Fundamental Signals

Editor's Notes:

• To our readers celebrating Lunar New Year, we wish you a prosperous Year of the Horse!

• We largely agree with several market trends discussed by recent podcast hosts: (1) a rotation out of US equities, (2) the likelihood that certain software giants (e.g., MSFT) will survive AI disruption, and (3) the possibility that the datacenter boom, driven by hyperscaler capex, may be nearing its peak.

Recent podcast discussions (February 14-17, 2026) highlight several critical market themes for investors: AI's pervasive impact, a deepening memory chip supercycle, significant geopolitical shifts, and increased regulatory scrutiny on Big Tech. Key insights also include the potential for incumbent companies to thrive amidst AI disruption, the structural nature of the current memory shortage, and evolving dynamics in global asset allocation.

Key Narratives and Events

1. Pervasive AI Disruption & Opportunity

AI remains the overarching narrative, driving both fear and excitement across industries. While there's broad concern about AI cannibalizing existing software workflows and making companies obsolete (Stephanie Liang, CIO, Stashway), there's also a strong belief that incumbents can adapt and win by focusing on "digitize, organize, and automate" strategies (Mason Morfit, Co-CEO, ValueAct Capital). The market is seeing "AI jitters" impacting sectors like wealth management and transportation (Hannah Erin Lang, WSJ Reporter), leading to investor rotation.

2. Memory Chip Supercycle Intensifies

Driven by insatiable AI demand (training and inference), a "memory supercycle" is well underway, causing DRAM prices to surge. One type of DRAM soared 75% from December to January (Daybreak Asia). This is largely due to the shift to High Bandwidth Memory (HBM), which consumes disproportionately more wafer capacity than commodity DRAM, creating a bottleneck (Ray Wang, SemiAnalysis). This shortage is projected to persist until at least late 2027 or 2028 (Ray Wang, SemiAnalysis).

3. Geopolitical Reshuffling and US Global Stance

The Munich Security Conference highlighted significant shifts. US Secretary of State Marco Rubio reiterated the importance of the transatlantic alliance while pushing Europe for greater burden-sharing. Discussions covered US-China relations (necessity of dialogue despite competition), the costly Ukraine war (neither side winning, US seeking negotiated settlement), and Cuba's economic crisis (Marco Rubio, US Secretary of State). The UK is signaling a desire for closer EU ties post-Brexit, and Sweden is reconsidering Euro adoption amidst geopolitical uncertainties (Bloomberg Daybreak Europe).

4. Increased Regulatory & Legal Scrutiny for Big Tech/Monopolies

• Live Nation/Ticketmaster: The Justice Department, backed by 40 states, has a "strong antitrust case" against Live Nation for alleged monopolistic practices (Bloomberg Daybreak). A settlement is likely, but political influence is noted.

• OpenAI: Elon Musk is suing OpenAI, alleging it deviated from its non-profit mission, seeking substantial damages of $65 billion to $109 billion (Bloomberg Daybreak).

• Ring: The company faced significant backlash over privacy concerns and law enforcement partnerships, especially after its "Search Party" AI ad. Founder Jamie Siminoff's ambition to eliminate crime through AI clashes with fears of a "surveillance state" (Decoder). Ring canceled its partnership with Flock Safety due to these concerns.

Trends and Predictions

• Market Share Consolidation & "Endominus Rex": The future will see "extreme market share consolidation," with "endominus Rex" companies making significant gains by leveraging software and AI (Mason Morfit, ValueAct Capital). BlackRock (BLK) is cited as an example, transforming into an "endominus Rex" through its Aladdin platform.

• AI's Impact on Software Business Models: AI agents will generate a "significant supply of low-cost software," posing an existential threat to single-purpose SaaS companies without strong moats (Stephanie Liang, CIO, Stashway). Software firms with strong distribution (MSFT, SAP) or deep data understanding (cybersecurity) are better positioned (Stephanie Liang, CIO, Stashway).

• Persistent Memory Shortage: The memory shortage is "anticipated to persist for at least the next few months to a year" (Stephanie Liang, CIO, Stashway), or even until late 2027, with "demand destruction" in consumer electronics (Ray Wang, SemiAnalysis).

• "Control Planes" as Key Interfaces: New interfaces will emerge as central hubs for how the world operates, where decisions are made and software interacts with agents (Mason Morfit, ValueAct Capital).

• Shift Away from US Exceptionalism: Global investors are rethinking their asset holdings, leading to a "rotation to non-US equities" (Andrew Beer, DBi, Top Traders Unplugged).

• Talent Development in Finance: The broader finance industry is predicted to evolve towards "talent development" and "talent acceleration" models (Bobby Jain, CEO, Jain Global).

Contrarian and Non-Consensus Views or Observations

• Incumbents Can Win the AI Race: Contrary to the fear that new technology always favors startups, ValueAct Capital's Mason Morfit argues that incumbents with "deep customer relationships, long-term contracts, and established 'control planes'" can leverage their structural advantages to adapt and thrive, citing Microsoft's successful pivot from the PC era.

• Memory Market as Structural, Not Just Cyclical: While historically cyclical, the current memory market's demand is "increasingly structural" due to AI, implying a longer-term trend rather than a temporary upswing (Stephanie Liang, CIO, Stashway).

• Older AI Hardware Retains Value: Despite rapid advancements, older Nvidia chips and AI hardware "do not depreciate much in value" due to a diverse spectrum of demand for various inference tasks, analogous to older iPhone models (Stephanie Liang, CIO, Stashway).

• Australia as a "Reverse Indicator" for Data Centers: Australia's emergence as the third-largest country for data center construction is seen by some analysts as a "reverse indicator signal," potentially suggesting the current expansion cycle is "nearing its peak" (Mark Cranfield, Bloomberg Markets Live strategist, Daybreak Asia).

• Netflix's True Resilience: Despite being removed from the FANG/MAG7 acronym and facing negative sentiment in 2022, Netflix (NFLX) is portrayed as a "resilient growth business that is successfully compounding intrinsic value," demonstrating a contrarian perspective against prevailing market narratives (Shawn O'Malley & Daniel Mahncke, The Intrinsic Value Podcast).

• Hedge Funds Got Better, Private Equity Just Got Bigger: Dan Rasmussen's (cited by Andrew Beer, Top Traders Unplugged) view suggests that hedge funds improved due to competition, while private equity's growth is partly from offering "leveraged equity with less transparent mark-to-market practices."

Stock Pitches, Comments on Stocks or Individuals

• Microsoft (MSFT): Cited as a prime example of a successful incumbent transformation by ValueAct Capital, pivoting from a "disease of abundance" to win in cloud and mobile. Also noted for its "strong distribution moat" in software (Stephanie Liang, CIO, Stashway), making it resilient to AI disruption.

• Salesforce (CRM): A current ValueAct holding, navigating the shift from SaaS to AI work, leveraging deep customer relationships and 10-15 year contracts for stability (Mason Morfit, ValueAct Capital).

• BlackRock (BLK): A new ValueAct investment, seen as an "apex predator" transforming into an "endominus Rex" by integrating software (Aladdin) to digitize, organize, and automate asset management, expanding offerings like Bitcoin ETFs (Mason Morfit, ValueAct Capital).

• Walmart (WMT): Expected to report strong earnings, gaining market share by offering value and convenience. Benefiting from investor rotation out of speculative assets, reaching a "$1 trillion market cap for the first time" (Bloomberg Daybreak, WSJ). Positioned as less susceptible to AI disruption.

• Nvidia (NVDA): Faces "heightened expectations" for upcoming earnings, driven by a projected 60% increase in hyperscaler capital expenditure. Has a "$500 billion backlog pipeline" for its Blackwell and Rubin chips (Bloomberg Daybreak). While demand is high, there's a note on the depreciation risk of AI hardware, though current demand keeps older chips valuable (Stephanie Liang, CIO, Stashway).

• Memory Chip Suppliers (Micron - MU, SK Hynix - HXSCL, Samsung - 005930.KS): Seen as "overweight sectors" due to surging prices and inflation hedge characteristics. Prioritizing HBM production despite paradoxically higher spot margins for commodity DRAM (Daybreak Asia, Ray Wang, SemiAnalysis).

• Netflix (NFLX): Bullish on its long-term prospects, predicting "double-digit earnings per share growth for years." However, at current valuations (around 40x earnings), it's "not attractive enough for an immediate purchase," with Shawn O'Malley suggesting a 20% discount and Daniel Mahncke a 30% margin of safety to a target of $70 per share (The Intrinsic Value Podcast). The potential Warner Bros. Discovery acquisition is a key risk/catalyst.

• BlueScope Steel: Reported robust first-half net profit (more than doubled) and plans to return $3 per share to shareholders. Strategic focus on organic growth in the US (North Star expansion) and significant R&D into lower-emissions steelmaking (Tanya Archibald, CEO, BlueScope Steel, Daybreak Asia).

• Robinhood Markets (HOOD): Experienced a "significant stock drop," falling 8.3% for the week and over 30% YTD, primarily due to a "38% year-over-year decline in crypto transaction revenue" amid the "crypto winter" (WSJ).

• Expeditors International of Washington (EXPD): Shares fell "13%, marking their worst day since 1998," following news about AI in the trucking business (WSJ).

• Mediatek (2454.TW): Announced a "reduction in its smartphone market outlook" due to demand destruction stemming from memory price hikes (Ray Wang, SemiAnalysis).

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.