Investing – Page 2

Big capex is not longer welcomed

US big tech continue to post higher capex outlook for 2026 and those figures are surprisingly large.

However, you now start to negative reactions.

1/ Their own stocks respond negatively

2/ Nvidia stock, which presumably is a beneficiary for higher capex, hasn’t responded very positively

#Why capex is less welcomed?

1/ It could just be higher inflation across the chain. higher price for infrastructure, power equipment and construction workers etc. Therefore, it’s a less-efficient use of money

2/ Investors don’t see immediate growth. The 2026 growth outlooks, which should be supercharged by already massive capex in 2025, is not impressive enough. Investors fear that marginal incremental growth coming from additional capex looks small, at least in the current year.

Chatted with ChatGPT and created model for gold price

With a 5-year time frame, I tried to create a gold price model for 2028, based on 2023 gold price.

Gold_2028 (USD/oz)
– Low $4,087
– Base $6,070
– High $9,556

gold_2028_model_with_deficit_cb

Disclaimer: I am not expert on gold nor did I have spent considerable time in studying it. But I was trying to understand different drivers behind gold price. I asked ChatGPT to pick the coefficients, so there is little credibility behind these coefficients.

Notes of Paul Tudor Jones (PTJ) on AI bubbles

Paul Tudor Jones on the AI Bubble Debate by Bloomberg

The only way to reduce debt to GDP is to have obviously nominal growth exceed your interest rate.

– Paul Tudor Jones

Here are notes for Paul’s interview and my opinions

Today feels like Oct 1999, but if this is a bubble, it’s a small one. Past bubbles ran 400–600%. Nasdaq is “only” ~200% off the bottom. Blow-off possible, not inevitable. [I agree; see my previous post Is it like internet bubble? in October]
Key bull case: rates. If Fed funds fall toward ~2.25–2.75%, that’s powerful fuel for equities. Markets look 6–9 months ahead, not at today’s data. [Sure]
Difference vs 1999: companies are profitable. [I don’t agree; I believe AI model companies like OpenAI etc. are losing a lot of money; let’s see when they publish numbers for IPOs]
Risk isn’t traditional leverage like in margin accounts — it’s derivative leverage: options, leveraged ETFs (up 250% from 2022 bottom), and trader-driven equity flows. [Very real]
Jones stays a trend follower. Recently, gold & silver > Bitcoin despite massive crypto inflows. He now expects precious metals to outperform crypto into year-end. [I wouldn’t agree back then; but I would be very wrong, so far]
Bond vigilantes were held in back; money debasement happened in gold and bitcoin instead. [True]
Biggest risk: concentration everywhere — stocks, investors, and policy power. [Agree]
Bottom line: short-term cautious, but Paul believes markets can be substantially higher by year-end. Likely long: Nasdaq. Short: Bonds.

Xiaomi smartphone GP may drop 30% given rising memory cost

Some simple calculation:

Xiaomi smartphone GPM was 12.6% in 2024, with 192bn revenue.

Xiaomi sold 1.64 billion smartphones that year.

The GP per handset is about 147 RMB in 2024

Across different smartphone models, memory cost is different, ranging from 50-500 per handset.

But in a nutshell, it’s about 12-18% of BOM.

It’s could be about 150 memory cost per handset for Xiaomi, which is similar to GP per handset.

Then if memory cost is rising 50-100%, the entire GP per handset could be at risk.

To offset, Xiaomi may increase prices for customers.

And as a large customer for memory chips, it may not receive full mark-up immediately.

In the end, maybe 1/3 of the memory cost impact of 120 need to be absorbed by Xiaomi.

Then GP per handset could be more like 100-110 RMB.

And as the price increases, volume could be impacted, plus the RMB appreciation recently (two-thirds of Xiaomi smartphone volume is overseas).

Total impact to Xiaomi smartphone GP could be like 65-75bn, or 25-30% negative impact from 2024 level.

Howard Marks’ fallacy

In his book The Most Important Thing Illuminated, Howard Marks wrote this –

Our goal isn’t to find good assets, but good buys. Thus, it’s not what you buy; it’s what you pay for it.

Obviously there is merit to this. Warren Buffett 1.0 could agree with Howard Marks here.

But clearly this contradicts with Charlie Munger and Warren Buffett 2.0, who are willing to pay fair price for good assets.

The “fallacy”, if any, could origin from Marks’ expertise in distressed debts.

A huge difference between equity and debt is that debt doesn’t have unlimited upside.

Debt’s blue sky scenario is limited – receive full payment in interests and face value. Thus price is extremely important.

Equity could have “unlimited” upside for a good company. These good assets have unlimited upside, which makes paying fair price a good deal.

That unlimited upside makes the additional 10% or 20% discount in entry price less relevant.

Assessing 2025 predictions – CICC overseas

1/ US equity

S&P ended at 6,845.50, with ~18% total return in 2025, or doubling CICC’s return prediction.

我们测算，在乐观预期 10%盈利增长的驱动下，标普 500 或从当前的 5800 上涨 8~10%至 6200~6400 点左右。

– CICC Nov 2024

2/ US treasury

In 2025, US 10yr treasury is rarely below 4%; ended ~25bps higher than CICC prediction.

10 年美债利率合理中枢为 3.8-4%

– CICC Nov 2024

3/ US dollar

In 2025, US dollar index is rarely above 100 after Apr tariff announcement, lower than CICC prediction.

我们测算的中枢为 102-106

– CICC Nov 2024

4/ Copper & Oil

Oil declined in 2025, but copper is up 50%.

大宗中性偏多，等待催化剂。铜的需求更多与中国相关，油则更多受地缘和供给影响。从中美信用周期角度，在目前点位进一步看空意义不大，但向上动力和时间目前仍不明朗，需要等待催化剂。

– CICC Nov 2024

5/ Gold

Gold is extremely strong, ending 2025 with near $4,300 to over $4,400 per ounce, a lot higher than CICC prediction

黄金短期中性。黄金已经超出我们基于实际利率和美元的基本面模型测算可支撑的 2400-2600 美元/盎司。但地缘局势、央行购金和局部“去美元”需求带来了额外的风险溢价。我们测算，俄乌局势以来溢价中枢上行至 100-200
美元。长期依然可以作为不确定性对冲，但短期我们建议中性。

– CICC Nov 2024

The worst credit is issued at the best of times

I am recently reading Howard Marks’ The Most Important Thing and come across the section describing the credit cycle.

Why the worst credit is issued at the best of times?

Because bad news is scarce and when financial institutions compete for market share by lowering lending standards or required returns.

Typically when there is more capital available to companies or individuals, you have lower return on capital when they invest.

Then when something bad happens, the cost of capital can shoot up and become higher than the return of capital generated by the previous projects.

These projects can’t sustain in the new environment and thus are destroying capital.

———

This is also true in valuation and VC returns.

The worst VC deals are made during the best of times!

Remember the 2020-21 era? Not hard to destroy some capital if you invest in a SaaS company with 40x P/S during that time.

Read more on SaaS P/S here – The previous 40x P/S sector was SaaS

The previous 40x P/S sector was SaaS

Cloud and SaaS received premium valuation from 2020 to 2021.

The outperformance started in 2016 and lasted 5-6 years. Watch that outperformance here: https://cloudindex.bvp.com/

Back then, “rule of 40” is the king of valuation metrics, which means “um of revenue growth and profit margin should equal 40%+”. The higher the better of course.

While market fluctuates, you can find the P/S or revenue multiple in the past.

Here, you see that in 2016 companies at rule of 40 receives ~6-7x current year revenue multiple.

Here, you see that in 2020 companies at rule of 40 receives 17x LTM revenue, or 12.8x forward revenue.

During this 2020-21 period, it’s normal to see 30-40x P/S for hot SaaS companies. I remembered Shopify was 40x P/S.

Looks at these charts from here – the evidence of 30-40x P/S glory days.

We all know what happened next.

That multiple fell back to ~6x for the regression line in 2022, with Fed raising interest rates. See here for the chart.

The multiple has stabilized afterwards, from 2022 till now.

Currently, the valuation (forward revenue multiple) is ~4-5x for 2nd and 3rd quantile companies followed by BVP, including the names like Salesforce, Hubspot, Workday, Nutanix, etc.

BVP has introduced the new the Rule of X to give growth more credit btw.

I think some bubble is brewing now, with AI model companies or even chip companies.

However, investors keeps dancing, expecting that Trump will appoint new Fed Chair this year and the new chair won’t raise rates. Trump wants lower rates, not higher.

Maybe we should see another around of crazy valuation first.

And if SaaS outperformed 5-6 years (2016-2021), maybe AI-related stuff should outperform till 2027/28.

MSFT, Alphabet, Meta, Amazon all expected further increase in capex

What you are seeing in 3q25 capex spending…

What you are hearing from mgmt.

MSFT – “now expects capital investment growth in fiscal 2026 to exceed that in fiscal 2025”.

Alphabet – “expect significant increase in 2026 capex” / 2025 capex to be in a range of $91 billion to $93 billion” vs $85 bn guided in 2q25.

Meta – “capital expenditures would be notably larger in 2026 than 2025”. / 2025 capex to be $70-$72 billion vs $66-72 billion guided in 2q25.

Amazon – “we expect our full-year cash CapEx to be ~$125 billion in 2025, and we expect that amount to increase in 2026” vs ~$118bn guided in 2q25

Robots should be capex?

Technically, capex should be more one-off than recurring.

Phone used to be a “capex” item. You won’t buy a phone every other year, before the iPhone era. Apple’s P/E multiple expanded when it transformed the category into a more “recurring business”.

In the early stage of AI training, people spend whatever is needed on chips capex. This is due to the increased performance of AI GPUs and thus the efficiency of training. However, after this growth era, I think this is still more of a “capex” item thus the growth should normalize later. Inference is another thing though.

Robots should be capex ultimately. However, in the initial adoption stage, which hasn’t arrived yet, we should see a growth that makes people forget this is a capex category. Then there will be a period of doubt, like when Buffett purchased Apple. And hopefully, the leading robot company by then can transform robot into a “recurring” category like Apple did for smartphone.