we see mass adoption of inference as a replacement for labor, I fail to see how datacenter spend slows in the near term.

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Other (seemingly) Cheap Stocks in this Scenario

Micron, SK Hynix and Samsung are all glaring buys in the scenario that data center spend continues at this pace over the next 3+ years.

Micron ($MU) trades at 4x forward PE

SK Hynix at 4x forward PE

Samsung at 6.8x forward PE

“Markets are efficient bro..”

This is probably the thing that scares me the most being long a few of these names. The market is generally pretty efficient, and if it’s not moving on these forward estimates, it’s worth asking why rather than assuming everyone else is wrong.

For the memory names specifically, the market has real reasons to be cautious. Export controls on China remain a moving target, any tightening hits Samsung and SK Hynix directly. HBM is a cyclical product category with a history of brutal oversupply corrections, and the market has been burned before. There’s also a legitimate question about whether hyperscaler capex is sustainable at this pace, or whether we’re approaching a period where the Mag-7 pull back on spending as they digest existing capacity.

For Nvidia, the discount likely reflects a combination of those same capex sustainability fears plus the growing threat of custom silicon — Google’s TPUs, Amazon’s Trainium, and Microsoft’s Maia all represent real long-term share risk, even if Nvidia’s competitive position today is dominant.

I don’t think any of these risks are trivial. But I do think the market is pricing them as near-certainties rather than possibilities. If even half of the inference demand thesis plays out, these names are mispriced. All of this is to say that if you are a believer in AI, there are ways to play that and be exposed to that upside, but you should be watching what the market is telling you.

Disclaimer: This is not financial advice, do your own due diligence please.

Obviously there have been significant macro developments in the time since April of last year, namely the ongoing conflict with Iran that remains to be a murky situation.

Meta’s Legal Concerns

The main reason that has sold off so significantly is because of legal developments surrounding the mental impact on the younger users of their apps.(Reuters)

The prevalent bear case is that this is just the beginning and that there are 3000 similar cases looming in the California court system, let alone more globally. It’s also been posed as social media’s “Big Tobacco Moment.”

What I find to be the interesting question here is what the outcome of these court cases will be to the end product of Meta, attention. I think that while these cases, and the precedent set by the most recent case can obviously cost Meta billions in legal fees, the bigger question is how will all of this change Meta’s core business structure.

Will Meta be forced to make their platforms less addictive? Removing the endless scroll, curated feeds, and targeted advertising would certainly harm their business.

But if the age gate is moved up (currently 13yo in the US) to 16 or 18 years old, I don’t see this having a significant impact on their business for a few reasons.

1. Teens will find a way around age gates. As someone who grew up with video games, social media platforms, etc. it is easy to just lie about your age or sign up in your parents name.

2. I would expect that teenagers have far less disposable income, and therefore advertising to them, while valuable, is not that substantial of an income source compared to adults and seniors.

3. Teens have had social media for years now. A 13 year old today was born in 2013. They experienced the covid lockdown at 7 years old and are likely daily users of Instagram, YouTube, etc. If the age gate moves up to 16yo or 18yo, they will simply find ways around it, or just wait a few years and be back on social media as if nothing happened.

If the incoming regulation is a more structural change to their apps like what I mentioned previously (removal of the endless scroll, curated feeds, and targeted advertising) then I think this $150b+ market cap sell off is warranted to some extent.

However, I find this extremely unlikely. The endless scroll, curated feeds, and targeted ads have been the norm of social media since late 2019-early 2020. This level of sweeping regulation would have massive implications. Is it possible, sure, but far from likely.

What I find to be more likely is that META continues to sell off as the litigation continues and that this narrative is similar to Google’s antitrust concerns in 2023. Meta and Google will likely have to pay billions in legal fees, but this seems more like a short term headwind than a structural risk to their business.

Meta’s AI Spend Concerns

Another portion of the META sell off is likely due to their increased AI spending, as anyone who has followed Meta for some time now, the market is typically not a fan of Zuckerberg’s capex tendencies.

Meta joined other mag-7 companies in 2026, projecting massive capital expenditures on AI of $115-135b in FY26. This announcement was made in the Q4 2025 earnings report on January 28, 2026, and the stock is down ~30% since.

Meta is not alone in this sell off, as many of the mag seven stocks are down as well, but part of the reason why I think the sentiment/narrative surrounding Meta’s capex is so negative is because Zuck has shown a propensity to keep investing even when the market is telling him to stop. (see Reality Labs spending in 2021-2022.)

The flip side is that Zuck has also shown an inclination to allocate capital to shareholders via buybacks and dividends when the stock remains lower than historical levels.

Zuck has also shown a willingness to make the company leaner, with sweeping layoffs in recent years. Additionally, in the 2022 sell-off, Meta bought back roughly 168 million shares, roughly 6% of the outstanding shares. So, if we see an extended drawdown to lower multiples, (we’re already at ~17.7x FWD PE) I believe that they would get aggressive with buybacks again.

Meta’s Recent Stock Based Compensation Plan

Another key headline that got lost in the recent volatility is the SBC plan that Meta recently announced. It’s interesting to discuss because while it looked overly aggressive when it was announced, it looks even crazier after the company has dropped ~$150b in market cap.

The option plan’s strikes are extremely high, ~$2770 on average, which implies a 31% CAGR from current levels shows internal confidence on levels I haven’t seen before. Additionally, Meta’s CFO, Susan Li, is strongly incentivized to drive even more extreme returns for the company:

While a $7 trillion market cap seems hard to believe, the incentives are there, and you could have said a similar thing about NVDA going from $745 billion in ‘21 to $4.1 trillion today. Obviously it gets harder as the numbers get bigger, but I find it hard to be pessimistic about a company that dominates the social media space, and has ~1/2 of the world as part of its DAU base.

If management is this confident internally, the market's pessimism may be overdone.

Trade Recommendation and Position Sizing

What I learned from my first go-around with in 2022 is that the market can move against you far longer than you think it would. While I acquired ~100 shares for around $170-$180/share, and did very well on that investment, had I been more patient with my investment, I could have added to Meta sub $100, which I deeply regret missing out on.

With that being said, we don’t know if this will last nearly as long as the Reality Labs sell off. This could be a short blip in time where Meta falls ~30-35% off all time highs and recovers after the macro situation clears up. Or we could be in for a 50% drawdown and further war escalations could drive the whole market down.

That’s a long way of saying I have no clue how low Meta will go. The chart guys on Twitter seem to be confident it’s going to ~$475 or roughly another 10% lower from these levels. I have no expertise with charting, so I defer to their judgment, but I think that I’m going to start investing at these levels.

In terms of vehicle for this trade, I think shares are the only logical choice right now. The market seems to be far too volatile for LEAPS right now, and if you buy an ATM leap and META goes down even just 10%, your position is likely down close to 30% or more.

You can look at cash secured puts, and I have been, but you really have to tie a lot of capital up ~$50k per CSP, but the premiums are there. If you sell a January 2027 CSP, at $530/share, you get $7,200 in premium or roughly 13.5% on your money in that time period. If you get assigned, your effective cost/share is ~$458, which is not too bad, but obviously you tie up a lot of flexibility if the market continues to move against Meta.

Personally I will continue to buy shares as Meta goes down, but if there’s a significant narrative shift, and some of the legal headwinds subside, I will consider LEAPS, as I think Meta is positioned really well amongst its peers in terms of growth prospects vs. current valuation multiple. Currently, I would start with 1/4 of what a full position looks like, and have cash ready to deploy if Meta continues to fall.

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Disclaimer: This is not financial advice, do your own due diligence please.

Until now. Fundrise, a company that began by democratizing access to large scale real estate investments, offered access to two of the premier AI labs, OpenAI and Anthropic, via their ‘Innovation Fund’ with the ticker

While the fund offers exposure to many other high profile private companies, the main excitement from retail investors has been the stakes in Anthropic and OpenAI. Below are the top 10 holdings by weight in the fund.

With both OpenAI and Anthropic at the top of the list, it’s easy to see why has been bid up by retail investors. The problem is the level to which it’s been bid up.

The Net Asset Value (NAV) of this portfolio is $18.97/share, and retail investors have bid the fund up to $270/share as of writing this on Tuesday. This means the fund is currently trading over 14x the NAV of the assets it is meant to track.

The reason why? Well there is undeniably high retail demand for these AI companies, but more importantly for this specific phenomenon is that there is a massive supply/demand imbalance going on right now with VCX specifically.

The supply/demand issue is happening because:

“The majority of the fund’s shares remain subject to a lockup agreement. For the fund’s roughly 100,000 investors who bought prior to the market debut, VCX shares acquired before Feb. 20 are restricted from being sold for six months after the listing, the filings show.” (Investing.com)

This means that the float, or total shares being traded are extremely low, which means that this sort of ticker can be extremely volatile. As I’m writing this, it’s down to $258 from $270 just minutes ago.

Now obviously you don’t want to be invested in Anthropic/OpenAI through VCX right now as it’s just trading at such a premium to their NAV and it’s going to be highly volatile for the near term.

So, what can you do?

Well you can keep waiting, as Anthropic and OpenAI are expected to IPO this year, but obviously that may not happen depending on a myriad of factors.

What I am doing, and what you can do as well is have positions in large companies like Google, Amazon, and Microsoft, all of which are off the 52wk highs by a decent margin.

But if you wanted to bet on Anthropic specifically, and in a big way, I think Zoom ($ZM) is a good way to play it. They invested $51m in May of 2023 when Anthropic was valued at ~$4.5b. Since then, Baird estimates Zoom's stake is now worth $2–4 billion depending on dilution assumptions, against Anthropic's $380B valuation.

With all of that in consideration, Zoom’s stake in Anthropic is likely worth ~15-20% of their entire EV ($3.3b vs. $17b), meaning that they offer the most direct way to invest in Anthropic as it stands.

Obviously this means you will have to be exposed to Zoom in your portfolio, but I think this ownership stake will continue to dwarf their own business to the point where the stock will move significantly on news concerning Anthropic’s products, fundraising, and timeline for their IPO.

For direct ownership in OpenAI I think is the clearest as while its only ~5% of MSFT’s EV, they have ~27% ownership in OpenAI, so there’s significant upside once OpenAI IPOs.

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This is my concern with Adobe. Is it a dying software company, made entirely irrelevant by Generative AI & image/video creation? Or is the narrative oversold and are they going to turn this ship around?

Buying (Paypal) a few years ago was a prime example of me buying a stock because it was trading at a low multiple compared to peers and on a historical basis. What did $PYPL do since it traded at this great discount?

Well since late ‘22, where it was more than 75% off of its peak, it has gone down a further 35%, and is trading at such a low market cap that it is being viewed as an acquisition target.

All of this is to say: If you bought Paypal nearly 80% off of its peak in late 2022, you’re not very happy right now. You’d be down ~35% in a time where the S&P 500 returned over 70%.

My point is that buying out of favor stocks, or ‘turnaround’ stories is smart, but only if that turnaround is actualized, not just projected.

This brings me to Adobe today. I think they are in a similar position to was in late 2022.

The stock has cratered over 60%, weighed down by moat erosion fears and the looming question of whether generative AI renders Adobe obsolete.

Is This Narrative Right?

The obvious next question is whether or not this narrative is right or if its more AI-eccentrics pushing narratives that warrant their own lofty valuations.

Taking their side for a moment, if I were to argue that Adobe is set to be disrupted by generative AI image and video generation, my main arguments would be:

• The barrier to entry for "good enough" creative work has collapsed. Midjourney, Nano-Banana , Canva's AI suite, and others can now produce output that would have required a trained Photoshop user three years ago — hitting the Business Professionals & Consumers segment hardest.

• Where does good enough settle? If 80% of creative work gets done by AI tools that don't require Adobe, and only the top 20% of professional work remains in the ecosystem, the TAM for premium creative software shrinks

• AI-native tools accelerate churn in the growth segment. The users Adobe needs to acquire to expand TAM are the same users most likely to find standalone AI tools sufficient.

If I were to argue against this narrative, my main points would be:

• The consumer has shown a propensity to be anti-AI (see the Coca Cola ads in 2024-2025) and various social media accounts for NBA/NFL teams. This is something I expect to continue — and I expect that in the future, AI media will have to be watermarked or otherwise disclosed so that the consumer knows if what they are watching is real. See the announcement and subsequent response below:

• Video editing — not video creation, is a difficult process that AI cannot simply one-shot. Much of content creation is taking longer footage and turning it into smaller pieces of content that keep the viewers attention over time. Additionally, there’s a lot of work done before video even gets to the editing stage. Blocking, camera placement, lighting, are all things that will be difficult, if not impossible, to recreate via prompt.

• Adobe is not just Photoshop — a large part of Adobe’s negative sentiment is the idea that these image generation tools will remove the need for Photoshop, and therefore much of Adobe’s subscriber base will churn. I think this is far from the truth for many reasons. Namely, there have been high quality photoshop clones for years: Canva, Photopea, Affinity, etc. If Adobe’s revenues were as Photoshop-centric as this narrative makes it seem — we would see impacts on revenue way before Nano Banana and Midjourney.

• Additionally, Adobe has made some progress towards including AI tools within their software. Firefly is Adobe's family of generative AI models built directly into Creative Cloud products, offering text-to-image generation, generative fill, and generative expand within existing workflows.

• Adobe's key differentiator is that Firefly was trained on licensed Adobe Stock content, making it "commercially safe" for enterprises, and they've even offered indemnification to enterprise customers against IP claims, something no other major AI generator can match.

Now that I’ve given you both sides, you have to decide what scenario you believe is most likely over the next decade. Will the next CEO be more of the same — stagnancy, more moat erosion? Or will they usher in a new era for Adobe, fueled by acquisitions of leading AI tools, combined with their commercially safe licensed content?

I think the next few dominos to fall will be very deciding for the future of Adobe. I am hoping they an external candidate for the CEO position that has a clear vision for how Adobe can position themselves against these new generative tools.

I am also hopeful that they can make acquisitions of certain AI tools, like Midjourney, that can strengthen their value proposition to consumers such that they can be a one-stop-shop for enterprises, entrepreneurs and creatives alike.

Scenario Analysis: Pricing in the Tail Downside Risk

Tail Downside: 5% Probability

Given that there is a scenario in which the consumer is unable to differentiate between AI generated content and human created content, it does make sense to price in , even if I view it as extremely unlikely.

Given that devastation that would be to Adobe as a company, I think an almost total wipeout of the current market cap. (-94%)

I assign this a 5% probability because it requires simultaneous breakthroughs across multiple AI domains — video editing, sound design, motion graphics, enterprise marketing orchestration — that are each individually far from being solved.

Bear Case: 20% Probability

AI cannibalization accelerates faster than expected. Creative Cloud growth decelerates to low single digits as Canva, Figma, and free AI tools chip away at the user base. The CEO transition creates extended uncertainty — the board takes 12+ months to find a successor and the interim period is marked by strategic drift. Enterprise customers delay renewals as they evaluate AI-native alternatives. Adobe Stock revenue collapses further. Multiple compresses to 8-9x forward earnings, reflecting the market’s view that Adobe is a melting ice cube.

Base Case: 50% Probability

Adobe continues growing revenue at 10-12% annually, with AI-enhanced subscriptions (Firefly, GenStudio, higher Creative Cloud tiers) more than offsetting the decline in legacy stock assets. The new CEO articulates a clear AI strategy that the market can underwrite. Margins remain stable at 46-47%. The multiple re-rates from ~10x to ~20x forward earnings, which is still well below historical averages but reflects renewed confidence in durability. At $23.50 in forward EPS × 20x = $470.

Bull Case: 25% Probability

New CEO drives a sharpened AI-first strategy that clearly differentiates Adobe from free tools. Firefly becomes the enterprise standard for commercially safe, IP-clean AI content generation. Video editing workflows integrate AI assistance (auto-cuts, AI-driven color grading, intelligent audio mixing) that makes Premiere Pro indispensable rather than replaceable. Operating margins expand to 48-50% through cost optimization. Revenue accelerates to 14-16% growth. Multiple re-rates to 28-30x forward earnings, still below the 10-year average of 40x. At $25+ EPS × 28-30x = $700-750.

Trade Recommendation + Catalysts to Watch

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Warner Bros. Discovery: Recent Context

Before discussing Netflix as an investment opportunity, it is worth establishing the background of the company it is in the process of acquiring, Warner Bros. Discovery (WBD).

WBD was formed through an April 2022 merger between WarnerMedia (HBO, HBO Max, Warner Bros. Pictures, DC Entertainment, CNN, TBS, TNT, and Cartoon Network) and Discovery (Discovery Channel, HGTV, Food Network, TLC, Animal Planet, and Discovery+).

In June 2025, WBD announced plans to separate into two independent entities: a Streaming & Studios division (Warner Bros., HBO, DC Studios) and a Global Linear Networks division (CNN, Discovery, and related assets).

By December 2025, WBD had entered into an agreement to sell its Streaming & Studios division to Netflix for $82 billion. Paramount Skydance made multiple counter-bid attempts(for the entire company), and as of February 11th has raised its tender offer to $108 billion, including a commitment to cover the breakup fee should WBD walk away from the Netflix deal.

The distinction worth highlighting is that Netflix is selectively acquiring the Streaming & Studios division, the higher-value assets, while Paramount’s bid encompasses the entire company, including the Global Linear Networks segment.

In my view, Paramount’s offer appears less strategically motivated and more reflective of a need to maintain competitive relevance in the streaming landscape. Paramount has also attempted to frame the Netflix acquisition as an antitrust concern, positioning its own bid as a more regulator-friendly alternative by pledging to keep WBD’s entities operationally separate.

From Netflix’s perspective, the real value lies in the intellectual property housed within the Streaming & Studios division — franchises like DC Comics, Game of Thrones, and Dune. Netflix appears to have a clearer strategic rationale for how these assets integrate into its business, and that clarity of vision is a meaningful part of why I find the company compelling as an investment, particularly following a significant downward re-rating.

Investment Thesis: Growing their Audience & Increasing Customer Retention

Netflix’s core business has been steadily growing over the years. Their revenue in the fiscal year ending December 31, 2021 was $29.7 billion, and over the past four years it has grown to over $45 billion, at a CAGR of 11%.

Looking to the future, Netflix has decided to invest in acquiring intellectual property via the WBD acquisition that they really haven’t had in the past outside of the hit show, Stranger Things. I think this makes sense, as the problem with subscription based companies like Netflix, is that they will lose a lot of users to churn when shows like Stranger Things stop airing.

By acquiring WBD and its intellectual property, which includes hit shows like Game of Thrones, Netflix protects itself from churn while growing the audience of people who would want a subscription to their favorite shows and movies.

They protect the user base that they already have, while growing it substantially, and they also gain the ability to package HBO Max and Netflix at a cheaper price to consumers, similar to the Disney+/Hulu business model.

I believe that Netflix truly knows how to monetize streaming, as they have multiple tiers of subscriptions with and without ads, and have largely been able to crack down on password-sharing. If they can continue to dominate popular culture and acquire fan favorite shows and movies, they can increase their pricing power as well as the stickiness of each subscriber.

In addition to this, I believe there is a tail outcome in which movies quickly go from theaters to in-home streaming, and that Netflix is going to be a major driver of this. The CEO has already said that he wants movies to go from theaters to streaming quicker, claiming that it’s not ‘consumer-friendly’ to have long exclusive windows.

If Netflix can actually make this happen, especially with DC Studios as part of their library, I think this would drive a lot more revenue to them. From a unit economics perspective, the movie theater experience (~$20/ticket, family of four so ~$80 in tickets + $15-25 in terms of snacks/candy) is much more expensive than the $20-25/month streaming costs. If movies hit streaming within a few weeks of being released I think Netflix could really take market share from in-person moviegoers.

DC Studios could also be a major driver of revenue for Netflix, as we saw the MCU was a major financial boon for Disney in the late 2010s, and the DC’s version of that is just ramping up since the initial Superman movie released in mid-2025. I think that DC Studios is being run very well by James Gunn, and it's a major positive for the future of DC Studios that he was such a large part behind the success of Marvel’s Cinematic Universe in the late 2010s.

Back of the Envelope Math: What’s the Upside?

Just for fun, I thought I’d do some back of the envelope math to see what Netflix’s earnings/valuation could look like in certain scenarios.

In terms of my assumptions, I believe they are defensible and I will try to explain each one in detail here.

Churn Rate (WBD Overlap) refers to the amount of WBD users who already have a Netflix sub. This figure is from Netflix themselves, and is part of their legal argument to regulators. More below:

Adjusted Sub Count is taken by adding Netflix subs (325m) with WBD subs (128m) and subtracting the amount of WBD subs who would remove a sub because they already pay for Netflix. This is done to avoid double-counting.

Annual Rev/Customer is where I think this trade comes to life. If you average out the annual rev/customer from Netflix ($134) and WBD ($85) you get ~$110. I put this as the bear case to be conservative, but I think it’s highly unlikely that Netflix doesn’t raise prices if this deal goes through.

I think an average revenue per user of $160/year or $13.33/month is entirely reasonable, especially considering the increase in content provided with that subscription. This would be a 19% increase from Netflix’s current annual revenue per user.

In the bull case, I put $210 as the ARPU, as this would be a massive increase in subscription cost, but Netflix may have the pricing power to pull this off.

Considering that 80% of WBD subscribers feel that they can afford both the $134/yr for Netflix and the $85/yr for WBD, totaling $219/yr, maybe paying $210 isn’t that crazy?

Net Profit Margin I assumed to be stable because Netflix has operated in the streaming business for years and I don’t expect that this acquisition will materially affect costs.

NTM PE Ratio I believe will increase from 25 to 30 in the case that this acquisition goes through, and if Netflix can successfully monetize their combined product of Netflix and WBD, I think it could even re-rate to 35+.

I think based on these assumptions, Netflix provides an asymmetric opportunity — -25% downside with upside to ~100% in returns over the next few years.

It’s important to note that these scenarios all assume the acquisition goes through successfully which is not a given. They also do not take into account the benefit of natural subscriber growth that is expected of these companies.

Near Term Catalysts

While I don’t necessarily disagree with the antitrust concerns, if this deal does pass, I think Netflix will definitely have an even more dominant position within the streaming space. With IP like Dune, Harry Potter, Game of Thrones, and DC Studios, and Netflix’s belief that the gap between a movie releasing in theaters and going to streaming will close, I think that we’re going to see even more people just skip the theater and decide to wait till the movie hits streaming. See co-CEO Ted Sarandos’ comments below.

It is important to note that while I believe the acquisition will go through, traders on Polymarket have the odds at only ~50% that Netflix will be the company to acquire Warner Bros by mid-2027.

This acquisition and any legal developments on it are definitely going to be catalysts for Netflix as a company. While I like this acquisition a large part of my investment thesis, I do not believe there is significant downside if it falls through given Netflix’s large pre-existing business, especially from this slightly depressed valuation.

The shareholder vote on the Netflix/Paramount acquisition debacle is likely going to be in mid-late March, so I would expect clarity on the situation by at least April, but the legal process could take much longer. Especially considering David Ellison (CEO, Paramount), the son of Larry Ellison (CTO, Oracle), are lobbying to Trump that the acquisition by Netflix should be blocked, citing the aforementioned antitrust concerns.

Costs

From 2021 to 2025, operating margins have gone from 20.8% to 29.5% respectively, signifying that has been able to keep costs under control while ramping up revenues. Given that their levers to pull in terms of revenue drivers are increasing subscription costs + event-style content, this makes sense intuitively.

I think in terms of costs you should be watching, it’s really just cost of acquiring new content. While Disney/Hulu+ is a competitor to Netflix, I think their main competitor is YouTube.

The reason YouTube stands out to me is that YouTube’s content is primarily user-generated, meaning that they are not undertaking any costs besides the service of hosting all of this content. This means that their job is just serving the right content to the right consumer, and keeping that consumer on platform for as long as possible.

So, in that same vein, as investors in Netflix, the cost you really want to watch are the costs of acquiring new content, which this acquisition is doing. Does acquiring and getting content like Game of Thrones, DC Studios, Harry Potter, etc. drive new users, and maintain them over time? My answer to that question is yes.

With the release of HBO’s newest Game of Thrones spinoff, A Knight of The Seven Kingdoms, my Twitter, YouTube shorts, Instagram Reels, etc. timelines have been full of content about the show, with millions of impressions on each post. Game of Thrones’ other spinoff, House of the Dragon also is expected to release mid-2026.

Additionally, DC Studios has Lanterns coming out in the summer of 2026, and HBO Max also has a Harry Potter show coming out in early 2027.

With all of these different IPs releasing year round, you have to think subscribers will opt to pay for the annual subscription, saving slightly on subscription fees, but reducing the churn that naturally comes with streaming services.

The acquisition of WBD and these assets makes sense because it truly offers Netflix to have a full calendar of content releasing, which would materially reduce both churn and the seasonality of revenues around shows like Stranger Things.

Costs and Debt of Acquiring Warner Bros. Discovery Streaming Division

A key concern is the debt load Netflix is taking on with this acquisition. Netflix is taking on $42b bridge financing for this deal, and has paused share repurchases.

This is likely a large part of their re-rating downwards, but I think investors are missing the forest for the trees here. Companies make investments in the expectation that future revenues will pay for them multiple times over. I believe that Netflix’s investments into this differentiated IP and content library is worthwhile and I do think it’ll pay off in the years to come.

Valuation

has sold off quite a bit, down over 40% from its 52wk high of $134.12. It’s now trading at a 3 year low PE ratio of 24x NTM earnings. I think the reason for the sell off is primarily concern over the acquisition of and the uncertainty regarding that. You can see that diverges from the broader market in early December of 2025, right when the acquisition was announced.

I think this fear is pretty overblown, as even if the deal does fall through, Netflix has shown that they understand how to lower churn and maintain subscribers, as they have ramped up the number of event-like showings over the past 12-18 months.

Since January 2025, Netflix has a WWE Residency, airing WWE Raw live every Monday night. Netflix has partnered with the NFL to air games exclusively, as well as the MLB, where they will cover opening night this coming March. They also broadcasted Alex Honnold free climbing Taipei 101 in Taiwan just a few weeks ago. I think Netflix will continue this trend, so that they have more sports/YouTube-like content on platform, and attract viewers of that style of content.

If the deal goes through, I don’t see how Netflix doesn’t immediately re-rate upwards to ~30x NTM PE. This alone would drive returns of about 20%, not taking into consideration the new subscriber base acquired via WBD.

Positives

1. Substantial user-base regardless of acquisition fall through.

2. Increased events and integration of sports

3. Lowering movie theater exclusivity periods

Negatives

1. Regulatory concern with acquistion

2. Platforms like YouTube/Twitch/Instagram Reels eat into watchtime for younger generations — meaning there is less of an appetite for longer form content on Netflix. If the trend of younger generations being less into TV shows/movies continues, this could be a long term risk for companies like Netflix and Disney.

What would an extreme bear case look like?

As part of my back of the envelope math, I failed to show what the downside would be if the deal fell through entirely, so I thought I’d add this section.

In this extreme bear case, share price falls from $76.87 to $51.57, a 32.91% loss. This is driven by no subscriber growth, acquisition not going through, and average revenue per user staying flat. I think the likelihood of this scenario is exceedingly low, but I thought it could be worthwhile just to show what that might look like.

The Trade:

I personally think that Netflix is a quality company that will continue to grow in subscriber count over time, and that this acquisition is just a way for them to speed up that process while gaining content and IP that will increase customer retention over time. Their continued development and iteration of event-style content will enable them to compete with the likes of ESPN, YouTube, and Twitch in the years to come.

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Anchoring, specifically price-anchoring, is a cognitive bias where individuals rely too heavily on an initial piece of information (stock price) when making decisions.

We’ve all done it. “ has gone up over 300%! It can’t keep going up.” Yet it did. From October 9, 2022 to November 5, 2023, Nvidia went up over 330%. Since then, it’s gone up another 273%.

The conservative thing to say was that it’s run up too much.

That’s pretty much how I thought about it at the time. It’s safe to say I am regretting that thought process.

But I think the stock market has provided an opportunity to right that wrong with two stocks, SK Hynix and Samsung. If you follow markets, you’ve likely seen or heard about SK Hynix’s performance over the last year. SK Hynix is up 375% in the past 12 months, and up 251% over the past 6 months alone.

The Story

SK Hynix is the dominant supplier of HBM, (High Bandwidth Memory) controlling over 60% of the market. They are the primary supplier for Nvidia’s Blackwell and Rubin platforms.

In addition to HBM, SK Hynix produces DRAM and NAND Flash, both of which’s demand has increased significantly with the AI boom. DRAM contract prices are up roughly 170% year over year, and retail RAM kits (16-32gb) are up 240% over the past year.

Recently, even DDR4 and DDR3 ram prices have even surged as AI demand is actually extending into older DRAM models. SK Hynix has had to lower production of consumer DRAM to focus on AI memory, which is furthering this supply shock.

NAND Flash memory, which is behind the SSDs required for consumer PCs as well as data centers, have increased as well. A 1 terabyte NVMe drive that cost $65 in early 2025 is now retailing for over $130-$150.

SK Hynix, who develop and manufacture all of these products announced that their entire DRAM and NAND production capacity for 2026 was already sold out.

The CEO of Intel, Lip-Bu Tan, said today at the Cisco AI Summit that memory is the biggest constraint for AI right now, and that there is no relief til 2028. If someone on the inside of the AI boom is saying this, I think this makes a compelling argument for both SK Hynix and Samsung’s continued outperformance as the two clear leaders in the HBM and DRAM market.

While hyperscalers like Nvidia, Google, Amazon, are drivers of DRAM demand, AI video-generation of longer form content will ramp up demand for NAND flash storage that powers SSDs.

The typical Sora or Meta AI video is currently only 15-30 seconds long. Think about when those videos become 15 minutes to 1 hour in length, and they are being generated every second.

The Numbers

Morgan Stanley estimates Samsung’s 2027 operating profit to be $218.5 billion, which would make them the most profitable company in the world. Samsung’s current market cap is $771.67 billion, meaning that they are trading at roughly 3.5x 2027e operating profit. Quite cheap if you ask me!

Morgan Stanley estimates SK Hynix’s 2027 operating profit to be $155 billion, which would rank them with the likes of Mag-7 darlings Google, Meta, and Apple, while their market cap is only $455 billion. (2.9x 2027e operating profit)

If we assume that these figures from Morgan Stanley are accurate, and apply a 10-15x multiple to both Samsung and SK Hynix, they both provide attractive returns at their current levels.

For these reasons, I believe SK Hynix and Samsung will be the next two (non-IPO) companies to join the trillion-dollar market cap club, and that they both provide exceptional opportunities for returns over the next 2-3 years.

The Trade

The difficulty in this trade is actually not in the thesis or financial projections, I actually think it is in execution. Currently there are no US-based listings for Samsung or SK Hynix. This means that in order to gain exposure to these two companies, your options are somewhat limited.

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In hindsight you can say these were clear buys at these prices. And they were. They’ve both done tremendously well since then ( is up over 600% since the lows of 2022, and is up over 100% since the lows earlier this year.)

But How Can You Identify these Opportunities?

There’s always a reason that these companies get re-rated down to these attractive levels. There’s always a narrative to scare you off. The skill is knowing which narratives to believe and which to fade. In 2022, META was burning billions in Reality Labs and the Metaverse. Shareholders and overall market sentiment turned on Zuckerberg quickly.

But if you were a rational person thinking about what Zuckerberg is incentivized to do, it’s pretty simple that eventually they would lower the capex and get lean. And that’s exactly what they did, leading to massive outperformance in the following three years.

For Google, back in the spring of 2025 the narrative was that they were giving out too much stock based compensation, and that there was regulatory risk surrounding their partnership with Apple for Search. Now they’re the fullstack AI company in the market’s view.

I think for Google, they really swung from the lower end of market sentiment to the other extreme. Not to say that they can’t be the AI winner — they definitely can, but I still think the sentiment may be slightly overblown.

Ok I’ve made a ton of money thanks to you Nick, what do I do now?

Hold. I truly believe Warren Buffett got it right when he said, “the best holding period is forever.” The thing is you can sell your shares for a quick gain, doubling your money or even more in the case of situations like Meta in 2022, but then you’re left looking for the next out of favor stock.

If you have a low cost basis in these companies why not just hold for years? Warren Buffett famously made very good returns in the “cigar-butt” net-nets that Ben Graham wrote about, but the overwhelming majority of his current wealth came from holding high quality business for decades and decades.

I think that selling these Mag-7 or similar caliber of companies after getting in at an attractive level is pretty hubristic. You’re basically saying that you can do better than companies with hundreds of millions of daily active users and incredible profit margins.

And maybe you can! But use new cash that you contribute to invest in those companies and let your winners run. At least that’s my view for now. If GOOGL runs to 50x earnings I may have a harder time arguing to hold it at that level. But then again, there will be a narrative for why it should be trading at that level.

My main takeaway is that the challenge of investing is being able to read between the lines and figure out if the market sentiment is right or wrong when everyone is certain of something. I believe that’s where true outperformance lies.

In reality, I had one of the best teachers of my college experience (from Goldman Sachs) and was able to fully comprehend what I believed to be complex financial derivatives with ease. I got 100% on every exam and the class was the highlight of an otherwise mundane semester.

Since then, I haven’t been able to really use that knowledge in any of my pursuits, academic or otherwise and I regret that. I already felt as though I was losing some of the knowledge that I worked hard to understand.

I am of the belief that most concepts are like languages. If you don’t use it, you’ll lose it, and I don’t want to lose this knowledge. It also makes you seem smart if you can bring up complex financial derivatives.

In the effort of not losing this knowledge, I thought it would be a good idea to explain the basics of derivatives in written format here. So, let’s start with futures.

The T-Shirt Business Example

Imagine you are a t- shirt manufacturer. Your costs are mostly fixed in terms of labor and manufacturing overhead, but they are highly sensitive to the price of cotton moving up and down. This is a problem. How do you price your products if you are constantly at a risk of one of your main costs increasing?

What if you could lock in a price that you are willing to pay in the future to make sure that the numbers work for your profits? Well you can. That’s exactly what futures allow you to do.

The Mechanics of Futures

Futures are contracts to buy or sell a specific asset at a predetermined price in the future.

This language is very specific because futures are standardized, as opposed to forwards, which deal with currencies.

Futures are most commonly associated with commodities, but you can trade futures on indexes as well.

Futures are traded on 40 different exchanges, the largest being the CME.(Chicago Mercantile Exchange)

Every futures contract has specs: the most important being the size or amount of the asset being traded, and the quotation or how it is quoted on the exchange.

For example, the size of a wheat contract is 5,000 bushels or roughly 136 metric tons, and Wheat is quoted in US cents per bushel on the CME.

This is important to understand the scale of what is being traded and to keep everything consistent.

The Four Main Users (and Uses) of Futures

The next concept to understand is who is buying and selling these futures?

There are 4 main market participants that would buy and sell these futures:

1. Speculators: these are people who are quickly buying and selling these futures, thinking a piece of news or market narrative will drive commodity prices in whichever direction they’re betting on (think WSB degens)

2. Investors: These are people who also have a directional belief on a commodity, but their time horizon is usually much longer than speculators (think months or even years)

3. Hedgers: Market participants whose real life business has risks pertaining to that given commodity (think a t shirt manufacturer with cotton futures)

4. Arbitrageurs: This is your Goldman Sachs or Morgan Stanley trading division. They notice some sort of opportunity where there’s a large gap between SPOT prices and future prices

Now it’s also important to understand each of these participants risk profile and time horizon

From least to most risky they’d be ranked

1. Arbitrageur (obviously)

2. Hedger

3. Investor

4. Speculator

In terms of time horizon from shortest to longest, they’d be ranked:

1. Arbitrageur

2. Speculator

3. Investor

4. Hedger

The hedger has the longest time horizon because they are typically indefinitely exposed to some sort of risk. For example, the T-shirt manufacturer will have a risk of cotton prices increasing as long they are in business.

How Do We Price Futures?

The next concept to understand is how do we price futures? If 5000 troy oz of silver is worth $250,000 today, how much should it be worth in 1 year?

To understand what something is worth in the future, we have to think about the costs associated with holding it, as well as the benefits of holding it. This is referred to as the carrying cost model.

For a commodity like silver, there are storage costs of holding it, you have to think about security and keeping it indoors away from the elements, but there aren’t many benefits to holding silver unless you have a corporation that can use it.

For a commodity like crude oil, it still has storage costs, but it has many more benefits of holding it and is much more useful than a commodity like silver.

To price futures, you have to add the costs of holding them and subtract the benefits of having that physical commodity. That sounds counterintuitive, but it makes sense if you think about it.

You add the costs, because you would be incurring those costs to hold that asset. You subtract the benefits, because you would also be reaping those benefits if you held the asset.

Those benefits of holding that asset vs. the future is called a “convenience yield”

The convenience yield is a premium associated with owning the physical commodity and it is high when supply is tight.

So how do we calculate the convenience yield?

Well we can use the cost of carry model where:

Futures Price = Spot Price x (1 + Carrying Costs - Convenience Yield)^Time

Let’s look at crude oil with this model

SPOT WTI Crude is at: $60.89/barrel

1 Year Futures are at: $59.57/barrel

Assume storage costs = 4%

1 yr risk free rate = 3.75%

59.57 = 60.89 x (1+0.0375+0.04 - Convenience Yield)^1

In this example, the costs of holding oil are 7.5%, and the Convenience Yield works roughly out to 10%. So, it is more valuable to have oil physically than hold the future contract.

This phenomenon is called BACKWARDATION, and it occurs when near term demand is higher than we expect future demand to be. But honestly the prices are so close that this is like saying you are underwater after dipping your toe in the pool. If the future price was trading at $40/barrel, then there would be a real story here.

The inverse of this situation, and where most commodities trade in normal times is called CONTANGO. This is when SPOT (or current) prices are lower than future prices. This is the normal state because it takes into account carrying costs like storage, insurance, and interest rates.

Close, Roll, or Deliver (or Receive)

There are three things you can do with a futures position:

1. Close: Buy or Sell to close your position

2. Roll: Close your position while simultaneously opening another similar position (likely the case if you are a hedger)

3. Deliver/Receive: Depending on whether or not you bought or sold a future, you can receive or deliver the asset (this is the most uncommon by far)

The Power of Futures (and Derivatives)

Why would you want to use futures? Well they (and all derivatives for that matter) offer this beautiful thing called leverage.

Let’s say you wanted exposure to gold as a portfolio manager with $200mm AUM.

The first way you could get exposure is buying the physical asset. The math would work out something like this:

This is not taking into account that you’d have to store the asset or any of those concerns. It would cost you $20.5 million to get roughly 10% in exposure to gold.

Now let’s say you wanted exposure to gold but didn’t want to tie as much capital up in that trade:

In this scenario, you’re spending $1,000,000 in margin (collateral you post to hold the position) for a position that moves like one worth $21,275,000. Margin is a bit more complicated than that, but that’s the basic idea.

This gives you 21.8x leverage and let’s you use $19 million elsewhere.

This leverage is something that all derivatives facilitate and obviously comes with its own risks, but does make for exceptional returns if used correctly.

That’s pretty much the basics when it comes to understanding commodity futures. Futures arbitrage is pretty complicated and probably requires its own article, which I may write later.

Please consider subscribing if you’d like to read my future analysis of the stock and real estate markets, as well as the rise of prediction markets. In the future I plan to do more stock specific research on companies that interest me, as well as articles on what I believe companies are doing well or poorly and my recommendations for them.

In the meantime I have a catalog of stocks that I researched during my summer internship in 2024, which can be found here. I also summarized this research as well as some of my larger portfolio positions in this post.

I believe there is a simple formula to beating the stock market and in this post I’ll explain how it works.

If you stick around to the end I’ll even share with you why I think Warren Buffett, Peter Lynch, and other investors are so successful.

To use this formula however, you have to understand certain things about the market.

The first thing you must understand is that the market is NOT efficient. This goes against what your professors at college will tell you, but it is true. If it wasn’t true, how would Buffett outperform the S&P 500 for decades? How would any fund manager? It’s a concept that sounds smart in theory but doesn’t hold up to simple logic. Is the market accurate? Most of the time, yeah. But is it an efficient supercomputer seeing infinite possibilities and pricing in their likelihood at any given moment and reflecting that back into the current price of a stock? No.

The Stock Market is an example of the phenomenon known as the Wisdom of The Crowd. The ‘wisdom of the crowd’ is the theory that the “collective judgment of a large, diverse, and independent group of individuals can be more accurate and insightful than that of a single expert or even the smartest person in the room.” The classic example of the wisdom of the crowd is the estimation of an ox’s weight. In this scenario, a large group of people are polled on what they think the ox weighs, and while their individual guesses are often wrong, the average of their guesses was extremely close to the actual weight.

The stock market draws very close parallels to this example for good reason. Investors, speculators, market makers, are all individuals in the crowd. Some of these market participants have larger weight in the polls because they are moving more money. But overall, the parallel holds and the price of any stock is what market participants decide by their buying and selling of said stock.

From what I’ve said so far, you might be thinking well this all sounds like it would make the market more efficient? How is the market inefficient if we have all of these people making estimates of a stocks value at any given moment.

The reason the market is inefficient because market participants buy and sell stocks with incomplete information. There is no way of knowing how much money a given company will make in the next year. While we can make estimates, discounted cash flow models, and look at prior income statements, we will never truly know. Mark Zuckerberg doesn’t know what will make next year. Jensen Huang doesn’t know how much will make next year. These CEOs might have a better idea than market participants, but no one, not even the people inside the company know. Not due to their own faults, but it’s just unknowable.

While tools like discounted cash flow models, comparable analysis, sum of the parts analysis are helpful, they can only help you build towards more complete information.

Think about Nancy Pelosi and other politicians. How do they beat the market? They have more complete information — they know when congress is going to pass a bill that benefits a certain company. Warren Buffett credits reading as the reason he was so successful in the market. He’s not reading just anything, he’s reading financial reports, balance sheets, 10-k’s, etc. all in hopes of gaining more complete information to make his predictions with. This is why we trust insider buying/selling (more so selling) as valuable signal towards what the stock could do in the near term. While company executives don’t have complete information on the company’s performance — they have more complete information.

You’re probably thinking all of this is well and good, but how does this help me make money in the stock market? If everyone’s information is incomplete, how does anyone outperform the market? The answer to beating the market is simple.

You need 4 things. More complete information, conviction in that information, the outcome based on that information, and that the information has to be counter to popular belief or contrarian to some extent.

The first step to beating the market is having some prediction of where a stock will go based on your research. If you did research into Apple and determined that the latest iPhones they released are going to underperform in sales that’s step one. The second step is being able to hold that prediction despite the market moving against you. That’s not to say if your belief changes you have to hold to your priors, but if you still believe in your prediction, you have to tune out the emotions that the market will put on you. Let’s say you short Apple based on your prediction, and the next day Apple rips up 20%. If you really want to make money you need unshakable confidence in your prediction despite market movements.

Think about Michael Burry during the 2008 global financial crisis. Investors were panicking, calling him telling him to close his position. It seemed like he was burning money daily. But what did he do? He held firm and was rewarded handsomely.

You also need to project what will happen based on this information. It’s not enough to think that Apple will go down based on your research. How much will Apple re-rate by? What will happen to their overall revenue? What does the combination of those two do to Apple’s valuation? When will you get information to confirm or dispel your hypothesis?

The last step is the most crucial to me. You have to be contrarian in your beliefs if you really want to make money in the market. There’s no alpha in doing what everyone else is. If everyone thinks that Apple is going to zero because the latest iPhone lineup sucks, you better believe the stock will be re-rated to reflect that market belief. There’s no money to be made when everyone is thinking the same thing.

Think about the most successful traders or investors. If you think about their methodology, they often credit a unique edge that led to their success.

A few examples would be:

Warren Buffett — claims much of his edge comes from his rigorous amounts of research and diving into company reports.

Peter Lynch — famously invested in what he knew, he emphasized going to stores, visiting companies firsthand to understand the customer experience and the value that company provided.

Chris Camillo — his edge comes from alternative data, he goes on social media platforms like Tiktok and Instagram to see public sentiment on a company’s products or recent launches.

What do all of these successful investors have in common?

They found their unique edge that they had a passion for and had skill with. Do you think Buffett would be successful if he didn’t read as much as he does? Would Peter Lynch have averaged an annual return of 29% if he didn’t go to the stores he was doing research on?

The thing about being successful in the market is that it’s not just about what I’ve gone over in this post. It’s about finding your unique edge that you can continue to perfect over the years.

Buffett didn’t become successful overnight. It took consistency, hardwork, and dedication to his process and that’s something I hope to emulate with this Substack.

Please consider subscribing if you’d like to read my future analysis of the stock and real estate markets, as well as the rise of prediction markets. In the future I plan to do more stock specific research on companies that interest me, as well as articles on what I believe companies are doing well or poorly and my recommendations for them.

In the meantime I have a catalog of stocks that I researched during my summer internship in 2024, which can be found here. I also summarized this research as well as some of my larger portfolio positions in this post.

Ever since I turned 18, I’ve had an interest in the stock market. Maybe because I turned 18 right when WSB was going viral and Roaring Kitty was making millions betting on GameStop, but either way I got really into it.

I even went to college to study finance, and did really well in my classes.

But nothing was as satisfying as making money in the stock market, and that’s exactly what I did by buying Meta.

In 2022, the sentiment on Meta, formerly facebook was at all time lows. They were burning billions investing into Reality Labs and on February 3rd, 2022 they experienced the largest single day drop in market value of $232 billion dollars, after their earnings report showed that they had a first-ever decline in daily active users and increased competition and costs.

I bought 5 shares the next day. My thesis wasn’t complex or completely fleshed out. It was simply that they would do the rational thing and stop spending so heavily on Reality Labs, and that they still had a massive group of daily active users on their platforms that no one could compete with.

Over the course of 2022, Meta would fall roughly another 50% until November. The stock traded below $100 for the first time since 2015. At this point I was out of money to keep investing into Meta but I had accumulated 96 shares by this point. My brokerage account looked like a rollercoaster heading the wrong way. Despite the market moving largely against me, I just believed that the smart people at Meta would make rational decisions that would lower their Capex and they would buy back shares at these depressed levels. That’s exactly what they did and well, it worked. (montage of news covering meta’s rise)

Now you have to understand that Meta looks like an easy company to bet on in hindsight. But at this time, public perception of Meta was at all time lows. People were calling for a new CEO, Twitter was making fun of the company ad nauseam, but I just held and was rewarded. This shaped the way I view the market especially at a time where my college professors were lecturing my classmates and I about the Efficient Market Hypothesis and how we should all just buy the S&P 500. I don’t disagree that we should all buy the S&P 500, and it’s definitely the more pragmatic and risk averse way to ensure a better financial future, but it’s just not for me.

Now what I would’ve done differently if I could go back is take even more risk. My biggest regret of this Meta play was that at one point I put a LEAPS (Long-Term Equity Anticipation Securities) option on my watchlist that I believed was a crazy value. I added it to my watchlist near the bottom, during October of 2022. It expired in January of 2025, and was struck at $120. If I had taken all my shares, worth about $10,000 at this time, I could’ve bought two of these options. My return was still good turning $10,000 into $70,000, but buying these two LEAPS would’ve turned that same $10,000 into about $100,000.

Now the problem was at this time, I looked and felt like an idiot. I was down roughly 40% as my cost basis was $180/share and market sentiment on Meta was super low. If I had more conviction I would have played this via the LEAPS option instead of shares.

I’m 22 years old and for me the long-shot/home run opportunities like are what will truly change my financial future, not the 7-10% inflation adjusted returns that and offer. That’s why in the future, I’m looking to play a lot of my theses via LEAPS and taking more risks. I will still definitely own shares and plan to even own the indexes in my retirement account but I think now is the time to take on these more risky positions when I have time ahead of me to earn money in the future.

If you want to read more posts like this and learn about financial markets subscribe to this Substack where I post research on stocks I think are interesting.

Over the past 16 months, prediction markets have been growing in popularity and transaction volume.

In fact, prediction market volume has grown to over $1,000,000,000 per week recently and the growth seems destined to continue as prediction market providers Kalshi and Polymarket have expanded their offerings into sports. Before I get into that though, I want to provide a quick overview of what prediction markets are, how they make money, and how they became so popular.

data per Dune

What are Prediction Markets?

Prediction markets are markets where you trade contracts that are priced based on the perceived likelihood of real life events occurring, such as elections outcomes, economic indicators, or sports games.

Prediction markets aggregate collective belief and multiple sources of information to price the probability of events occurring and allow participants to bet on specific outcomes through buying or selling of a contract.

For example, below is a prediction market of the 2028 US Presidential Election.

Per Kalshi, this market, “will close and expire after a person has been inaugurated as President pursuant to the next presidential election. Otherwise, it closes by Nov 7, 2029 at 10:00am EST.” So if you purchase a contract in Gavin Newsom for $0.21 right now, if he were to win the presidential race and be inaugurated, that $0.21 would turn into $1.00.

How Do Kalshi & Polymarket Make Money on This?

Kalshi and Polymarket charge a fee for providing this marketplace and benefit when transaction volumes rise. Prediction markets can also sell trading data to businesses and researchers.

As you can see below, if I buy a 93c contract on Gemini being the “Best AI this month” I won’t make a profit of 7c per contract, I’ll only make 6c per contract. This represents Kalshi’s fee. The fee is different for each market.

Are Prediction Markets Accurate?

The next logical question is whether these markets are accurate, and I believe they are, as evidenced by how effectively prediction markets priced in Trump’s election victory last November.

As seen by anyone who followed the 2024 Election closely, prediction markets correctly forecasted that Donald Trump would be elected. From the University of Cincinatti News:

“As Election Day approached, Trump was trading at approximately 60 cents on the dollar on Polymarket. Those who bet on Trump made approximately 40 cents profit per share once he won the election.

The market gave Trump greater odds to win than most polls, which had the election at close to 50-50 odds, and was closer to the final Electoral College tally.

‘The polls are just people’s opinions; the pundits had their opinions, but there really are no consequences if they got it wrong,” Jones said. “Maybe they took a little heat in the media. But if you got it wrong in the prediction market side, then you lost significant amounts of money.’”

I believe this poll hits on the crux of what makes prediction markets valuable. With no financial repercussions or incentives, people can say whatever they want about an event’s outcome. With real money, their own money, you can bet people will make more accurate guesses, and that the wisdom of the crowd will work its magic.

How Did Prediction Markets Become So Mainstream?

One key driver of their recent surge is their expansion into sports, particularly football, which taps into a massive existing demand. Traditional sportsbooks remain illegal in many large states like Texas and California, but platforms like Kalshi and Polymarket sidestep these restrictions by operating as federally regulated financial exchanges rather than state-regulated sportsbooks.

This loophole lets them offer “event contracts” on games to a previously untapped market. And the demand is enormous. Sports betting is deeply ingrained in American culture, and with college football and the NFL now in full swing, this shift has pushed trading volumes beyond $1 billion per week.

On average, $730,045 is being wagered on Kalshi alone on each NFL game. I expect this figure to rise as they become more popular, and younger generations look to gamble on sports, prediction markets could be the first place they go to.

Another reason for the rising success of prediction markets is the diversity in markets they provide. You can make money speculating on whether Mr. Beast will use a certain word during a video, or even what the highest temperature in a given US city will be tomorrow.

How Can We Actually Make Money Using Prediction Markets?

In my view, there are four main ways to make money with prediction markets:

1. Subject Matter Expertise within a given field. If you’re a meteorologist, you could probably make some money predicting the highest temperature in a given city with that edge.
   

   Pros: High level of knowledge within a field gives you confidence and hopefully an edge while making predictions about that field.
   

   Cons: Directional risk. You may be an expert but variance could always wipe that away, or you may just be less of an expert than you think.
   

2. Correlation between prediction markets and other financial assets. (crypto, stocks, real estate) Given that there are prediction markets for crypto prices, interest rates, and recessions, it’s pretty clear that you could draw connections between a prediction markets estimate of an event occurring and the effect on XYZ financial asset based on that event.
   
   Through scenario analysis you can try and price said asset accordingly. The problem with this is that you’re making assumptions based on the aggregated predictions of market participants. While we assume that these aggregated predictions are accurate, there are times where they are not. (see the GFC, COVID, etc, etc.)
   

   Pros: Simple to understand: If Kalshi’s recession prediction market is pricing in a recession at a 60% chance and doesn’t move, you should probably take a bearish position.
   

   Cons: Prediction markets can be wrong, Directional Risk, Incorrect analysis of the events impact
   

3. Arbitrage between Prediction Markets. With multiple prediction markets, it’s not impossible that prices can fluctuate to an extent where you could buy one outcome for $0.45, another for $0.50 and profit $0.05 no matter the outcome. On enough contracts, that $0.05 could be a nice return.

4. Insider Information/Activist Activity. If you were on Twitter in August, you probably saw clips of dildos being thrown onto WNBA courts during a game. After a couple instances of this, Polymarket created prediction markets for this “event.”

   
   
   My Ranking of the Potential Returns of each strategy vs. Difficulty of each strategy:

   

   

   Like Ben says in his tweet, this is exactly what prediction markets should not be doing. This creates an incentive to buy this contract in large volumes and then go to the game and make sure it pays out. While immoral, this isn’t really insider trading and prediction markets in this format are so new that it’s pretty much the wild west.

   
   That leads to my next point, which is that if I were an editor for Mr. Beast, I would have advance knowledge of what words he is going to say and can front run the prediction markets accordingly. It’s a wild time, and I am curious to see how prediction markets like Kalshi will manage this.

   

   Please consider subscribing if you’d like to read my future analysis of the stock and real estate markets. In the future I plan to do more stock specific research on companies that interest me, as well as articles on what I believe companies are doing well or poorly and my recommendations for them.

   In the meantime I have a catalog of stocks that I researched during my summer internship in 2024, which can be found here. I also summarized this research as well as some of my larger portfolio positions in this post.

One of the main benefits of thematic investing is that it reduces the specificity required to achieve outsized returns. It’s easier to identify an industry likely to benefit from a larger trend than it is to pick a single winning stock, and doing so creates natural diversification that helps mitigate company-specific risk. Building a portfolio around three to five investment themes is also far less time-consuming than conducting fundamental analysis on 15 to 25 individual companies.

My Introduction to Thematic Investing

I was first introduced to thematic investing when I noticed Citrini Research going viral on Twitter in 2023 for accurately predicting several trend-based theses in AI and large language models (LLMs). Since then, his following has grown to more than 90,000, and one of his stock theses, on Acuren Corp, led to a 25% single-day jump.

After discovering Citrini, the idea of thematic investments has resonated with me and been something that I wanted to implement into my own portfolio. As part of ramping up my posting on this Substack, I wanted to dive into a mega-trend I see driving the market over the next 5-10+ years and the reasons behind that.

The Mega Trend I See Driving Returns Over the Next Decade

The major mega trend I see as already in progress and set to continue over the next decade is the hyper stimulative short form content on platforms such as TikTok, Instagram Reels, and YouTube Shorts.

Short-form platforms like Instagram, TikTok, and YouTube are exceptionally effective at identifying what content viewers find interesting and will continue watching. This is largely due to the sheer volume of data they collect: with short-form content, the signal they receive about audience preferences is exponentially higher than with longer-form media.

In a ten minute time period, you could realistically scroll through 50+ short form videos and each time the algorithm is getting better at determining what will keep you on their platform. As a result, they are also getting signal towards what you are more likely to purchase and can target their ads more effectively. In a similar 10 minute span, you could likely only watch the beginning of a few longer form YouTube videos, and they wouldn’t be able to gain as much insight into your content preferences.

From the business standpoint, these operations and their effects seem beneficial. But for the consumer, it means you are spending more time on content that leaves minimal lasting impact on your life, and you are likely spending more money than you would have by not opening these apps.

In addition to the time and money spent on these platforms, consider the generations of kids who have grown up with smartphones and the internet from birth. I was born in 2003, when smartphones were just becoming mainstream, and even I’ve felt the effects of hyper-stimulation, from gaming and long-form YouTube videos to, more recently, short-form content.

With the heightened presence of short form content, as well as the younger generations (Gen Z and Gen Alpha) being introduced to short form content at an increasingly young age, attention spans are dropping at historic rates.

With our attention spans rapidly decreasing, I’ve noticed an increased amount of stimulant/antidepressant prescriptions to my classmates, friends, and my generation as a whole. This is backed by scientific research and is a seriously concerning development as many of my generation, including myself in many regards, are choosing short-term dopamine over delayed gratification. Below is a chart of the percentage of teenagers in the United States taking antidepressants from 2015 to 2019, by gender. This study was carried out in 2020 and I fear that the real figure stands much higher today, as short form content has only been around since roughly August of 2018.

While I don’t believe that the effects of short form content are individual to young adults and teens, I do think that the effects of this content will be seen the most here. This will be reflected by decreased reading capability, worse grades, and overall less intellectualism. This could result in worse college acceptance rates, or lower rates of college attendance as a whole.

Another possible outcome of this hyper-stimulation is that parents become more aware of these issues and take proactive steps, such as limiting device time, encouraging intellectual engagement, and even exploring alternative schooling models that promote deeper, more sustained intellectual development.

For-profit schools could offer a potential solution to this problem, as their rise may lead to improved academic outcomes through iterative changes to teaching and stricter limits on technology use, especially social media, during school hours.

Leaving my moral opposition to short form content aside, I see no clear disruption to these platforms current business models and their detrimental side effects. By extension, I believe that these companies, and , provide the most logical ways to invest in this hyper-stimulation mega trend. While investing in two of the FANGAM companies seems like a no brainer, Google and Meta are trading at some of the lowest PE ratios of the group.

In addition to Google and Meta, I could see doing well with more targeted advertising data, as well as gaming companies that keep the attention of these younger generations better than other media platforms.

Specifically within gaming, Tencent would be a logical investment based on this trend, especially given that they own Riot Games, the developer behind two of the biggest video games out right now in League of Legends and Valorant. These games are particularly addictive because they have ranked play elements that encourage players to devote hours and hours of their time to improve, and they monetize them via weekly micro transactions for cosmetics. These competitive game modes use rating systems similar to ELO in chess, and consequently gamers spend increasing amounts of time climbing ranks.

Additional Mega Trends That I See:

• Increased Energy Consumption From Data Centers (Natural Gas?)

• Expensive Housing (REITS?)

• Loneliness (dating apps)

• Health Consciousness (Lulu, Nike, Smartwatches, Gyms, etc.)

• Lower Alcohol Consumption

Please consider subscribing if you'd like to read my future analysis of the stock and real estate markets, as well as the rise of prediction markets. In the future I plan to do more stock specific research on companies that interest me, as well as articles on what I believe companies are doing well or poorly and my recommendations for them.

In the meantime I have a catalog of stocks that I researched during my summer internship in 2024, which can be found here. I also summarized this research as well as some of my larger portfolio positions in this post.

The stock research posts 1-9 are from my internship last summer with EGA, and are mostly global small cap equities from a screener that I was tasked with going through. There are some big wins (Ryohin Keikaku up 159%, Austal up 189%, Aritzia up 89%) but also a few big losses. (TGS ASA -34%, Greggs -50%) I’m happy with my results as six out of nine stocks are up since my research was shared, with an average return of 42.68%.

My Reasoning Behind Starting This Stock Research Series

Something I’ve meant to do for a long time is create a trading journal for my portfolio where I can go over my rationale for my investments. This is something that many top portfolio managers, traders, successful investors have credited with much of their success.

My reasoning behind starting this process is that I’m likely to do better on investments if I can take the time to write out my thoughts, and come to a more coherent thesis before entering into a position. It could also be helpful for the purposes of understanding where my edge lies and what industries I do well in.

My hope with writing out more of my investment theses is that I also focus in on key catalysts / drivers of returns that will be easier to track. For example if one of my catalysts is that XYZ Company will buyback shares over the next 18 months — that’s easier to validate than just saying XYZ Company is undervalued.

Stocks I’ve Bought and Done Well With

Personal friends of mine as well as my family will know I have been a Meta bull since their historic drop in February of 2022.

I didn’t have a full fledged thesis, but my main argument was that they would simply stop dumping money into Reality Labs, and that they had one of the largest advertising businesses in the world, as well as one of the highest active user bases in the world. With a cost basis of $177 per share, I have done pretty well on Meta.

My latest substantial investment was a Google LEAPS call I bought around my graduation back in May, and my main argument was that the concerns that AI (ChatGPT) was killing their search business was overblown. It also helps that they have the single best advertising machine in the world in YouTube.

I want to write a full post on why I’m bullish on Google longterm but a large part of that for me is YouTube, as my generation and all younger generations use YouTube as their primary source of content over traditional television media. The cost of new content on their platform is little to nothing (pretty much only whatever it costs to host the data and run the servers) and they get a 45% cut of all AdSense revenue. Creators are incentivized to create content that engages viewers and keeps them on the platform, and YouTube has very little work they have to put in on their end to earn that revenue.

Data per https://www.businessofapps.com/data/youtube-statistics/

The Stock I Bought and Did Not Do Well With

I’ve been lucky to avoid major financial losses in my short time spent investing in the stock market, but the one stock I’ve lost a decent amount on so far (paper losses btw!) is CoStar Group. They’re a larger company with a collection of real estate brands and high amounts of vertical integration. They own Homes.com, Apartments.com, Matterport, etc.

I was sold on by one of my real estate professors in college and didn’t do enough due diligence to come up with my own valuation and bought on his strong conviction in the management. This is a mistake I hope to avoid by starting this research process and journaling my thoughts on each company that I invest in before I do so.

The One That Got Away (For Now)

A company I have been a customer of for all of my investing career is Robinhood as they are by far the best user experience in the investing/fintech space and funnily enough I have wanted to invest in them for years now. I bought some shares during their IPO process, sold after I got cold feet and they went down a bit for a small loss.

Back in March of this year, I was researching Robinhood as an investment because I love their core products and their roadmap to expand into Banking as part of their product mix. I got busy with finals, graduation, and college in general and never really got around to finishing that research as I felt as though had “run up” too much in 2025. Well, +234.93% later, I feel really dumb now.

One of my main struggles with investing has been my willingness to buy on the way up — and maybe right when I capitulate to this error I’ll be buying the top of this bull market, but it’s something I’m trying to fix process-wise.

I think narrowing down on a valuation for any given company is the best way to do this so in future posts I will make some attempt to assign value to the business I am researching in efforts to rectify this flaw in my process.

Some companies I am interested in researching in the near term include: Google, Intel, Robinhood, and a deeper look at CoStar as I still hold that in my portfolio.

Below I will also link a quick google sheets document I made that tracks the main stocks I have done research on and their corresponding returns.

Google Sheet

Consider subscribing if you found this valuable, I really appreciate it and it lets me know to continue posting similar content.

9/26/25 Close: $86.42 CAD

Research Sheet Aritzia

Company Description

Aritzia Inc., together with its subsidiaries, designs, develops, and sells apparels and accessories for women in the United States and Canada. Their product mix is wide, with a focus on high quality clothing at a premium price point.

Market Cap $5b CAD or ~$3.7b USD

Debt

Aritzia has a 2.99x leverage ratio, with $714m CAD net debt on the balance sheet, which is high, but in line with expectations of a growing company, with many stores opening in the near term.

Investment Thesis

From a fundamental standpoint, Aritzia is a growing brand with established business in Canada, but has recently expanded to the US and experienced strong growth in store count and revenues. Further revenue growth will be driven by store expansion in the US, and the company has experienced strong economics in this area, with store payback time beating internal estimates. The company expects strong margin expansion in their 2025 fiscal year, and according to CapIQ estimates, EBITDA is expected to expand from ~$220m CAD to ~540m CAD.

In terms of valuation, I expect that Aritzia will continue to trade at a premium due to its near term growth potential, as well as strong operating figures. Weakening consumer sentiment and overabundance of supply similar to what the company experienced in 2023 would likely result in a de-rating from this point. With the macro environment seeming extremely volatile, this seems like a bet on the soft landing working out, and a strong company in the consumer discretionary industry.

Main Drivers

Store Growth and Customer Acquisition

On pace for total square footage growth of 50% in the US in 2024 – driven by 12 new and repositioned stores in the next 5 months

Opening of new Boca Raton location beat internal sales projections by 35% and is tracking to payback in 10 months vs. the forecasted 12-18 months

60% of the Boca Raton customers were new to Aritzia, illustrating strong potential for growth through customer acquisition in untapped US markets – figure is consistent with recent store openings, Sacramento was around 50% new customers as well

Have identified 150+ locations for new store openings and plan to open 8-10 stores annually

Margin Expansion

Management expects margins to expand due to lower warehousing costs, and stronger pricing with lower markdowns

Strong Demand from Core Customers and Seasonality of Revenues

Aritzia’s annual warehouse sale brings out their core customer base, and is a major event that draws in massive lines similar to those seen at amusement parks

Seasonality of revenues could drive strong Q3 and Q4 calendar year performance; the Super Puff jacket is a highly sought after item, similar to Canada Goose, but at a lower price point ($200-$500)

On TikTok, the hashtag #Superpuff currently has 89.7 million views (Glossy, Dec. 8, 2023)

Created the super puff 7 years ago – has grown in popularity each year since

Catalysts / Re-Rating Potential

Margin expansion (EBITDA margin increasing from ~10% in 2024 to a forecasted 20% in 2025)

Good figures on store openings and customer acquisition in Q2 2025 earnings report in mid October

Costs

SG&A expenses increased by 14.9% to $176.3 million, compared to $153.5 million in Q1 2024. SG&A expenses were 35.4% of net revenue, compared to 33.2% in Q1 2024. The increase in SG&A expenses was driven by investments in digital marketing to protect and propel the Aritzia brand, infrastructure projects, and technology initiatives to support the Company’s growth

Valuation

Aritzia trades at a discount to its historical valuations, (22.8x NTM EPS vs. 30x NTM EPS) but at a premium to its comps set. (22.8x vs. 10.7x NTM EPS) I believe this premium is deserved due to Aritzia’s near term growth potential and strong pricing power they have illustrated in a tough macroeconomic environment

ESG

“100% of the energy fuelling our Boutiques, Support Offices, and Distribution Centres comes from renewable sources1 achieved through purchased Renewable Energy Credits (RECs)”

• Aritzia ESG Report FY24

Positives

Strong YoY revenue growth of 13% in the US, their primary growth area

CFO projects FCF generation to increase in the back half of fiscal year 2025, as capital expenditures normalizes – in Q&A transcript, CFO mentioned that the company will prioritize the share repurchase program once this FCF is realized

CFO projects gross profit margin expansion of 450 bps in the 2nd quarter of fiscal year 2025, driven by pricing (150bps) , lower warehousing costs (125bps), and lower markdowns (100bps)

Q1 2025’s 510bps gross profit margin expansion was driven by leverage on fixed costs as well as lower markdowns resulting in fuller pricing of products

Stock is up 62% YTD after strong earnings results for Q1 2025

Negatives

Comparable sales growth of 2% is low; but not too concerning if new store openings can continue

One driver of an increasing gross profit margin was ‘IMU improvements’ which just means higher initial markups; it will be interesting to see how the consumer responds to this and if volumes can stay high with prices increasing as this is a discretionary business

Company experienced difficulties in 2023, stock fell 40% as inventory increased and consumer weakness led to weaker performance, stock has rebounded a lot since then, indicating investor confidence in management

Upside Risks

Soft landing in play after a potential rate cut in September, could lead to stronger consumer spending than at present

Downside Risks

Highly sensitive to consumer sentiment and lower consumer spending would have drastic effects on luxury clothing brands like Aritzia

Sources

https://x.com/NewcomerInvest/status/1701008756707111205

Images

9/26/25: £1596.00

Total Return: (49.48%)

CAGR: (46.52%)

Research Sheet Greggs Plc

Company Description

Greggs Plc is a food on the go retailer, selling baked goods, sandwiches, and beverages. They sell products to franchisees, and wholesale their goods as well. Greggs’ largest segment is selling through their company managed shops, composing 89% or £1.6b of their £1.8b of sales in 2023. The other £200m comes from their B2B business segment, which includes wholesaling and franchise partners. The business-to-business segment is their fastest growing, with 24% YoY growth from 1H23 to 1H24.

Debt

Greggs Plc has an attractive balance sheet with only £238.2m in net debt, so a 0.7x Net Debt/EBITDA ratio compared to its comp sets average of 3.2x.

Investment Thesis

The investment thesis in Greggs is pretty clear: you’re buying a steadily growing company with strong vertical integration, (2500+ shops, and 12 manufacturing/distribution centers) improving margins, (through strong pricing and cost inflation slowing) and a long term growth runway to 3500 shops in FY 26/27. Along with these factors, almost half of Greggs shops are staying open later (7pm vs 4pm previously) to help serve customers commuting back from work. While there isn’t one clear driver or positive change at hand, these factors, along with an improving UK-economy backdrop could drive the stock further.

The valuation thesis is that Greggs will continue to trade at a premium relative to its peers (23.3x LTM PE vs. 16x peer average) and continued revenue growth towards the £2.4b FY26 target will drive strong stock returns. Catalysts that could drive the stock towards an even higher premium would be increased dividend payouts, further rate cuts by the Bank of England, as well as improved margins that could be gained through the investments in their supply chain. Achieving this 2026 target, with similar profitability to now as well as similar valuation, would result in a 39% return from this point, excluding dividend payouts.

Main Drivers

1. Store Growth Program

51 net new shops in first half of 2024, on track for 140-160 new shops by EOY, Greggs is integrating itself into the daily lives of its customers, and providing consistent quality in many places, and at all times.

2. Company has stockpiled cash and plans to make large capital expenditures in 2024, focused on expanding their supply chain and increasing capacity to support ~3,500 shops (currently 2,524 so a roughly 40% increase in shops by 2026/2027)

Company projects to spend £143m in capex on the supply chain, ~50% of all capex spend in 2024. The company is focused on increasing capacity on current factories through renovations, they expect to add 300 shops worth of capacity to their Birmingham and Amesbury distribution centers. Additionally, they are projecting to finish construction of two new facilities in Derby and Kettering by 2026/2027, providing logistics capacity for an additional 700 shops.

3. Digital Sales Channels and Delivery Services

Greggs is expanding their offering, and currently has 1400+ stores that offer delivery services after 6pm. Greggs has “empowered our teams to ‘Fix it Now’, enabling them to substitute items for customers, instead of rejecting a delivery order.” In the long term, this could have massive effects on total volumes as typical restaurants don’t substitute food items. The company has also found that deliveries help serve, “multiple customers in one order with higher-than-average basket size.” Electronic point of sale software is being rolled out to Greggs locations, and could help increase labor efficiency and reduce costs.

Catalysts / Re-Rating Potential

• Further dovish sentiment from the Bank of England (recently lowered rates from 5.25% to 5.0%)

• Improved margins (Greggs is forecasted for a 3% increase in EBITDA margin from 2023 to 2024)

• Continued dividend increases as margins improve

Costs

Greggs is benefiting from unexpected deflation in food and packaging, which allowed them to increase their profit before tax by 16% and their dividend by 19% to 19p/share.

Greggs has very strong gross margins compared to peers (61% gross margin compared to peer average of 36.2%) and their EBITDA margins are slightly higher. (13.4% vs 12.4%)

Valuation

Edison, an equity research firm recently increased the valuation slightly, claiming:

“A reduction in our estimated weighted average cost of capital (WACC) due mainly to a lower UK market risk premium to 4.8% from 5.5% (source: Damodaran) as well as modest changes to our estimates and updating for the financial position have led to our DCF-based valuation increasing to £31.90/share from £30.20 previously. The share price has performed well year-to-date, leaving the valuation at a deserved premium to its UK peers given premium revenue growth and profitability”

ESG

• Prevent food waste by partnering with a food app “Too Good To Go” where customers get food that is expiring soon for ~40% of the typical costs, helps the firm recover some costs while lowering food waste

• Greggs donates food that will go to waste to local charities

• Goal to be completely Net Zero by 2040

Positives

• Stable core business with a long term growth runway, per Edison Research, “forecast Greggs will continue to generate strong growth over the next three years, with CAGRs for revenue and operating profit for FY 24–26 of 11% and 10%, respectively. More than half of the forecast revenue growth is from new store openings, which should have a high level of visibility.”

• They have recently experimented with their product mix, offering over ice cold drinks, as well as pizza and healthier on the go options like pesto chicken flatbreads. Greggs is committed to serving healthier options, with a minimum 30% of their products being healthier, a value proposition for health-conscious consumers

• “In the 12 months to June 2023, the number of UK consumers who ate in fast food outlets increased to 45%”(Foodservice Report) – Consumer preferences are shifting towards fast food, and oftentimes that means sacrificing for unhealthy options, but Greggs is responding to that gap in the market by offering healthier options at a fast food price point and availability.

• 2026 target of £2.4b in sales, which would be a 26% increase from the LTM sales in June of 2024

• Greggs is extending their operating hours; they have 1200 shops open until at least 7pm, and evening sales is their fastest growing customer segment, with their market share expanding from 1.2% to 1.6%

• 34 shops are now 24-hour drive thrus, and this store type is rapidly gaining popularity with shift workers

• Click and Collect (C&C) sales channel offers customers another way to purchase – as our world becomes more digital, quick grab and go sales are increasingly common especially within the fast food industry (ex: Starbucks, McDonalds, etc.)

• Strong moat in an industry with a high barrier to entry, recreating their supply chain, brand loyalty, and pricing power would be very difficult to do.

• Strong historical ROE, 22.56% 5-yr average, with the last 3 years above 27%

Negatives

• No clear “positive change” – more a story of multiple smaller changes that could make for outsized returns in the aggregate

• UK’s National Living Wage could pressure margins, personnel cost inflation is a concern for management

Upside Risks

• Input cost inflation decelerating, helping to improve margins – if this trend continues the margins will be even stronger, helping drive stock price

• “Unlike many consumer-facing companies, high selling price inflation was accompanied by volume growth, leading to good market share gains”(Edison Research) – in this sense, inflation could be an upside risk in that Greggs has strong pricing power with the consumer

Downside Risks

• Input cost inflation ramping back up; pressuring margins

• Edison Research claims, “Following the UK’s exit from the EU, there remains potential for changes to regulations and supply chain disruption, including delays to the import of goods.”

• Execution risk with a more rapid store expansion program than the company’s history could negatively impact the quality of new stores

Sources

Edison Research

Annual and Quarterly Reports

Images

9/26/25 Close: $47.76

+ $0.25 of dividends issued

Total Return: 7.84%

CAGR: 6.75%

Navios Maritime Research Sheet

Company Description

Navios Maritime is a shipping conglomerate with a market capitalization of $1.3 billion USD. They are headquartered in Monaco, and have had a historically complex corporate structure that has since been significantly simplified. The current firm used to be five separate corporate entities, with complicated fee structures between some of the companies. As it stands currently, the controlling shareholder, Angeliki Frangou owns 16.75% of the company, and Navios Maritime is the only public Navios firm, so the complex corporate structure has been simplified, and the main shareholder/operator of the business has aligned interests with shareholders. Navios operates within three main shipping segments: dry bulk, containers, and tankers. Their exposure to each segment in terms of vessel value is Dry bulk (45%), Container ships (20%), and Tankers. (35%)

Debt

Net Debt / EBITDA or leverage ratio stands at 2.94x, so relatively high, but that comes with the shipping industry, and they plan to pay down large portions of the debt after the newbuild projects.

Investment Thesis

Fundamental Investment Story:

Navios Maritime is a diversified shipping conglomerate with dry bulk vessels, container ships, and tankers, and had previously been an amalgamation of 5 different corporate entities, now clearly merged into one firm. Navios is currently valued amongst the lowest of its peers largely due to low cash dividends to shareholders compared to the industry. (0.5% vs. peer average 5.1%) While Navios is rated amongst the lowest in terms of valuations, it experiences above average operating performance compared to the peers, namely Navios had a 48.3% EBITDA margin in 2023 compared to peer average of 35%. Across the board, Navios experiences in line or above average operating performance, and the only point of concern is the low level of cash dividends to shareholders compared with the industry average. In my opinion, this is likely to change for the positive in 2024 and beyond, with the controlling shareholder, Angeliki Frangou, taking Navios Holding Co. private in late 2023, along with taking possession of the incentive distribution rights that company held. These rights act as a general partner split, meaning that the larger the total cash distribution to shareholders, the more split that the IDRs receive. The IDRs only kick in at over $24/share, which would yield ~54% at current price levels. While this rapid increase seems unfeasible considering that current operating cash flow sits at ~$18 per share, and the prioritization of newbuilds and paying down debt has taken precedence over cash dividends, I think it is possible to see in the near term. Given that fundamentals are rising across the board, especially within dry bulk; which Navios is very exposed to, and the CEO is fully incentivized to increase cash distribution, I don’t think it’s out of the realm of possibility.

Valuation Investment Thesis:

The bet on Navios Maritime is particularly interesting because there are potentially multiple outs. The first opportunity is that management continues to make confusing capital allocation decisions, the multiple remains lower than industry average, yet fundamentals improve, along with revenue, and the stock goes up in line with revenue growth. Secondly, management could decide to increase cash dividends to industry average, and the multiple could re-rate by 50%, in line with peers, and along with revenue growth, the stock performs exceptionally well. Lastly, management can buy back shares, effectively paying 50 cents on the dollar for the ships they currently own due to the net current asset value spread, and the company could re-rate based on that. The way this bet could lose is that management continues to allocate capital poorly, and a recession hits and/or the high levels of demand fall, and fundamentals rapidly deteriorate.

Main Drivers

1. Capesize Day Rates – Day Rates are rapidly increasing with capesize vessels being priced at $27-28000 in Q4 of 2024. The Baltic Dry Index, a dry bulk shipping rate index is up 48% since this time last year.

“Adjusting for the higher earning potential of large vessels, as well as the long term contracted nature of its container and product tanker fleet, the true leverage to capesize day rates is likely 30-40% for NMM.”(Lake Cornelia Research Management Inc.)

2. The other segments (Containerships and Tankers) are heavily contracted out, providing downside protection – Contract cover for containers and tankers is ~90% for 2024

“We view these valuations as more stable because NMM has largely contracted out most of their ships. NMM has a $3.3 billion backlog of contracts (2023 revenue was ~$1.3 billion for context). Contract cover for containers and tankers is ~90% for 2024 and extends out for years. We view these other segments as providing downside protection and investment duration to the embedded capesize bet.” (Lake Cornelia Research Management Inc.)

3. The dry bulk bull thesis is supported by low supply growth in the sector

“The current orderbook stands at 8.1% of the dry bulk fleet. The supramax segment could grow the fastest, while the capesize orderbook remains small.” (Baltic and International Maritime Council)

Catalysts / Re-Rating Potential

• Increase in cash distribution to shareholders, as management’s incentives are fully aligned with shareholders (incentive distribution rights in place)

• Capesize rates pushing higher with increased demand and low supply growth

• Removal of anti-takeover provisions

Costs

EBITDA margin is projected to increase steadily over the next two years to 54% in 2024 and 57% in 2025 from 48% in 2023.

Valuation

Trades at 50% discount to NCAV of $110/share, which assumes the newbuilds program generates zero shareholder value

Trades at 50% discount to peer average NTM PE ratio (3.09x vs. 6.14x) per CapIQ

ESG

Net Zero by 2050

Navios is one of the founding members of the global Maritime Emissions Reduction Centre in

collaboration with the Lloyd’s Register (LR) Maritime Decarbonisation Hub that will focus on

optimizing the efficiency of the existing global fleet.

Positives

• 27% NFY EBITDA growth projected; in line with the 25% average of the comps, indicating strong performance for shipping companies in the near term

• Management is extremely inclined to increase cash distributions to shareholders, which at current price levels would be over 50% yield to shareholders

• Disgruntled shareholders are writing to management – this sort of activism could spark management action to deliver value to shareholders via buybacks, dividends, or liquidation of some assets

• Secondhand vessel prices are rising rapidly – could be a sign of scarcity within the sector (Tanker prices are up 98% since 2021, and Bulk Carrier prices are up 85%)

• Diversified fleet value across 3 main segments – Dry bulk (45%), Container ships (20%), and Tankers (35%)

• Seanergy Maritime, a peer, were just ranked as an outperform in an equity research report done on August 8th by Noble Capital Markets Independent Analysis, where they claimed “we think the fundamental backdrop remains favorable through 2024”

• CEO is buying shares, picture of 13D below

Negatives

• Historically has been amongst the lowest dividend yields in the industry, likely the cause of the low multiple assigned to the stock

• Investor angst is rising, with many investors calling for liquidation of current assets to return value to shareholders

• Anti-takeover provisions means it is unlikely that frustrated shareholders will have any ability to force management’s hand

Upside Risks

• Tightened ship supply elevates freight rates – according to Clarksons, as of June 1, 2024, new shipbuilding orders for global crude oil tankers represent 7.7% of the existing shipping capacity, which is an increase since 2023, but still a historically low level; the supply for ships is very inelastic; if demand continues to increase, rates could go even higher. There is a similar story within the dry bulk segment, with the orderbook standing at only 8.1% of the current dry bulk fleet.

• Huatei Research maintains an overweight rating on the shipping sector, and claims that:

1. Within container shipping: “Red Sea detours, seasonal peak, and port congestion are driving high market prosperity. Short term solutions to the Red Sea detour are unlikely”

2. “Tanker shipping: seasonal peaks will boost freight volumes, leading to a qoq increase in freight rates.”

3. “Dry bulk: seasonal demand will drive QoQ increases in freight rates.”

Downside Risks

• Extremely sensitive to global macroeconomy, with recession risks rising, this stock really only makes sense if you believe the ‘soft landing’ is in play

  • JP Morgan has increased the odds of a recession by the end of 2024 to 35% with the weak jobs report that came out last week

• Continued capital allocation to newbuilds and paying down debt instead of dividends or buybacks, stock could remain at current valuations due to investor fatigue

  • Navios Maritimes cash from investing was -$253m due to high capex spending on newbuilds and acquiring vessels

  • Navios Maritimes cash from financing was -$233m in 2023 due to debt repayments

Images

https://splash247.com/capesize-ffas-hitting-prolonged-highs-not-experienced-since-the-2000s/

https://www.sec.gov/Archives/edgar/data/902749/000121390023090382/ea189121ex99-1_navios.htm#:~:text=Frangou%20is%20%E2%80%9Cpleased%E2%80%9D%20given%20that,%2D24%25%20of%20estimated%20NAV!

https://docs.google.com/document/d/1L2jU_4bxosB5WbDzq20DhTvjMTlkoL4i_D9t3ekFPxE/edit

https://www.reuters.com/markets/us/jpmorgan-raises-odds-us-recession-by-year-end-35-2024-08-08/

9/26/25 Close: £679

Total Return: 6.09%

CAGR: 5.21%

A.G. Barr Research Sheet - Confidence 7/10, Buy

Company Description

A.G. BARR p.l.c., together with its subsidiaries, manufactures, distributes, and sells soft drinks and cocktail solutions primarily in the United Kingdom (96%). It operates in three segments: Soft drinks, Cocktail solutions, and Other.

The company provides carbonated and flavored soft drinks, brewed drinks, pre-mixed cocktails, mixers, syrups, various fruit purees, boost drinks, energy stimulation drinks, sport drinks, iced coffee, oat drinks, spring and sparkling water, fruit juices, and other non-alcoholic beverages.

Debt

Healthy balance sheet, net debt of (£48.7m) indicating strong financial stability with more cash and short term investments than total debt

Investment Thesis

A.G. Barr, a prominent UK beverage firm, owns the leading Scottish soda brand, Irn-Bru, which surpasses global giants like Coca-Cola in its home market. Since acquiring Funkin Cocktails in 2015, it has dominated the UK cocktail scene, particularly in the rapidly expanding ready-to-drink (RTD) segment, projected to grow at a 13.3% CAGR through 2030. Despite its smaller scale, A.G. Barr boasts a robust product range and a solid market presence, especially in Scotland. Its ownership of top brands and expansion in the RTD market position it well for significant growth, setting it apart from competitors like Fever Tree, which has a narrower focus on tonic water and alcoholic mixes.

Based on my analysis, A.G. Barr currently represents a fair price for a great company with long term growth potential via their wide range of products and stable core business. Their strong soft drink brands, Irn-Bru, Rubicon, etc. are still growing and they have fast growing segments with their ready-to-drink cocktails,energy drinks, and plant-based milk products. The only concern I have is that this company profiles as a more long-term play with few short-term catalysts in sight.

Main Drivers

1. Despite a weakening soft drink industry within the UK, A.G. Barr’s sales volumes outperformed, and their main segments grew significantly, demonstrating a strong core business profile.

“AG Barr’s (BAG’s) FY23 results highlighted the strength of the brand portfolio as group volumes (+2.4%) outperformed the UK soft drinks category decline of 2.9%. Key brands IRN-BRU (33% of FY24 revenue) and Rubicon (19% of FY24 revenue) grew 8% and 15%, respectively, as flavor innovation and format mix helped to drive volume growth.”

2. Energy & Sports drinks are the fastest growing UK soft drink subcategories, worth £2.7b as of January 2024, making up 20% of the total market

AG Barr’s sports and energy drinks segment capitalized on this, increasing revenues by 22% in 2023.

3. The Ready-to-Drink Cocktail market is growing fast, and is expected to grow 13.3% per year until 2030. Top brands like Coca-Cola are moving into this market, and large companies in the alcohol space such as Anheuser-Busch have made acquisitions for RTD cocktail lines. (Paid $1b Cutwater spirits in 2019 as an example)

Currently ready-to-drink cocktails only make up 10.5% of their total revenues via Funkin Cocktails, but I believe that this can offer a significant future growth opportunity for the firm, with the strong projected growth for the industry as a whole.

Catalysts / Re-Rating Potential

• Potential acquisition target

• Reports Q2 earnings September 24

• Signs of delivering on projected NFY EBITDA growth of 16% in earnings report

Costs

• Input costs are slowly declining off of their covid peak, but are still high; for example sugar is 52% above its 10 yr average level, and aluminum is 16% above its 10 yr average level

• Even with higher projected input costs, EBITDA margin is expected to meaningfully increase from 14.7% in 2023/2024 to 16.27% in 2024/2025.

• Majority of hedgeable commodities secured for 2024/2025

Valuation

• A.G. Barr trades slightly below its long term EV/EBITDA level of 10.2x vs. the current 9.66x.

• Compared to peers, it trades at a discount (9.66x EV/EBITDA vs. 12.42x for the peer group) of 28% despite having a much wider product range and better than average EBITDA margin (14.7% vs. 12.1% peer group mean)

ESG

• Management plans net zero within their own operations by 2035, and net zero throughout their value chain by 2050

• Increasing use of recycled content and renewable materials

Positives

• Peer (Britvic plc) was acquired at 13.6x EV/EBITDA or a 36% premium to its trading price prior to the acquisition announcement, despite less revenue growth in 2023 (8.4% vs. 26% for A.G. Barr) — A.G. Barr trades at 9.66x 2025 EV/EBITDA illustrating significant upside

• Scotland is one of the only countries where Coca-Cola is not on top in terms of soft drink sales, Irn-Bru, an A.G. Barr brand takes the number one spot

• With their strong brand positioning and clean balance sheet, with a small market cap under $1b they could be an acquisition target by larger firms

• Current CEO was on Britvic’s board of directors from 2016-2023 and has experience with consumer-oriented brands

• Like-for-like revenue growth, excluding the impact of the Boost acquisition was still robust at 8% YoY

Negatives

• Acquisitions have been a large driver of growth – there’s potential for the company to struggle in finding future targets to acquire as they grow in size

• No significant short term catalyst in sight

Upside Risks

• “GDP rebounded by 0.6% in the first quarter of 2024. Business surveys, including a composite of PMI and the Lloyds Business Barometer, are consistent with a re-acceleration of growth.”(KPMG)

• Bank of England just cut rates from the 16yr high of 5.25% to 5%, and continued quantitative easing is expected by the market

• “Markets on Thursday afternoon were pricing in a 78% chance of another cut in November, with consensus expecting a hold in September.”(CNBC)

Downside Risks

• Policy risks pertaining to carbon and packaging related taxes or regulations impacting bottom line revenues (Management claims to mitigate this risk by moving to renewable energy and increasing use of recycled materials)

• Minimal exposure to healthy drinks, a market expected to grow from $344.36b in 2023 to $400.8b in 2028 per Mordor Intelligence (Only ~10% of their product mix is focused on “healthy drinks”)

Images

Sources

https://www.grandviewresearch.com/industry-analysis/ready-to-drink-cocktails-market

https://kpmg.com/uk/en/home/insights/2018/09/uk-economic-outlook.html

https://www.mordorintelligence.com/industry-reports/global-health-drinks-industry

9/26/25 Close: $18.64

Total Return: (4.95%)

CAGR: (4.20%)

Ero Copper Research Sheet

Company Description

Ero Copper Corp. engages in the exploration, development, and production of mining projects in Brazil. The company is involved in the production and sale of copper concentrate from the Caraíba operations located in the Curaçá Valley, northeastern Bahia state, Brazil, as well as gold and silver by-products. It also holds 100% interests in the Tucumã project, a copper development project located within southeastern Pará state; and the Xavantina Operations located in Mato Grosso state.

Debt

Debt is rapidly growing ; net debt reached $434.7m in Q1 of 2024. Net Debt/EBITDA is still at an acceptable level of 2.5x

Investment Thesis

Ero Copper is well-positioned to benefit from rising copper prices, driven by global shortages, clean energy policies, and increased electric vehicle demand. They are a fast growing miner with strong margins and a healthy balance sheet. While FCF has been negative in previous years due to high capital expenditures, the company expects, “the most dramatic shift in our cash flow profile to occur in 2024 as capital expenditures at our Tucumã Project decrease in the first half of the year and production commences in the second half with commissioning of operations.”

In my opinion, Ero Copper is a great company trading at a fair price, with strong past acquisitions like the Xavantina mine in 2016 and significant near-term growth potential. Their expected copper production and leading EBITDA margin in 2025 position them ahead of peers, and the stock should re-rate higher when these factors are realized. Even without re-rating, the stock could perform extremely well with the strong top-line revenue growth expected in 2024 and 2025 of 58% and 52% respectively.

Main Drivers

1. The pivot to clean energy worldwide relies on copper (production, and EVs)
   
   

Looking at EVs and clean energy technologies, copper is a primary material component in nearly all of the growing clean energy processes. (Offshore wind, onshore wind, solar, nuclear, coal, and natural gas)

“Electricity networks need a huge amount of copper and aluminum, with copper being a cornerstone for all electricity-related technologies.” (per the International Energy Agency)

EV adoption is accelerating as well, which could be a major tailwind for the copper industry.

2. Energy demand is higher, driven by AI data center energy consumption
   
   

Companies like Google have seen a sharp increase in their carbon emissions due to AI energy demand. Compared to 2019, Google’s carbon emissions increased by 50%, and the company, “attributed the emissions spike to an increase in data center energy consumption and supply chain emissions driven by rapid advancements in and demand for AI.” (CNBC)

With increasing energy consumption driven by AI, copper producers are strongly positioned to benefit from the surge in clean energy solutions globally.

3. Ero’s acquisition of their Xavantina mine in 2016 has proven to be a source of consistent gold production; it’s expected to produce over 150,000 ounces of gold in the next 3 years. The mine has 6 years of expected mine life remaining compared to zero on acquisition.

• Gold prices are increasing, (+19.2% YTD)

• Expected to produce 60,000-65,000 ounces in 2024, as well as 55,000-60,000 in 2025 and 2026

• At current prices - 60,000 ounces of gold is worth approximately $150m

• Achieved record gold production in 2023 (59,222 ounces)
  
  

Catalysts / Re-Rating Potential

• Q2 Earnings Results Aug 2, 2024

• EV demand increasing – driving copper demand

• Global demand for clean energy sources – driving copper demand

• Gold prices??????

Costs

• Ero Copper is forecasting a $1050-$1150/oz. AISC for gold mining, compared with the industry average of $1345/oz. per S&P Global. More than a 20% difference in costs between Ero Copper and the industry, indicating advantageous cost structures

Valuation

Trades at 9.1x NTM EPS, below mean (20.33x) and median (14.54x) of the peer group despite stronger EBITDA margin of 36.6% compared to peer group mean of 19.7% and median of 23.3%.

Trades in line with peers in terms of NTM EV/EBITDA (5.8x) vs mean of 5.91x and median of 5.6x.

ESG

Positives

• Goldman Sachs projects a $12,000/ton price for copper in 2024 with a $15,000/t forecast for 2025

• Guiding for lower capex of $300-$350m in 2024 compared to $450m in 2023 with higher production indicating low cost of production with strong pre-existing infrastructure

• Company manages interest rate risks by entering into fixed rate loan agreements or using derivatives to fix the ultimate rate paid.

• The company’s debt bears a 6.5% interest rate comparable to the largest copper miner in the world, Codelco(6.44%), despite being much smaller.

• Flagship copper mine in Caraiba has a mine life extending until 2042, expected to produce 40,000 tons of copper per year for the next 3 years.

Negatives

• Slight shareholder dilution in 2023 (~3.2%)

  • Average shares outstanding went from 92 million to 95 million in 2023 to help fund the Tucuma project

• Doesn’t seem like a company that will return excess cash flow to shareholders in the form of dividends or share buybacks:

  • From the 2023 AR: “The loan agreements also contain covenants that could restrict the ability of the Company and its subsidiaries, MCSA, Ero Gold, and NX Gold, to, among other things, incur additional indebtedness needed to fund its respective operations, pay dividends or make other distributions” (Unlikely the firm will pay a dividend or issue share buybacks despite likely entering into a high FCF period)

Upside Risks

• Potential for war to be a driver of copper demand; for example “Take the NATO 155 mm artillery shells as an example. Every shell contains 0.5 kg of copper, and Ukraine is firing up to 7,000 per day, according to the European Defence Agency (EDA).”

• A report from Dubai-based defense consultancy Simon Hunt Strategic Services estimated that military use of copper will increase by 14% per year until 2026, which would take it to 4.22 million tonnes”

Downside Risks

• Sensitivities to commodity prices, management discusses this and claims to manage said risk with derivatives and hedging

Images

Sources

https://www.bloomberg.com/news/articles/2024-04-24/blackrock-says-12-000-copper-is-needed-to-incentivize-new-mines

Alberto’s Substack

Ero Copper Update: Raising Price Target

Introduction…

Read more

2 years ago · 39 likes · 29 comments · Alberto Alvarez

https://www.cnbc.com/2024/07/02/googles-carbon-emissions-surge-nearly-50percent-due-to-ai-energy-demand.html

https://www.forexlive.com/news/why-goldman-sachs-boosted-its-copper-forecast-to-12000-from-10000ton-20240506/

https://www.fastmarkets.com/insights/russias-war-in-ukraine-boosts-copper-demand/#:~:text=Russia’s%20war%20against%20Ukraine%20is,red%20metal%2C%20sources%20told%20Fastmarkets&text=Russia’s%20attempted%20invasion%20in%20February,and%2Da%2Dhalf%20years.

https://substack.com/home/post/p-142430438