Editor's Notes:

• What stood out to me today is how clearly the market narrative is shifting from AI excitement to AI execution. The buzz is no longer just about models and chips, but about whether the physical layer—power, data centers, cooling, grids—can actually keep up. That’s showing up in flows toward AI infrastructure plays, while “AI bubble” concerns are creeping back in. Institutional caution is also becoming harder to ignore, with players like Apollo moving defensively even as headline indices stay elevated.

• Japan feels like it’s at an inflection point. The BOJ hike was largely priced in, but the stronger yen is now a real headwind for exporters and chip names, taking some air out of the Nikkei rally. At the same time, domestic rotation into materials is quietly working, reminding us that Japan isn’t a one-theme market. Hong Kong, meanwhile, remains selective—consumer tech shows pockets of strength, but large-cap financials and SOEs continue to drag.

• At the single-stock level, dispersion is extreme. SCREEN Holdings, Kioxia, Micron, and SMIC are riding genuine semiconductor tailwinds, while UiPath’s index inclusion highlights how positioning and flows can matter as much as fundamentals. Big-picture ideas—from MicroStrategy as a leveraged Bitcoin proxy, to Rocket Lab in the space economy, to autonomous vehicles potentially helping Uber’s unit economics—underscore that this is a market rewarding differentiated theses, not consensus trades. Add in the FDA approval of Novo Nordisk’s oral GLP-1, and it’s clear: themes are evolving fast, and staying selective matters more than ever.

And finally, today is Christmas. On behalf of the Distilla Team, I’d like to wish everyone a Merry Christmas and Happy Holidays. Enjoy the time with family and loved ones.

Overall Themes, Market Sentiment & Debates

US Market

Sentiment in the US market remains bifurcated. While bullishness persists in AI infrastructure and select technology sectors, growing concerns about broader market valuations reaching "dot-com bubble peaks" are escalating. The AI narrative is evolving, shifting from 'flashy' AI software and chip companies towards underlying infrastructure, including power grids, cooling solutions, and data centers. This transition is accompanied by rising apprehension of an 'AI bubble' and potential 'execution gaps' in massive data center buildouts. These could pose liabilities if AI software ROI underperforms or power upgrades lag behind demand. Macroeconomic headwinds include persistent inflation, geopolitical risks (such as the Venezuela oil impact), and a potentially reignited US labor market, which could lead to renewed recession fears. Notably, Apollo's shift to a defensive stance—accumulating cash, deleveraging, and selling high-risk debt—signals institutional caution amidst inflated asset prices and private credit turmoil. The US Dollar, down approximately 8% in 2025, recorded its worst year since 2017, with options signaling further downside. Value investing strategies continue to face headwinds against the strong growth seen in Nasdaq and technology stocks.

Japan Market

The Nikkei 225's rally momentum appears to be fading, with the index hovering around 49,000-50,000 amid increased volatility. The recent Bank of Japan (BOJ) rate hike (from 0.25% to 0.75%) was largely priced in by the market. However, the resulting stronger yen is now a significant headwind for export-oriented giants such as SoftBank, Toyota, and Sony. Despite these immediate challenges, a long-term bullish view on domestic rotation persists. Materials companies like Resonac, SUMCO, and Mitsui Mining saw strong gains, reflecting positive sector momentum. Conversely, Japanese chip stocks, including Advantest and Tokyo Electron, faced pressure. This paradoxical situation arose from both "AI spillover concerns" and the strengthening yen, counteracting global tailwinds in memory chips.

Hong Kong Market

The Hang Seng Index experienced a marginally stable session, closing up 0.17%. Meituan (+2.41%) stood out, indicating strength in the consumer technology sector. However, several large-cap laggards, including Merchants Bank (-2.98%), PetroChina (-2.49%), Nongfu Spring (-1.62%), and China Telecom (-1.57%), hinted at sector-specific weaknesses. SMIC, while down on this particular day, demonstrated strong positive movement on a different day, as detailed below.

Notable Big Stock Moves, Earnings and Developments

Interesting Comments, Facts and Ideas

AI Infrastructure as the Next Frontier

The market narrative is definitively shifting towards AI infrastructure. Amazon plans to double its AWS data center capacity by 2027. Brookfield Infrastructure is undertaking $7.8 billion in organic expansion, including multiple data centers and two U.S. semiconductor fabrication facilities. Constellation Energy is investing in 5.8 GW of new gas, nuclear, and battery storage capacity in Maryland. Coherent Corp. is advancing its 300mm silicon carbide platform to enhance AI power efficiency. Alibaba has emerged as an AI leader in China, and Alphabet is expanding its Gemini AI model, intensifying competition in the generative AI space. The consensus among analysts is that AI's insatiable compute and power demands are now central to investment theses, extending beyond just chip and software companies.

Leveraged Bitcoin Play

MicroStrategy (MSTR) is drawing strong conviction for 2026, often seen as trading below its underlying Bitcoin holdings. Its strategy of continuously acquiring Bitcoin and benefiting from the post-halving cycle and increasing institutional adoption positions it as a highly leveraged play on Bitcoin's continued appreciation.

Space Economy Under the Radar

Rocket Lab (RKLB) is tipped as a "real strategic breakout" in the burgeoning space economy. With 21 successful Electron launches in 2025 (achieving a 100% success rate), an $805 million defense contract, deep vertical integration, and ongoing Neutron rocket development, Rocket Lab is positioned as a credible challenger to SpaceX in small satellite launches, with attractive returns projected for 2026.

Autonomous Vehicles: Uber's Tailwinds, Not Headwinds

A compelling counter-thesis argues that autonomous vehicles (AVs) will be a significant tailwind for Uber, rather than a headwind. The insight suggests that Uber's current high take rates are "cloudy" due to substantial insurance and driver incentive costs. "Clean" AV rides, even with a potentially lower headline take rate, are projected to yield significantly more profit per ride. Uber's established platform is uniquely positioned to aggregate fragmented AV hardware providers and maximize vehicle utilization, fundamentally transforming its unit economics.

Meta's Reality Labs: A Value Unlock Opportunity?

A strong negative view persists on Meta's Reality Labs division, with some analysts calling for its shutdown. With $2.3 billion in trailing twelve-month (TTM) revenue against a staggering $18.1 billion in TTM operating losses, critics argue that eliminating this significant financial drain could create substantial value for META shareholders.

Semiconductor Moat & Tariffs

Bank of America identified six stocks expected to lead a "$1 trillion chip surge in 2026." Meanwhile, the discussion of ASML's "greatest moat in contemporary history" due to its sole command of extreme ultraviolet (EUV) lithography technology underscores its indispensability in advanced chip manufacturing. US tariffs on Chinese chips have been pushed to June 2027, which could impact sector dynamics in the medium term.

GLP-1 Disruption Intensifies

The FDA approval of Novo Nordisk's first oral GLP-1 drug for weight management, set for a January 2026 launch, represents a monumental development. This innovation is poised to profoundly disrupt the estimated $100 billion weight loss market, placing significant competitive pressure on injection-based competitors like Lilly by offering a more accessible and convenient treatment option.

Contrarian Value & Valuation Metrics

• First Solar (FSLR) is pitched as "undervalued" despite its sector's speculative nature, citing strong fundamentals: a low forward P/E (11.90), high projected EPS growth (54%), and a low PEG ratio (0.36).

• MercadoLibre (MELI)'s P/E of 49 is argued to be misleading; its P/FCF (Price-to-Free Cash Flow) of 11 is presented as a "much better metric" given its 30% annual growth, solid market moat, and strong balance sheet.

• A debate questions whether Salesforce (CRM), Adobe (ADBE), and Paypal (PYPL) are "value traps" despite appearing cheap on traditional metrics, highlighting the need for deeper fundamental scrutiny beyond superficial valuations.

Commodity Cycle & Safe Havens

Increased interest and bullish sentiment in precious metals—including gold, silver, palladium, and platinum—as safe havens are prevalent, signaling a potential broader commodity cycle emerging amidst global uncertainties.

Other Notable Developments

• HOYA CORPORATION: Secured a new customer for HDD substrates, with sales starting in H2 FY2027.

• Takeda Pharmaceutical: Initiated trials for next-generation CAR-T constructs targeting solid tumors and autoimmune diseases.

• Cummins Inc.: Expanding its hydrogen electrolyzer market presence in Australia and Japan.

• Pinterest: Launching a new platform in Autumn 2025.

• VinFast Auto: Plans to launch EV models in India in 2025.

• eBay: Diversified into the NFT market through partnerships and acquisitions.

• Hims & Hers Health: Expanding its telehealth platform internationally and into adjacent services.

• Match Group: Supporting the launch of Overtone, an AI-based dating platform.

• Datadog: Highlighted as a top AIOps vendor for advancements in anomaly detection and ITSM integration.

• Northrop (NOC): Continues its UAV work, aligning with growing interest in the US Aerial Drone Market.

• YieldMax Funds (MSTY, ULTY): Flagged as high-risk, leveraged/income-focused funds, with warnings against their potential for significant losses.

Happy Alpha Hunt! - Distilla

Disclaimer: This content is generated using AI, synthesizing public data (filings, reports, news) and social media (Reddit, X). It may contain errors, inaccuracies, or hallucinations. Nothing herein constitutes financial advice. This newsletter is for informational purposes only; please consult a qualified professional and conduct your own due diligence before making any investment decisions.