• If you want to sell branded products, you need to get your customers excited. Nike’s reinvention of road running shoes in the late 2010s is a perfect example. After Eliud Kipchoge won the 2017 Berlin Marathon in the freshly launched Vaporfly 4%, its stock ran more than 200% over several years. And then it topped shortly after Nike’s shoe dominance ended in the fall of 2021.

• With Sebastian Sawe’s recent world record at the 2026 London Marathon, adidas has reached a level of dominance that is reminiscent of Nike’s standing in the late 2010s. They have now won 9 out of the last 16 marathon majors whereas Nike has just won 3. 4 out of the 5 top finishers at the 2026 London Marathon wore adidas’ new Adizero Adios Pro Evo 3, a prototype shoe, the commercial version of which was conveniently launched commercially just a day after the event.

• adidas stock has not reflected any possible upside from this dominance yet. It’s currently trading significantly below the pandemic low of March 2020 and remains in a firm downtrend.

• As a hobby athlete and as a sports fan, it makes me sad that running shoes seem to matter more than athletes these days. But as an investor, I’m getting curious. Is Mr. Market neglecting a bigger story here?

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Nike launched the era of supershoes.

Shoe technology has always mattered somewhat in professional running. But its importance skyrocketed at the 2016 Summer Olympics when the top three finishers in the men’s marathon all wore early prototypes of the Nike Vaporfly 4%. The shoe was commercially released in July 2017 and the first marathon major won with this shoe was the Berlin Marathon in September 2017.

What made this shoe special was its full-length carbon plate which made it stiffer and thereby increased the lever for the athlete to push off the ground, giving him a distinct advantage over his competitors.

But the carbon plate wasn’t just a game changer because of the improved leverage. It also gave the shoe sufficient stability to equip it with very thick and very soft foam to bounce the athlete of the ground. Nike (and later other manufacturers) euphemistically refer to this as “energy return”. In reality, they are simply putting springs on the feet of their athletes. The idea behind this is in principle no different from wearing rollerblades. Those also return your energy, are they not?

Nike started to dominate the world marathon majors for years. It took a while for other manufacturers to develop their own supershoes.

With the exception of the Boston Marathon in 2018 (‘citizen runner’ Yuki Kawauchi upset the running community with a surprise victory), it took almost four years until another brand celebrated a victory: adidas athlete Benson Kipruto won the Boston Marathon in 2021. That marked the day when Nike’s dominance ended. Over the last year, they have just won one marathon major, the Chicago Marathon in 2025.

Nike stock reflects the rise and fall of their running shoe dominance. It ran 200% between Kipchoge’s Berlin run in 2017 and Kipruto’s Boston run in 2021. In fact, it’s crazy how well the bull run of the stock aligns with those two dates. The stock broke out of its consolidation almost exactly at the time of Kipchoge’s Berlin 2017 performance and the 2021 top happened just one month after the Boston Marathon of that year.

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And then adidas took over.

Since then, adidas has quietly reached a dominating position. As of today, they have won 9 out of the last 16 majors.

Their dominance reached another level last weekend. On April 26, Sebastian Sawe set a new world record in adidas shoes. As the first athlete ever, he finished a race in less than two hours. He improved the standing world record by more than one minute. The second finisher, Yomif Kejelcha, and the third finisher, Jacob Kiplimo, stayed below the previous world record as well. 4 of the top 5 finishers wore the Adizero Adios Pro Evo 3 supershoe.

adidas is particularly proud of the shoe’s weight and its ‘energy return’. The springs are getting stronger.

Conveniently, this shoe was released for the general public on April 27, just one day after the race. For just $500, every ambitious hobby athlete can now feel like a pro. And since these shoes are typically toast after just 200km, it will be expensive for them (and lucrative for adidas) to maintain that feeling.

The commercial consequences of such an earthquake should not be underestimated. Running is the most popular sport in the world. There are more than 600 million people in the world who regularly run. The link between athlete performance and individual purchase decision is nowhere as close as in running. The global running shoe market is worth about $50bn. And once people like a brand, they will likely buy leisure shoes and clothing from that brand as well. A supershoe is a superhook.

Interestingly, adidas stock has not yet priced in any positive effect from this. It has shown absolutely zero reaction after last weekend. It’s trading below its pandemic bottom from March 2020. Its market cap is approximately a third of Nike’s while its revenues are about half.

As a hobby athlete and as a sports fan, it makes me sad that running shoes seem to matter more than athletes these days. But as an investor, I’m getting curious. Is Mr. Market neglecting a bigger story here?

Sincerely,

Rene

In spite of continued restrictive monetary policy, bank lending is currently growing at an annual rate of 7.5%. It’s growing at the fastest rate in ten years (if we ignore pandemic borrowing volatility). It’s growing faster than on average over the last 50 years (6.8%). And the growth rate is even accelerating further.

This is happening while consumer sentiment is at record lows, while the US economy has barely created any new jobs in over a year and while the housing market is effectively frozen. What is going on? How is this possible?

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TLDR Summary

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• Homebuyers and real estate investors are capitulating. Not because they are forced to sell as part of a margin call, but because they are enviously looking at the stock market where returns are much higher. This sentiment is reminiscent of the late 1990s. A megabid into real estate followed when stock market returns started disappointing.

• The poor housing sentiment is part of a larger trade, namely the capitulation on the US consumer. Investors don’t want to bet on Americans, whether for them to buy homes or sneakers. And Americans aren’t betting on themselves either. I believe it’s time for them to be proven wrong.

• Falling mortgage rates are the most likely catalyst for a revival of the housing market. Economic growth expectations baked into the prices of US Treasuries are too high from a demographic perspective anyway.

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No comeback yet

In August, 2024, almost two years ago, I published the bull case on real estate below:

I argued that the asset class should in theory do well as part of the Debasement Trade. It’s difficult to make more supply of prime real estate just like it’s difficult to mine more gold or recreate iconic companies.

Few market segments are as AI-proof as real estate. It’s naturally scarce. In spite of that feature, it has fallen completely out of favor, in part for macro reasons (high interest rates), in part for industry specific reasons (office). Once a property doesn’t have a product/market fit anymore, it’s often challenging if not impossible to redevelop it without losing much of the equity.

This article has not aged well so far. The S&P Cotality Case-Shiller U.S. National Home Price Index is up just 3% over the 20 months that have passed and the annual rate of price appreciation is closing in on zero.

Depreciation and maintenance costs have exceeded price appreciation of many properties.

Rent growth is falling. The Zillow Observed Rent Index (ZORI) currently measures LTM rent growth at just 1.8%, significantly below the 4% average observed in the 2010s.

Other subsectors outside of the residential space aren’t doing well either. The Vanguard Real Estate Index Fund ETF , a large ETF that is primarily comprised of commercial real estate assets, is pretty much flat over the same period.

Most real estate investors have not enjoyed any appreciation over the last 20 months. At best they have earned 3-4% income yield annually. In many cases, they would lose more than that if they sold today. Over the same period, the S&P 500 is up 26%. Gold is up 90%. Even Bitcoin is up 17% despite its recent sell-off.

Had you bet on real estate when I published my article in August 2024, you would have underperformed significantly since then.

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Investor capitulation

This underperformance has scarred investors. If sentiment is not at rock bottom yet, it has got to be close. Last week, the real estate investor Graham Stephan published his personal capitulation on Substack.

Graham’s Newsletter

Why I'm selling all my real estate

I’ve been going back and forth on this for a while now. Every time I thought about writing this update, I held back for a little while. A voice in my head kept saying…

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14 days ago · 167 likes · 36 comments · Graham Stephan

In case you don’t know him, he is a media personality who started out as a real estate agent and built a large social media following sharing his knowledge and investor journey. He declared that he will sell his entire rental property portfolio in the coming months, primarily out of frustration with local authorities in Los Angeles and with the weak financial performance of the properties. In his article, he compares the income yield on his properties of 4-5% with Treasuries. He feels that those pay similar income without the risks and hassles of owning rental properties.

While he doesn’t say it explicitly, it’s clear that he doesn’t expect any value appreciation or income growth from his properties. He has given up. He is framing that as a cool-headed decision. But the truth drips out of every line he wrote: He is driven by emotion. It’s a capitulation.

Today, he published a follow-up announcing that he intends to put the proceeds into bonds, stocks, most importantly international stocks, and Bitcoin. Can you think of a more consensus positioning? My confidence in US assets generally is even stronger than in real estate specifically.

The reader comments on both Substack and X are even more striking than the capitulation of such a high-profile investor. I’d estimate that about 90% of the replies echo his sentiment: Real estate is a garbage investment, not worth the effort. Stocks pay much more and they do so stress-free.

Hard data supports this anecdotal evidence. In a 2025 Gallup survey, only 26% of respondents currently think it’s a good time to buy a house. It’s still close to the lowest level since this survey was started 40 years ago. They will publish the 2026 survey results soon. I’m eager to see those.

Per the Bank of America Global Fund Manager survey, institutional investors are currently underweight real estate as much as during the aftermath of the GFC 15 years ago.

Interestingly, consumer discretionary and consumer staples are the only sectors they hate even more than real estate. To some extent that’s the same trade. Real estate could be viewed as a subsector of consumer discretionary. Buying a house is possibly the most discretionary purchase of all. You buy it when you can afford it just like you buy a new car or new branded clothing only if you can afford it.

Investors don’t expect anything from the American consumer. And homebuyers feel the same way. Existing home sales and new home sales are both significantly below historical averages.

There are 70 million more people living in the US today than 30 years ago. Even if 2005 and 2021 were excessive, current home sales feel way below sustainable levels.

It feels like there is significantly more reward than risk here. Consumer confidence is arguably very poor. But objective reality isn’t really that bad. Per the Fed’s distributional financial accounts of the US, the 50-90% wealth percentile (arguably most representative for the financial wellbeing of the US middle class and potential home buyers) has grown total wealth from $31tn in 2019 to $51tn in 2025. That’s a 65% gain, easily outperforming the cumulative inflation of 28% over the same period.

Even if reading the news doesn’t make it sound like it, the US middle class has been getting richer. The unemployment rate remains low. The delinquency rate on credit card loans is below the historical average and falling. The same is true for the delinquency rate on all consumer loans.

It seems that much of the weakness in consumer spending is sentiment driven rather than due to actual hardship. People are scared of inflation, interest rates, geopolitics and AI. If the outlook on any of those factors improves, consumer sentiment will improve as well. Demand for homes and housing in general will then benefit.

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Affordability

It’s easy to form a bearish view on home prices by pointing to where they stand relative to incomes. The data on that differs based on the source. But overall, it’s safe to conclude that home prices have greatly outperformed incomes over the last decades.

The chart below indicates that the average home price to income ratio is currently 7 in the US, about the level shortly before the GFC and about 30-40% higher than for most of the post WWII period.

In this context, it’s important to understand that affordability alone is not a sufficient condition for poor prospective performance. Would you say that one Bitcoin is unaffordable at $75,000? Or would you say its price simply reflects the preferences and financial resources of its buyers?

One must understand where the lack of affordability comes from and whether the driver is sustainable or not. There are several reasons to support home prices being structurally higher vs. incomes. Two of them stand out for me.

Firstly, labor force participation. The labor force participation of the 25-54Y age group has risen from under 60% in 1950 to almost 85% today. Many women have joined their men at work.

That trend is structural. The consolidation in the 2000s and 2010s in the chart below is primarily driven by the age structure within the labor force. As baby boomers aged, they first went into prime employment age and then graduated into retirement. Labor force participation naturally starts declining way before official retirement age. If you lose your job at 30, you are more likely to look for a new one than when you lose it at 50.

As a result, many double income households are now competing for the same homes that were previously financed with single incomes. This puts upward pressure on home prices. The activation of women in the labor force has raised living standards for goods and services where a supply response is possible. Basically anything you can buy in a store. But it has made it more difficult to acquire products or assets that are naturally scarce. Sure, you can theoretically build more homes by converting cow pastures into neighborhoods. But desirable locations are hard to replicate.

Secondly, consumer preferences. Today, consumers prefer larger homes than they preferred (or were able to afford) in the past. New single family homes in the US are today about twice as large as they were in 1970s.

The chart below is a bit dated, but it tells the story quite clearly. At the same time, household sizes are shrinking. In the 1970s, there were 3 people on average per home. By 2015 this had dropped to 2.5.

Bigger homes and more home per capita. It’s unsurprising that the cost of housing has risen faster than incomes, isn’t it? Both are factors that can’t be expected to reverse anytime soon. Housing is part of people’s personal brand similar to where, how they travel and what car they drive.

Mortgage rates

Mortgage rates drive the performance of real estate assets like barely any other variable. They determine levered returns and valuation multiples. Whether you actually use a mortgage or not, buying real estate is a bet on falling mortgage rates.

Mortgage rates consist of two components, the risk-free rate aka as the Treasury yield, and the spread of mortgage rates above that risk-free rate.

Treasury yield
The 30Y Treasury Yield currently stands at 4.9%, the highest it has been in 20 years.

Treasury yields compensate investors for opportunity costs and inflation. The stronger the (expected) returns in risk(ier) assets, the higher the Treasury yield. The higher the expected inflation, the higher the Treasury yield. That’s why the 30Y Treasury yield typically trades close to nominal GDP growth as observed in recent history.

And that GDP growth closely correlates with productive age population growth (defined by me as 20-54; one could extend to 64 and get the same story, but correlation coefficient would be weaker). People in productive ages don’t just provide goods and services. They also have the incomes to create the demand for them.

2022 to 2025 have been outlier years. Nominal GDP growth has been more than 2% higher per year than predicted by the historical correlation with productive age population growth. The inflation caused by the surge in fiscal deficit spending is obviously the most plausible explanation.

US productive age population growth is expected to accelerate moderately until the early 2030s and will then fall again. The acceleration is a temporary effect as the aftermath of the baby boomer retirement wave. Overall, I see the fair level of the 30Y Treasury yield at 4% maximum in this environment. Unless the US government goes full Argentina of course. But that should boost rents and home prices as well.

Spread
The 30Y mortgage rate currently stands at 6.3%, 140bps above the 30Y Treasury yield of 4.9%. The average spread over the last 40 years has been 1.4% as well. It seems close to a fair level, not just in the historical context, but also considering the most relevant spread determinants.

In fact, I see downside potential for the spread. It’s primarily determined by three factors:

1. Credit risk: Investors deem mortgage borrowers less creditworthy than the US government which is why they require a higher yield. This yield premium will surge during times where US households are financially under pressure, for example during recessions. Right now there is very little risk in US household balance sheets in my opinion. The Treasury is still pampering them with huge deficit spending.

2. Interest rate volatility: The more volatile interest rates are expected to be, the higher the mortgage rate vs. the Treasury yield. Mortgages typically come with prepayment options. When interest rates fall, borrowers will accelerate payments and investors miss out on the return they thought they had locked in. The more investors expect falling/volatile rates, the less attractive they deem mortgage lending. Only a small minority of investors expect falling long-term rates right now. I don’t think MBS investors consider prepayment risk elevated.

3. Lender balance sheet and preferences: Commercial banks and MBS investors are the primary lenders in US real estate. The more liquidity and appetite they have vs. overall appetite for Treasury securities, the lower the mortgage spread will be. I believe US residential real estate will be a very attractive asset class for fixed income investors in the near to medium term, esp. if private credit continues to struggle. Home buyers have a better creditworthiness than software companies the lunch of which is eaten by AI.

Sincerely,

Rene

In my March 2026 Market Strategy, I argued that we need recession fears before a buyable bottom can occur. These recession fears would then move Treasury yields and investor positioning to more balanced levels. The Treasury’s tax drain could facilitate that sentiment shift. Let’s see how the picture has evolved since then.

TLDR Summary

• So far, markets are defying fiscal seasonality. They have staged a stunning comeback, also completely seeing through any uncertainty associated with the Strait of Hormuz standoff. I believe this is risky for anyone vulnerable to high oil prices. US assets are not vulnerable to high oil prices. As I discussed in my recent piece on crude oil, this energy crisis can act as a catalyst to move capital back into the US.

• The US Treasury has drained $164bn from the US economy in April so far and will likely drain another $100bn until the end of the month. Fiscal seasonality will then turn sweet and remain supportive until May 15, the next Treasury interest payment.

• Over the last month, institutional investors have rotated from international assets to US assets. But there is still plenty of room left for further rotation. I expect continued strength in US assets and US Dollar.

• From a sector perspective, investors love B2B industries and they hate B2C industries. Consumers are always the final demand. B2B can’t live without B2C. If everyone loves the former, the latter likely has positive inflection ahead. I consider this sector positioning a pristine signal to bet on the American consumer.

Performance summary

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• Since July 1, 2023, is up 93%. is up 150%. is up 103%. is up 98%. is up 207%. These companies run very simple, actually dull business models. They own physical locations where consumers can get their staples. Yet they have handily outperformed the S&P 500 which advanced ‘just’ 50% during that period. And they didn’t start this run from distressed valuations. Most of them had performed very well for years before.

• This is not normal. Some of these stocks have charts like Biotech companies that found cancer cures. For the most part, their businesses haven’t even inflected positively. Many of them haven’t grown faster recently than before the pandemic. Margins haven’t expanded either. The majority of their share price performance is multiple expansion.

• The change is mostly in value perception. The post-pandemic bull market has coincided with a dramatic value shift among B2C businesses. Successful brick-and-mortar retailers have captured value previously owned by large consumer brands. Value is not assigned anymore to those who give products their identity. It goes to those who actually deliver them to paying customers.

• Well-managed brick-and-mortar retailers get that value because they are perceived as more defensive than other B2C businesses. They have also rerated due to their suitability as inflation hedges. They have great customer bargaining power, fast inventory turnover and their private labels win when consumers are hit by an unexpected inflation surge. Some of them have also demonstrated strong cash management with falling inventories in relation to their revenues which releases cash and boosts profits.

• We are living in a K-shaped economy where many B2C businesses struggle to find willing and financially able customers. They need help from distributors. That’s why the ad businesses of Meta and Google work so well in the digital world. Retailers are doing well in the physical world for the same reason.

• There is no bear case for Walmart and Costco. Everyone loves them. And that is in my opinion the bear case. There are tons of possible reasons why either their operating performance might disappoint in the future or why one shouldn’t pay more than 40x for their earnings. I have discussed five of those reasons in this article.

It’s November 2021.

Imagine you are the most average investor who always holds the deepest in-consensus opinion. We’re at the peak of the pandemic bull market. You observe that physical distribution channels are still aching from lockdowns and their aftermath. Online distribution rules. You believe it was anyway destined to conquer the economy. The pandemic just accelerated the process.

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TLDR Summary

• From 2010 to 2021, the median EV/revenue multiple of America’s leading consumer brand companies expanded from just 2x to over 5x. The values of large consumer brands were skyrocketing. They were ideal vehicles to push products to oversaturated consumers.

• Multiples have compressed since then. Today, markets deem a consumer brand revenue Dollar about 45% less valuable than they did in late 2021. Many companies in this space haven’t participated in the latest bull market at all. Some are down a lot from their all-time highs.

• Social media and AI are eating large consumer brands. Consumers often view the recommendations of influencers and chatbots more reliable than those of multinational corporations. At the same time, physical distributors have upped their private label game. Walmart and Costco have become gatekeepers between consumer brand companies and consumers similar to how Apple acts as a gatekeeper between smartphone users and app developers.

• However, there is hope for his pounded sector. At scale, consumer brands are still the most lasting and most effective way to guide consumers into purchasing decisions. They will shine again once this cyclical trough is over. When institutional investors have given up on a sector, it’s often an attractive time to buy.

To understand brand value, we first must gain an understanding how it drives the value of an enterprise.

What is the value of an enterprise?

An enterprise can be thought of as a smart combination of operating assets, the combined value of which exceeds the sum of all asset values. These assets can be tangible, such as real estate, equipment or inventory. Or they can be intangible, such as customer relationships, technology or brand value.

Tangible assets are typically recorded in the balance sheet, often with book values close to their market values. Intangible assets are often not recorded in the balance sheet. In most cases, they only get uncovered if the company gets acquired. They still exist though, whether they are recorded in the balance sheet or not.

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Why is most value created in intangible assets these days?

Each industry has its own typical asset cocktail. And this asset cocktail shifts with time, based on cyclical and structural forces. Intangible assets have gained in importance over the last decades. In the past, value creation primarily happened in manufacturing processes, machinery development and physical distribution. Today, it happens primarily via customer relationships, software, data and brand.

Intangible asset-driven business models are often framed as capital-light business models while tangible asset-driven business models are often framed as capital-intensive business models. I don’t think that is the correct framing. In my opinion, there is no systematic difference in capital intensity between them. In fact, creating an intangible asset can be very expensive. You just don’t buy it from someone. You have to incur operating losses while you build it. And investors often give you a hard time for doing so because they don’t understand why you have such a low profitability.

Building/buying a tangible asset makes you incur capex. Building an intangible asset makes you incur opex. The only difference between them is their accounting treatment (capitalizing and depreciating vs. expensing).

What makes intangible assets often special is their supreme operating leverage. Intangible asset-driven business models are often much easier to scale than tangible assets-driven business models. Ford’s marginal profit on an incremental F150 sale is not much higher than the average profitability of every unit sold. They have to buy the same amount of metal and electronics for each vehicle. On the other hand, Netflix’ profit margin on an incremental subscription is near 100%. They have the content already in place. They are just unlocking it for the next paying customer.

The growing importance of intangible assets can best be observed by plotting the P/B multiple of the S&P 500 over time. It currently stands at 5x, several times higher than for most of post-WWII history.

Only a fraction of a company’s intangible assets is typically recorded in its balance sheet since most intangible assets only get uncovered subsequent to an acquisition. That’s why the market values of intangible assets are typically close to the difference between the market value of a company’s equity and its book value. Therefore, the chart above first and foremost plots the performance of intangible assets.

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Why do brand values matter?

Brand values have gained in importance alongside the rise of information technology. There are several reasons for this. Firstly, the creation of goods and services has become cheaper at scale because many products don’t have to be recreated for every customer (most importantly digital media and digital services in general). Secondly, information technology has boosted manufacturing productivity. A great deal of manufacturing has been commoditized, most importantly in the extremely optimized supply chain in China.

Therefore, the most valuable skill a company can have is not anymore its ability to design and manufacture a great product. The most valuable skill is to find customers who are willing and able to pay. Willing and financially able customers are rare because the world is oversaturated with consumption. I discussed this in more detail in the article below where I framed AI primarily as a product distribution tool.

Brands are an ideal vehicle to enable that selling process. Even with very limited actual product differentiation, consumers often pay a premium for certain brands because they trust them more than others in terms of functionality and safety.

In many cases, the branding goes beyond the actual product. The perceived identity of the entire company fuses with the identity of its customers. People drink their Starbucks Latte, work on a Mac and wear their Nike sneakers because these products align with their self-perception. You consume a product not just because it’s useful for you, but because it assures you of who you are.

Successful branding allows companies to earn a superior profit on their revenues. They enjoy higher margins than undifferentiated competitors. And the more profit you make for every Dollar of revenue earned, the higher the market value of your equity for every revenue Dollar. For brand-heavy business models, the EV/Revenue ratio offers direct insight into the value of their brand.

What has been happening to US brand values lately?

To figure that out, I have identified a number of major brand-driven companies in the US, i.e. I have searched for companies with B2C businesses where customers are willing to consider more than just price when they select their vendor. This filtered out most financial services businesses which I consider commodity businesses. I also filtered out pure distributors (Walmart, Costco etc.) because these are currently subject to market forces that are distinctively different from consumer brand companies. In fact, they are part of the problem for consumer brand companies as you will see further below. I will likely elaborate more on that in a future article.

In total, I came up with the following 43 companies:

This is a highly heterogenous group of companies. But looking at the median allows to filter out company-specific noise and enables telling a story that impacts most of them.

From 2010 to 2021, the median EV/Revenues multiple of this consumer brand basket has risen from 2x to almost 5x.

By 2021, markets deemed every revenue Dollar from these companies more than twice as valuable as ten years earlier. This multiple expansion is suggests rising brand values as discussed earlier.

Since 2021, valuations have come down. Many of these companies have not participated in the bull market at all. Take a look at the P/S ratio for the S&P 500. It has kept advancing beyond the peak in 2021.

Some of consumer brand companies are down significantly since November 2021.

The relative performance is even worse. The S&P 500 is up 45% since then.

The median EV/Revenue multiple is now 2.9x. This means markets deem a consumer brand revenue Dollar about 45% less valuable today than they did in late 2021.

Some of this rerating is a normalization from inflated valuations during the pandemic when consumers carried their stimulus money to their favorite brands in boatloads. But even in 2019, the multiple was 45% higher than it is today.

This begs the question: Why are brand values under so much pressure?

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Is the pressure structural?

In my opinion, there are several reasons why someone might choose to be bearish consumer brands and expect further weakness.

Firstly, to some extent brand values require customers to do no or very limited shopping around. They default to their favorite brand without checking alternative offerings. The internet, most importantly social media and AI, dropped the cost of getting the information needed to make the switch. In fact, influencers and chatbots directly compete with the promises of a major consumer brand. And they are often viewed as more credible and independent with their recommendation than the multinational corporation selling its own product.

Secondly, distributors have upped their private label game, esp. the large ones that can afford it. Walmart and Costco match the quality of dedicated consumer brand names at a significantly lower price and while controlling the shelf-placement. They are gatekeepers between consumer brand companies and consumers similar to how Apple acts as a gatekeeper between smartphone users and app developers. I discussed Apple’s gatekeeping in more detail in my Meta article in 2021:

The value of this gatekeeping seems to have risen rapidly in the last few years. Nike is currently paying a huge price for learning that lesson.

Thirdly, when I wrote about Garmin a while ago, I argued that consumers are fragmenting into micro-economies. In the past, everybody consumed the same media. There was a much more dominant lead culture. Digital distribution, social media and algorithmic feeds have changed that. As a result, numerous echo chambers have formed. This makes it challenging for big consumer brands to succeed. It might not be that consumers don’t care about brands anymore in general. They might simply be more interested in niche brands rather than the multinational corporations in the sample above.

Or is it cyclical?

Firstly, yes, media preferences have changed drastically after the pandemic. But some of the structural bearish arguments above were already around in the late 2010s when consumer brand revenue multiples were expanding. There are clearly positive forces beneath the surface that may shine again once the consolidation is over. Consumers are saturated and they want guidance about which products to consume. At scale, consumer brands are still the most lasting and most effective way to guide consumers into purchasing decisions.

Secondly, branding is still scalable even with the emergence of micro-economies. There are still ways to capture and monetize the attention of large audiences. Nike might have to share more their revenues with influencers. But they still matter as a factor in product distribution. It would be hard for LeBron James to establish his own shoe brand. Leveraging Nike is the much more logical path. Athletes rise and retire. They won’t be popular forever. Corporate brands have an indefinite lifespan. Successful ones will be those that manage to form synergistic partnerships with influencers.

Thirdly, the weakness of consumer brands right now is related to an overall weakness of discretionary consumer spending, both in the US and globally. I discussed that in more detail in my Nike article. This clearly smells cyclical which will have to mean revert eventually. I find it encouraging that institutional investors have capitulated on this sector.

Sincerely,

Rene

In my opinion, there is one safe conclusion to make one month into the Iran escalation: Oil prices will likely stay elevated for longer. Even a potential quick resolution won’t change that. It’s the appropriate base case to work with. There are several additional conclusions downstream from this base case. This article will dive into which ones.

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TLDR Summary

• We won’t go back to $60 oil even if the Strait of Hormuz situation resolves quickly. Risk premia will remain at normal or above-normal levels for the foreseeable future. The complacency of 2025 will not come back.

• The global economy has benefitted from that complacency. Low energy prices have supported economic activity and avoided recessions where they would have otherwise occurred. Now, higher energy prices will hit the global economy and oil importing countries will be hit hardest.

• Theoretically, the US is shielded from global supply shocks because they produce more petroleum products than they consume. However, they are deeply integrated into global energy trade. They are exporting half of their production because they lack appropriate domestic refining capacity. Therefore, American consumers can’t be shielded with protectionist measures such as export controls.

• Protectionism is not needed to save them though. American petroleum producers might generate $300bn in extra profits this year as a windfall gain from the global supply shock. It’s a huge amount, about 1% of GDP, that could be redistributed via taxes to consumers should high energy prices force them to their knees.

• The US is not nearly as vulnerable to exogenous energy price shocks as they were in past recessions. Other jurisdictions can’t say the same. China, the EU, Japan and India…they are all massive oil importers with very limited domestic production. Their economies will do very poorly should oil prices stay elevated.

• Investors don’t seem to pay attention to that risk. They are heavily invested in the EU and in emerging markets and they are underweight US Dollar and US assets in general. The next forced asset rotation cycle is looming. All the money back to the US?

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1. Oil prices will likely stay elevated for a while.

Last year in June, I published the article below on the energy sector.

At that time, the sector was heavily underweighted by institutional investors and ignored by retail investors. This bull market is driven by innovation in software and semiconductors. I argued that energy is a risk-off sector in that environment. You bet on it when you want to bet against productivity gains in the darling industries.

Energy doesn’t participate in the hottest innovation themes of our time. It’s a hedge against their failure. Investors pay for that insurance through an inferior return during good times. But the more hate energy gets, the more overextended the bull market in other segments likely is and the more attractive the hedge becomes.

But there is more to the underweight in energy than this investor allocation arithmetic.

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TLDR Summary

• Nike is a prime example of the K-shaped economy where AI spenders and their suppliers & shareholders excel while many others struggle. It’s a tough environment for any discretionary consumer stock. Nike is in a particularly tough spot as the company is still in a consolidation phase after the pandemic outlier years.

• But the company has also made several strategic mistakes. The pandemic seduced them to heavily bet on DTC distribution which is now backfiring. With true product innovation absent, they are not generating enough website traffic to support their business. They are being taught an expensive lesson: Selling sportswear requires healthy relationships with wholesale distributors. Building back trust with those will take time.

• At $45, the stock is now back to where it was in 2014, almost twelve (!) years ago. Can you believe it? The S&P 500 was at just 1,900. It feels like an eternity has passed since then.

• From an earnings perspective, the company fully deserves this sell-off. Their EPS is barely higher today than it was back then and a 30x LTM P/E ratio doesn’t make it look like the greatest steal ever.

• However, the company’s revenues are 60% higher today than they were in 2014. Nike still has a unique and irreplicable brand with strong athlete relationships and loyal customers. This insulates them from AI disruption and should allow them to eventually convert their revenues into appropriate earnings.

• In addition to a potentially successful turnaround, they might also receive cyclical support soon. Consumer discretionary is the most underweighted sector right now. It’s in the middle of a capitulation process. Once that process is complete, the sector could fly just like energy has done recently.

Pandemic boom and post-pandemic bust

Nike stock peaked in November 2021 alongside the top of the pandemic bull market and has been in a downtrend since then. The stock didn’t join the recovery of the broader stock market that started in late 2022.

The company was a classic pandemic darling. Lockdowns caused a fitness wave and people needed sportswear. They also needed comfortable clothing because they worked from home. They had tons of extra disposable income from fiscal stimulus, a disproportionate amount of which was spent on leisure apparel because other forms of discretionary spending were not possible (dining out, travelling, etc). The company also used the pandemic to bet on their online DTC business. Digital distribution was much cheaper than physical retail shops which boosted margins.

Revenues and earnings boomed as a result. In FY22 (which ended in May 2022), they generated $51bn in revenues (up from $39bn in FY19) and an EPS of $3.75 (up from $2.49 in FY19). Markets expected that growth to continue. The LTM P/E ratio was 46x at the stock’s ATH.

That trend continuation didn’t happen. The company struggled with a challenging macro environment and self-inflicted pain.

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The K-shaped economy

The 1H22 recession ended unexpectedly and abruptly in 3Q22 when the BEA reported 2.6% real GDP growth. Since then, the US economy has continued to grow at an robust annual growth rate of 2.6%. One would normally assume that consumer discretionary stocks should do fairly well in such an environment.

Obviously they are not doing well at all. Current economic growth is not consumption-driven. Just like during dotcom 25 years ago, it’s investment-driven, probably even more so than back then. In the article below, I estimated that investment in communication equipment likely contributed 50 bps to GDP growth between 1995 and 2001 (ignoring 2nd order effects).

J.P. Morgan estimates that AI-related capital expenditures contributed 110 bps to GDP growth in 1H25. This share will likely increase this year given that hyperscaler capex plans are growing rapidly. It’s quite likely that the ex-AI economy is already in recession.

This investment is clouding the weakness in many other macro segments, especially in industries that are vulnerable to higher interest rates. The AI capex boom raises interest rates and thereby suffocates people who work in real estate, automotive and in discretionary industries in general.

Of course, someone’s spending is someone else’s income, irrespective of whether that spending is capitalized (investment) or not (consumption). When hyperscalers buy GPUs, they create income for everyone involved in shipping, installing and running them. And those who make money from building data centers will then spend their earnings on goods and services from everyone else.

However, it seems that this spillover effect is not happening right now, at least not at a larger scale. That’s why there are so many weak industries. That’s why the unemployment rate keeps rising (very unusual outside of a recession). It seems that consumer spending is heavily driven by a minority right now who are either directly involved in building data centers and/or who have enjoyed stock market gains from AI-related stocks.

Nike is part of the group of AI roadkill. But they have also made several mistakes to make their situation even worse.

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Self-inflicted pain

Lacking innovation
Nike has always been famous for their innovation. They have transformed sportswear into a high-tech franchise. Their waffle soles gave birth to modern running shoes in the 1970s. With Nike Air they invented air-cushioned soles in the late 1970s and refined that for decades. The Vaporfly revolutionized road running in the late 2010s. Some of these innovations were commercialized as athlete-branded product platforms and became lifestyle products (Air Jordan for example or Kipchoge’s sub-2h marathon).

Their innovation and the shrewd marketing thereof has made them the most successful sportswear company in the world. The pandemic demand surge came as a windfall gain on top. It seems that this has made the company lazy, or at least complacent. They fell over their own success. In their earnings calls, management has repeatedly articulated their lack of innovation as a core of the diagnosis why they are struggling.

“We need a continuous flow of new product innovation.” (3Q24)

“Traffic in NIKE Direct… have softened because we lack newness in product and we’re not delivering inspiring stories.” (2Q25)

“We haven’t been maximizing these strengths… leveraging… unmatched patented innovation.” (2Q25)

Lack of innovation is not necessarily critical if a robust distribution network is in place. Unfortunately, the company’s push into DTC distribution has nuked that network.

DTC model backfired
DTC appeared like a magic distribution trick during the pandemic. Nike didn’t have to share sale proceeds with distribution partners and enjoyed higher margins. However, this wasn’t sustainable. To generate sales, consumers must actively choose to visit Nike’s website. This requires an extraordinary cadence of product innovation, which Nike didn’t have. In contrast, in wholesale, it’s easier to sell older models/franchises simply through shelf-presence.

So, when the pandemic economy ended and website traffic declined, the company had to deal with distribution challenges and didn’t have a recipe how to deal with those.

“Traffic declines across Nike Direct were more significant than we anticipated.” (1Q25)

“We shifted investments away from creating demand… to capturing the demand through performance marketing for our digital business.” (2Q25)

In addition, Nike’s DTC focus irritated distribution partners. Since their role in distributing Nike products diminished, they prioritized other brands.

“We must lean in with our wholesale partners to elevate our brand and grow the total marketplace.” (3Q24)

“Some partners and channels feel we’ve turned our back on them, and we stopped engaging consistently.” (2Q25)

“Prioritizing NIKE Digital revenue has impacted the health of our marketplaces.” (2Q25)

The company countered these distribution challenges through increased marketing efforts to push inventory into the market. Unfortunately, this made the situation worse by tarnishing the brand.

Brand positioning
Nike’s brand strategy has always been to focus on high performance. Steve Prefontaine, Michael Jordan, Tiger Woods, Lance Armstrong, the Ronaldos, LeBron James. They have always associated with the biggest stars in the most popular sports. When people wanted to look like their stars, they had to wear Nike products. Instead of marketing specific products, Nike marketed a personal brand. Customers seeking to emulate that brand would then indirectly find the products.

Instead of continuing to pursue that strategy, they started to push inventory into the market via promotions, discounts and product marketing. This devalued the brand and hurt their pricing power.

“What I've seen is traffic in NIKE Direct, digital and physical, have softened because we lack newness in product and we're not delivering inspiring stories. The result is we become far too promotional. We've moved to a push model. Entering the year, our digital platforms were delivering roughly a 50-50 split of full price to promotional sales. The level of markdowns not only impacts our brand, but it also disrupts the overall marketplace and the profitability of our partners.” (2Q25)

“We lost our obsession with sport.” (2Q25)

“The level of markdowns not only impacts our brand, but it also disrupts the overall marketplace and the profitability of our partners.” (2Q25)

The company has been working transparently on these issues for about a year. So far, they have not demonstrated meaningful progress. 3Q26 earnings confirm that.

Nike’s 3Q26 earnings

Nike’s revenues were flat in 3Q26 with moderate growth in the US and continued weakness in China.

Margins remain under pressure. 3Q26 EPS was down 35% vs. prior year, 9M26 EPS was down 32%.

They will likely finish the year with $1.90 EPS which is lower than 2015.

Nike continues to disappoint. Management communication doesn’t make it any better. Listening to their 3Q26 analyst call was 62 minutes waste of time. Hard to come up with any quote that is worth sharing with you. A lot of air and buzzwords. Little substance.

To be fair, what can management actually say at this point? At the end of the day this turnaround story is not rocket science. First, they need to rebuild the brand and their original distribution channels. And then they need to pray the consumer comes back.

The fitness industry will continue to grow and people will continue to allocate more of their disposable income to that. I have recently written about that in my piece on Garmin and Strava. Nike is possibly the number one fitness asset out there. They should be able to get their sh** together eventually.

Valuation

Nike stock is down 75% since late 2021. EPS is down 60% which explains much of that. The remainder is a multiple contraction. At 30x LTM P/E the stock is far from being a steal though. Markets expect the company to deliver above average profit growth.

From a valuation perspective, Nike looks best on a revenue multiple. Investors can buy the company today at just 1.4x revenues. I believe a Dollar of Nike revenues is still supremely valuable given their brand and competitive positioning.

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Sentiment on consumer discretionary

The K-shaped economy described earlier is also reflected in institutional investors positioning. Discretionary is now the most underweighted sector.

Institutional investors have fled in March which suggests that this is a capitulation in progress. This might soon help the stock to form a bottom. Then it becomes a question whether and when their margins will recover.

Sincerely,

Rene

TLDR Summary

• It’s the perfect storm. First, the company struggled with rising delinquencies and rising refinancing costs. Then they shot themselves in the foot by revealing insufficient risk management and accounting practices. As a result, investors are running for the doors. Reputation destroyed. And rightfully so.

• But the situation might actually be less dire than it seems at first glance. The company managed to refinance their debts quickly. A liquidity crunch a la Silicon Valley Bank is off the table. I expect that they will guide 2026 to be profitable when they release earnings tomorrow.

• The company’s cash generation is prolific and will recapitalize them rapidly. Not getting a dividend for a while is a small price to pay. Flushing out dividend investors now might in fact help with forward returns.

• At 0.5x P/B, markets have priced in that the company’s distribution network is worth nothing and that there are $600m of additional charge offs hidden in the books. I consider that way too punitive.

The original investment case

About two years ago, I published the bullish piece below on goeasy Ltd.

I argued that a global rate cutting cycle was incoming and that this rate cut cycle would perhaps for the first time ever not coincide with a slowdown of corporate earnings, but an acceleration thereof. I further argued that this would cause surging credit demand, especially from borrowers that were hit hardest by the prior tightening cycle.

In my opinion, the case for that scenario was stronger in Canada than in many other places. Monetary policy was ultratight in the context of tight fiscal policy and overleveraged household balance sheets. I felt that goeasy was well-positioned to capitalize on incoming rate cuts.

They had been consistently taking market share from chartered banks, which had been subject to much tighter lending standards since the GFC. Immigration continued to be the main economic growth driver and newcomers tended to have low credit scores which would make them turn to alternative lenders. At that time, the stock was trading at $160.

I updated my view in September 2025. There had indeed been a number of rate cuts between my first and second article. However, the Bank of Canada had been pausing rate cuts for much of 2025. I reckon they feared another inflationary impulse should rate cuts put more pressure on the Canadian Dollar.

Policymakers were stuck between a rock and a hard place. Cut rates to save the real estate industry, the most important industry of the country. Or keep rates high to defend the value of the Dollar and hence the attractiveness of the country for international capital.

At that time, goeasy stock was trading at $210. They had kept growing and printing money in spite of Canada’s dire economic situation with falling real GDP, rising unemployment and weak credit demand. At 12x LTM earnings, I didn’t feel that the stock was overly ambitiously valued given their growth and the potential for Canada to eventually regain some economic momentum. I felt moderately bullish.

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The crash

The stock started sliding shortly after my second article. The biggest catalyst were 3Q25 earnings on November 5, 2025 which made the stock drop 20% in one day. They missed consensus by 11% on EPS, primarily due to higher delinquencies. Management blamed the softness of the Canadian economy.

“As we have mentioned previously, the Canadian economy continues to operate under a degree of economic pressure not seen since the COVID pandemic. Unemployment at 7.1% is at its highest level since May 2016, excl. the volatile years of 2020 and 2021. GDP growth is absent, Q2’s number coming in at negative 1.6% annualized. With over 70% of small and medium businesses impacted by tariffs and 18% of Canada’s GDP coming from exports to the US, there remains a high degree of economic uncertainty about the future.”
Jason Appel, Chief Risk Officer, 3Q25 earnings call

In addition to the economic weakness, interest rates had resumed climbing in 2025. The 2-Year is lately even signaling that rate hikes might be in the cards.

The mix of rising delinquencies and tightening financing conditions was a toxic cocktail for goeasy stock. It finished 2025 at just $131.

This trend continued in 1Q26. By March 9, 2026, the stock had dropped to $110.

Then, on March 10, 2026, the company issued a profit warning. They announced that they expect to incur

• an incremental charge off in 4Q25 of $178m against gross consumer loan receivables of $5.5bn and a related write down of $55m for loan interest and fees,

• a total net charge off in the quarter of $331m for 4Q25 and

• they withdrew their outlook for 4Q25 and their three-year forecast.

The incremental charge off relates to their LendCare segment, a subsidiary that goeasy acquired in 2021. It seems that LendCare grew its loan book too aggressively with insufficient credit risk management practices. They also revealed weak accounting practices. Some interest payments were considered received when they were in fact still being processed. Pretty bad look!

As a result of that write off, the company didn’t comply with certain financial covenants anymore which required refinancing negotiations with their lenders. They postponed their 4Q25 earnings release from March 25 to March 31 to be able to come to an agreement before.

All in all, a pretty terrible picture. The stock is now trading at just $36, down 66% over the last month and 83% from the top. It’s a full-blown crisis of trust, potentially lethal for a leveraged lending business.

However, I do believe there are reasons to be optimistic about the eventual outcome. It’s a high risk/high reward situation. Here’s why some optimism is warranted for tomorrow.

The resurrection?

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• Popular investment themes can create powerful momentum for both winners and losers. This momentum often takes prices far beyond sustainable levels. Winners then come back to earth and losers reemerge from the ashes. 20/21 was the peak of the renewable energy trade. Back then, the right move was to bet on oil. 23/24 was the peak of the GLP-1 trade. Many supposed GLP-1 losers have outperformed broader indices since then.

• Today, AI predicts the death of the white collar worker. Investors shun any stock with white collar exposure. Recruitment firms, gig work marketplaces, professional services firms and employment infrastructure companies…many of their stocks are down massively and deemed too toxic for future-proof portfolios. This offers a compelling opportunity to look into contrarian ideas.

• CBIZ offers a particularly interesting setup in this context. It’s a middle market professional services firm that successfully compounded for decades. Their growth has been stalling lately which has made the stock sell off dramatically.

• Investors fear that AI will eat their business. But so far, AI hasn’t eaten anything. The company is rather struggling with a cyclical softening in the middle market and with the integration of a transformational acquisition.

• The stock is broken. The business is not. Once this consolidation period has passed, markets will discover that. The stock is now trading at just 6.5x their 2026 earnings guidance.

• If you are afraid of AI, worry about companies the most important assets of which are technology assets. Because the replacement costs of those have potentially fallen drastically. Companies that are heavy on relationship assets are likely more protected. Professional services firms are mostly relationship assets.

Anti-thematic investing

Remember the renewable energy bubble of 2020/21? When EV start-ups reached market caps north of $100bn on barely any revenues and Cathie Wood’s ARK Invest raised more capital than Blackrock and Vanguard? That was exactly the right time to buy into oil & gas stocks.

Or remember the GLP-1 bubble of 2023/24? Investors were not only longing Novo Nordisk, Eli Lilly and some other GLP-1 related start-ups. They also shunned or even actively shorted companies that capitalized on obesity, most importantly sugar dealers and obesity care providers. Investors braced themselves for a world with eradicated obesity.

And what happened then? Many of those ‘losers’ performed actually quite well, in fact even better than broader indices, at least on a volatility-adjusted basis. Dialysis provider Davita is up 110% since its low in late 2023. Coca-Cola is up 40% since then. McDonald’s is up 25%. Intuitive Surgical (bariatric surgery exposure) is up 78%.

You can make a ton of money by being early in a major innovation theme. But you can also make money by being early in betting on its unravelling.

The AI trade of today rhymes with the renewable trade of 2020/21 and the GLP-1 trade of 2023/24. All three cases relate to impactful technologies that are changing consumer preferences and disrupt existing business models. In 2020/21, investors called peak oil. And were wrong. In 2023/24, they called peak obesity. And were wrong. Today, they call peak white collar work. Will they be wrong again?

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The death of the white collar worker

You can see the consensus in the public discourse in traditional and social media. But you can also see it in the performance of stocks with exposure to white collar work:

• Take recruitment firms for example. Robert Half is down 80% from its peak. ManpowerGroup is down 79%. ASGN is down 69%.

• Or take gig work marketplaces. Upwork is down 81%. Fiverr is down 97%.

• Or take the large professional services firms. Accenture is down 52%. Infosys is down 48%. Tata Consultancy is down 46%.

• Or take employment infrastructure companies. H&R Block (tax filing) is down 51%. ADP (payroll processor) is down 36%. Paychex (payroll processor) is down 42%. Thomson Reuters (white collar software) is down 68%.

I won’t show screenshots of their charts here for space reasons. But check them out if you’re interested. Some of them are crashing at breathtaking pace. They look like meme coins after the rug pull.

However, what differentiates them from meme coins is that they are actually still profitable. Most of their drawdowns are not earnings-driven, but valuation-driven. As a result, some of them are trading at remarkably low forward earnings. Upwork is at just 8x. Fiverr is at 5x. H&R Block is at 6x.

I can imagine that several of these stocks have unique investment stories to tell if I investigated them more closely. But there is one stock that struck me more than any of them when I explored this theme: CBIZ.

I think you will like them, too. Let’s dive in.

Enter: CBIZ

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TLDR Summary

• Bank valuations are stretched. The four largest US banks are trading at a weighted average P/B multiple of 1.5x (vs. 1.0x last 10 year average) and 19x P/E (vs. 12x last 10 year average).

• Investors expect a cyclical acceleration of bank earnings, most likely from a continued steepening of the yield curve. Banks typically borrow short-term and lend medium/long-term. The steeper the yield curve, the stronger their net interest margin should be in theory.

• The steepening thesis is predicated on the idea that the Fed will cut rates into a robust macro environment. Rate cuts would then lower the short end of the curve and their inflationary impacts would raise the long end. It’s part of the Debasement Trade. The dominant macro theme of the last 12 months.

• It’s a flawed thesis. In my opinion, the 10-Year Treasury yield has not held up so strongly because rate cuts are expected to reignite inflation. It has held up because of the robust growth of the US economy due to the AI capex boom. This capex boom may very well continue. But it will be more challenging going forward to keep GDP growth high.

• And even if the yield curve get steeper, bank earnings won’t necessarily benefit as much as investors seem to hope. The steepening of the last two years has actually done very little to the net interest margin of banks.

Understanding banking

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TLDR Summary

• A lot depends on the events in the Strait of Hormuz right which is impossible to opine on without military intelligence. But even without the Iran war, macro isn’t looking too good. The US economy is slowing significantly. 4Q25 GDP growth is now estimated at just 0.7%, drastically lower than previous expectations. The labor market is showing decisive weakness.

• Treasury yields, inflation data and inflation expectations are not yet moving lower as a response which may give rise to the stagflation narrative again soon. I believe we will ultimately have to see a spike in recession fears before a buyable bottom can occur.

• Institutional investors have raised some cash over the last month. However, they are still knee-deep in the Debasement Trade which doesn’t bode well given the macro context. The most vulnerable sectors will likely be commodities and banks. By longing EM/Europe vs. US, institutional investors are also caught wrongfooted from a geographic perspective. It seems likely that elevated energy prices will persist for a while. The US will then be a relative winner.

• Fiscal liquidity keeps falling cyclically. But seasonality matters much more right now. We will likely have the largest tax related liquidity drain in history coming up in about four weeks. The stock market will be moody at least until then. Buckle up.

Performance Summary

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• To become commercially viable, humanoids don’t just have to outperform humans. They also have to outperform specialized automation solutions. Humanoids will always be less versatile than a human and less efficient than a specialized machine. But if they get good enough, the versality/efficiency trade-off may become attractive enough to make …

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Oracle just reported 3Q26 earnings. They generated $17.2bn in revenues (up 22% YoY) and $5.5bn in operating income (up 25% YoY). More importantly, they reported a continued acceleration of their remaining performance obligations. These now stand at $553bn (+325% YoY). The initial reaction of the stock is positive. I believe a narrative shift is in the making here. Oracle is transforming into possibly the most profound hypergrowth story in the megacap space since NVIDIA three years ago. Don’t be asleep on this.

What follows below is a big article to contextualize Oracle’s performance and competitive position in the AI investment theme. There are lots of numbers and tables in this article, most of which are included in the attached Excel workbook. If you disagree with any of the assumptions, check out that workbook.

Enjoy!

TLDR Summary

• Let’s face it. There won’t be an AI capex slowdown. Most companies will keep spending even if weak economics persist because the alternative to spending is losing their business. The main feat of AI is that lowers entry barriers in many industries. New entrants will challenge incumbents who will desperately try to defend their businesses against those newcomers and against each other.

• Therefore, the AI cloud industry will likely meet or even exceed expectations. By 2030, it might generate $1tn in revenues and $300bn in gross profits. Oracle is in an ideal position to capture a sizable chunk of that industry.

• In contrast to neoclouds, they have a huge legacy business that can serve as collateral to fund the data center build out. Cost of capital advantages matter greatly. Neoclouds also don’t have the software integration that makes Oracle a natural cloud provider.

• Hyperscalers have an even lower cost of capital than Oracle. But they are much more ambitiously valued and they have a higher risk exposure. Oracle is not invested in AI cloud customers in the same way hyperscalers are. They operate with a safety net. If the entire AI industry had one balance sheet, Oracle is its most senior tranche.

• The company’s strategic pivot also conveniently shields them from the troubles of the SaaS industry. Software moats might evaporate. Capital moats won’t.

• Overall, this is a fascinating setup. The company is finally playing its cards well. They will likely play a major role in the hottest innovation theme of our time. And they don’t seem to be priced as such. Yet.

What is Oracle 2.0?

Oracle shocked the stock market in September 2025 when they revealed a 359% increase of their remaining performance obligations (RPO). It was later reported by the WSJ that much of this related to a five year deal struck with OpenAI. This deal catapulted Oracle from the fringes of the cloud industry to its very center. A redefining moment for the company.

ERPs like Oracle were destined to play a major role in the cloud industry from the beginning. They are the record keepers for large enterprises. Every business process runs through them. This gave and gives them great insight into corporate processes and it makes their services very sticky once they are in. Even before AWS conquered the world, it would have been a great selling point for Oracle to tell their customers to remove their costly and complex on-prem systems and simply subscribe to a cloud service. Unfortunately, they were asleep and missed out.

AI computing provides an opportunity to rectify this mistake. As Oracle 2.0, they won’t just document the operations of their customers anymore. They will actively run them. They will host an increasing share of corporate functions and workflows, ingraining themselves even deeper into the internal processes of their customers.

This transforms the company into a massive growth story. Over the last ten years, Oracle has grown their topline by a pitiful 4% annually. Now, they are guiding their cloud business to grow from $10bn in 2025 to $166bn in 2030. That’s about five times (!) their entire ex-cloud business today.

The stock went vertical immediately on that news and surged 35%. One of the largest one-day market cap jumps in history. The vibes on the analyst call were ecstatic.

However, Oracle stock has given up all those gains and more over the months that followed. Today, it’s even 30% lower than before those blockbuster earnings, implying that the much celebrated strategic pivot revealed in September 2025 will actually have a negative net present value.

In particular, investors are concerned about the enormous capital requirements and the stress these put on Oracle’s balance sheet. Also, it has become very fashionable for investors and customers to hate OpenAI, the reputation of which is similar to Facebook in 2013. Oracle’s association with them is a valuation burden. And lastly, the broad software sell-off isn’t helping either.

It’s worth revisiting the stock in light of this volatility. Today’s earnings announcement is a great opportunity to do so.

Before I go into Oracle specifically, I want to provide you with some top down thematic framing first. My curiosity about Oracle is very much driven by my overall perception of AI as an investment theme. The firmest statement I can make about it is this:

AI will commoditize everything.

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• With 22% YoY revenue growth and a continued positive bottom line, 4Q25 was a step in the right direction for Root. The company continues to protect its earnings against weak industry trends. As a result, the company’s topline growth continues to come down. That’s not a problem for the investment case in the long-term, but it may continue to weigh on sentiment in the near-term. I doubt that these earnings can reignite investor euphoria anytime soon. I wished I could say otherwise.

• Lemonade still incinerates capital and is in a much weaker position to deal with the challenges of the industry. Its management still gaslights investors with irrelevant KPIs. Originally they wanted to turn profitable in 2026. Now, they are guiding the full year to a loss of more than $100m which is easily more than 15% of the equity book value they have left.

• Root stock has reacted positively to their earnings release. Lemonade stock has dropped sharply. It’s down 50% from its absurd pre-earnings valuation. My base case is that this drop will continue to eventually force a capitulation of investors who should have never invested in the first place. Root will likely end up as collateral damage in this process. It will likely go through its own capitulation process.

Setting the stage for this quarter

In my 3Q25 earnings review, I highlighted that Root stock continued to post a solid operating performance, considering the weakened industry environment which was a headwind for their loss ratio and their operating expense ratio. I further highlighted that Lemonade continued to incinerate equity capital at a rate of about 20% annually while overburdening their investor communication with meaningless KPIs.

I felt disturbed by the fact that Root stock was falling in this environment while Lemonade stock was pumping. I felt that the dumb money in the insurance technology space made the sector toxic.

Root

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Hold on, not so fast!

The situation is much more nuanced. There is in fact much to like about Carvana. This stock is a fascinating case study about management execution, story telling and groupthink. This earnings release is a fantastic opportunity to take a fresh look.

I covered the stock for the first time about two years ago. Just like today, Carvana was one of the most controversial stocks out there. People hated their business model and they ridiculed their valuation.

Back then, I highlighted that the company had been navigating the brutal used car market recession surprisingly well and that there was cyclical upside ahead. This made me cautiously optimistic in spite of valuation concerns.

The stock has continued to perform insanely strong since then. Even with this 20% post-earnings drop, it’s still up another 250% compared to the time I published my article. The company is now worth $80bn. At an LTM net profit of $857m, this puts their LTM P/E ratio at 93x.

TLDR Summary

• In addition to valuation concerns, bears take two main issues with Carvana: Firstly, they argue that their core business (i.e. buying and selling cars) is not profitable. They allegedly only make money by originating and securitizing loans. Secondly, the company is allegedly offloading leverage and economic risks to affiliates which artificially boosts their fundamentals and drives the stock far above a fair level. Both of these bear arguments fail to withstand scrutiny.

• Firstly, the latest earnings were very strong. In 2025, the company generated $700m in operating profit excl. gain on loan sales. This voids much of the first half of the bear case. And what’s left of it makes little sense anyway. Making money by finding loan customers is neither illegitimate nor unsustainable. Loan brokerage is in fact a central function in our financial system. From commercial banks to mortgage brokers and even automotive OEMs, billions of dollars of profits are generated that way every year and trillions of dollars of market cap are supported by that activity. Doing that successfully is one of Carvana’s key strengths.

• Secondly, there is no indication that Carvana’s business with DriveTime is happening at inflated prices. DriveTime is profitable. Its lenders will be careful not to be screwed over. And even if Carvana took advantage of DriveTime, this would be for the benefit of Carvana’s minority shareholders. What a weird way of defrauding them.

• The short seller accusations floating around are absurd. Does that make the stock an instant buy? Of course not. Its valuation is still very rich. But if we know one thing from recent history: Category definers are scarce and you rarely get them cheap.

Earnings review

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TLDR Summary

• Many investors are unfazed by the latest correction in many of the leading assets of this bull market. Risk appetite remains strong as a combination of cyclical optimism, monetary policy optimism and AI innovation optimism. Falling prices are mostly met with BTFD excitement, not with concerns about a bigger downside move.

• Investors continue to fear inflation and rising bond yields, both of which are in my opinion not relevant risk factors. I’m more concerned about fiscal liquidity potentially dragging down the economy and the stock market. I’m also concerned that the “AI will disrupt white collar jobs” narrative will gain traction. This could then have negative effects on consumer confidence and ultimately corporate earnings.

• Fiscal flow seasonality will be very pronounced in the coming eight weeks with a market bottom potentially forming in mid-April.

Performance summary

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• An ‘agent’ is an entity that acts on behalf of someone else and in their interest. ‘AI’ refers to machines being capable of performing tasks that typically require human intelligence. Putting those two definitions together, an ‘AI agent’ is then an entity that spreads the intellectual influence of machines.

• This is indeed a fitting name for t…

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• Professional cycling hit rock bottom almost exactly twenty years ago, when its biggest stars got caught in the perhaps biggest doping scandal ever. Subsequently, no other sport was as much associated with systematic doping as road cycling.

• Since then, the sport has staged a remarkable comeback. A new generation of sponsors and athletes are m…

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TLDR Summary

• We are at the beginning of the most severe labor market revolution since the 1950s when white-collar salarymen took over. AI will make a small minority of people hyper-productive. But the majority will be left behind. Young people will be bearing the brunt of this. Not because they are too dumb to adapt. But because the education system is failing them. Because we are failing them.

• Academic performances in schools and universities are declining in many countries. It's easy to frame that as a pandemic distortion. But there are structural forces at play, too. The decline is fueled by widespread digital addiction, family disintegration and a culture that doesn’t embrace challenges.

• Schools and universities will be decreasingly able to supply the labor market with graduates that are fit for work. Many labor-intense businesses will struggle with that. But there will be winners as well.

The global education crisis

A few weeks ago, I had a chat with my son’s elementary school teacher. She mentioned to me that the overall academic performance of her students is down significantly compared to when she started teaching in the 1990s.

That conversation has been bothering me for weeks. I was generally aware that there are issues in the education system and I have had similar conversations with friends and family before. But I hadn’t spent that much time thinking about it.

To be honest, I always thought the most pressing issue is related to mismanaged migration flows and hence it’s a problem for certain overwhelmed communities, not necessarily for our society as a whole. I didn’t think young people would be generally less capable today than in the past. After all, technological progress keeps happening. Most sports continue to see world record progression. The world is becoming more competitive. Humanity keeps advancing.

After spending more time with this topic, I believe rising peak performances are clouding the fact that average performances are declining. And that is a problem for all of us. It forces people more and more into passive roles. It makes the individual more dependent and more vulnerable.

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It sounds strong, but I believe it’s an existential threat for us, more so than environmental concerns. Education is the foundation of progress and equitable participation. Democracy can’t function without proper education.

When I started looking into this in more detail, the natural first question was whether the observations of my son’s teacher match broader trends. To assess that, I took a look at the latest 2022 PISA study, the results of which were published in December 2023.

This study shows a clear decline in math, reading and science skills in most countries. The decline accelerated during the pandemic (obviously due to lockdowns), but it seems that results have been trending down for about a decade.

IQ tests support the results suggested in the PISA study. For most of the 20th century, IQ tests were rising in a phenomenon popularized as the Flynn effect. This trend was mostly attributed to a rise in average schooling, growing test familiarity and better nutrition and overall health. The 21st century is showing a Reverse Flynn effect. For example, this paper observed falling IQ test results among US adults between 2006 and 2018.

When I talked to my son’s teacher, she was careful to not speculate too much about the reasons. However, she did highlight that students struggle in particular with emotional control and perseverance. It’s difficult for them to finish tasks.

The public domain is full with attempts to explain the crisis of the education system. Personally, I believe that three reasons stand out.

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