A Pulse on the Markets: Early‑Year Momentum & What We Think Lies Ahead, featuring Mark Yusko and Cory Lester of Morgan Creek Capital Management [February 26, 2026 HedgeD, With A Capital "D" Webinar Series]

You can't smell hedge without edge.

It's all about people processed and philosophy.

The math of loss is horrible.

Down 50%, you have to be up 100% to get even.

Value added research, very perception, time horizon arbitrage.

In this episode of hedge, we replayed the February 26, 2026 webinar featuring Mark Yusko and Corey Lester of Morgan Creek Capital Management.

As 2026 unfolds, global markets are shifting, with developed international and emerging markets gaining momentum.

US mega-cap schooling and defensive sectors such as healthcare outperforming.

We invite you to listen in as we break down these earlier trends and discuss what they could mean for the investment landscape going forward.

This podcast should not be construed as investment advice nor solicitation for the sale of any security advisor or other service.

Investment themes and ideas discussed may be owned by funds managed by the host and podcast guests.

Any conflicts at the time of production have been mentioned by the host but are subject to change.

Listeners should consult their personal financial advisors before making any investment decisions.

All right.

All right. People are connecting.

I will offer greetings from Rainy Chapel Hill.

It's Mark Yusko.

I am joined by Corey Lester from up north and we're going to talk about a bunch of wide ranging topics today.

I just want to rewind for a second on the name of the podcast and the webinar is hedged with a capital D and where's that come from and what does it mean?

We launched the predecessor fund to the current Asana Global Fund back in 2005.

We were run our 21st anniversary and the whole idea was that what I learned working in the endowments was that you could replicate equity returns with a hedged with a D capital D strategy.

The idea was that you get the similar returns over time but you do it with half the volatility.

You don't outperform every period but over long periods of time you outperform enough in the tough periods and you maybe don't underperform as much in the good periods because of that hedging.

And you know the math works in your favor and it's a great strategy and you know we all know the stories of the famous hedge fund managers that have produced really outstanding returns over long periods of time by this.

And then we modified that by doing the best ideas portfolio over the years and you know interesting if you just look at the past year it was a good year for markets now first quarter of 25 didn't feel very good.

That was a really good time to be hedged with a capital D markets were down because of the trump tantrums and tariffs and all that good stuff.

But the last eight months of the year were basically straight up January is continuing to be up.

And yet a hedged with a D strategy if done right so we've asked about two thirds of the exposure to the markets of being fully long and yet you know kind of kept up with with the world index over that that period which is which is really nice because if you can keep up with the markets in the good markets you actually compound a little better because

you know usually you would trail in those periods so that all that means there's there's been a lot of alpha generated by the managers and and their best ideas.

And so you know today's topic you know earlier momentum you know kind of what we think lies ahead really we'll hit on a bunch of these topics from.

You know one wise wise it's so much momentum in markets and what are we actually seeing obviously many of you will have seen some of the what's called less momentum things that have been going on with the anthropic hit list lately that you know they they write a five paragraph blog post and they take 20% off the market cap of some sector like security software or

tax preparers or or whatever it is so you know midst all of that kind of positive momentum and negative momentum.

You know we have found that this this hedged again with the capital D strategy continues to be the right place to to have equity capital so you know maybe with that I'll turn it over to my partner here Corey and let him lead us and I'll be the

he'll be the he'll be the play by play and I'll be the color commentator so think of him as Jones Angel for those you who are you and see Grant you and see fans and I'll play I'll play Tyler Zeller today a much shorter Tyler Zeller but I'll play Tyler today.

Who actually worked at Morgan Creek believe it or not as as an intern we tried to get him to work here full time but had this date with the the NBA for a decade so although he's back now in town and and you know we're still buddies and still trying to convince him to work at Morgan Creek.

Alright well thank you for that intro mark and thank you for that background to know all the details about Tyler but I appreciate the setup here I'll try the segue and and yeah we'll start with a little macro then we'll talk about some themes that I've been.

Being in the table on and following closely for the past couple of years but without further delay let's get get right into it so you know mark was kind of talking about it but I think it's an important reminder.

You know US equity investors have really been spoiled by the returns the past three years and this is a dense chart but there's really some you know key takeaways and you know if you look at you know long term returns you know investors have just been.

You know really spoiled the last you know three years or so and really trained to buy the dip after in a sharp rebounds following the pandemic the late 21 2020 to 22 sell off and more recently following the announcement of tariffs you know what mark was talking about in early 2025.

On Liberation Day last last April so you know the question is really you know have investors been loaded into a false sense of complacency again.

This year he doesn't repeat itself but you know often rhymes and if you look at the data here you know for the past 15 years investors in the S&P so investors in the US have really enjoyed you know premium returns often way above average like the last three years you can see the last three years 91st percentile up at the top 23% compounded for turn but you know if you look at the numbers here going back to.

Believe 1970 from remembering correctly you know long term average and medium return is closer to 10% versus the mid teens and higher performance investors have become accustomed to since the GFC so you don't forget you must you must spend as much time below the average as above average to get to the long term average just the way the math works so we think now is a time to be careful after you know really three.

Exceptionally strong years following that the 2021 2022 so off.

Well and just on that that point Corey you know it's it's not that many people listen to it anymore but you know it's it's the lake well begun.

Feature which is a phenomenon you know not everybody can be above average and and the market can't trade above its long term average forever.

It can usually go longer than than you think and governments can can boost things by devaluing the currency and printing more money and and providing some some regulatory capture opportunities for for big companies and and you know capitalization waiting and passive and all that all that can can impact this but but at the end of the day there's actually never been it's kind of interesting there's never been a time where the.

Ten year rolling return was above 15% where the forward returns were good.

Again that doesn't mean we're going to crash tomorrow and it doesn't mean that you couldn't have a you know some period of time that was good but but there's been half a dozen ish periods where you had a 10 year return that hit above 15% compounded for the full 10 years.

And in every single case in the past the the forward return or the next decade was was closer to zero that was 15 so yeah that's a great segue because you know over the last 10 years looking at the data here you know the compounded return for the S&P has been in the seventh 70th percentile going back to 1975 and I'll see it here on the the right side not 1971.

You know it's been 14.8% that if you look at the next slide you know this is one of our you know favorite you know prognosticators jammy grant them a GMO you know his seven year outlook is not as bad as it was in summer 2021 but you know it's getting pretty ugly and you can see his forecast back in.

You know August 2021 on the left here was forecasting you know seven year real returns for stocks US stocks you know deeply in the negative territory.

You know a little bit less than international actually seen a little bit of opportunity and emerging and you know we all know to know what happened shortly thereafter with the sharp correction and 21 and 22.

You know since then you have clearly rebounded and you know if you look at his updated forecast as of January you know it's not as bad but you know again seen sharply negative returns in US and and small cap stocks you seen some opportunity and value and seen much more opportunity which we'll talk about later.

Which is actually kind of playing out in price action thus far in 26 and you know places like Japan and also within the the emerging market complex so you know jamry can be really really wrong in the short term but he's usually really really right in the long term so you're definitely you know worth worth worth paying attention to.

But if you look at the current snapshot you know earnings and revenue growth are still strong so we're.

Can I can I you just promise that I and people have heard me tell the story again but maybe not everybody on the call has heard it but you know I put up and Jeremy back in in 2000 when I was at North Carolina had 10 year forecasts and it his 10 year forecast looked.

Very very similar to this with with the one difference in that more like the left than than the right emerging markets was was forecast to return about 10% going forward for a decade and reets were we're forecast to return about eight or 9% for a decade but US stocks were we're forecasted to produce.

Only about minus 3.9% and my chairman of the board says this is February of of 2000 said Mark you are not allowed to use the letters GM or oh in a sentence ever again this guy is always wrong there's no way you could have a 10 year period with a negative return for stocks.

So to the next 10 years 2010 Jeremy was wrong it no I'm sorry Jeremy said it was going to be minus 1.9 it wasn't minus 1.9 it was actually minus 3.6 so you can have a 10 year period with a negative return again I'm not forecasting that.

You know Jeremy is but I'm not per se but I it can and it did happen there is a method to the madness of making these types of a forecast they're just math and.

You know Howard marks another legendary investor has been a mentor and and you know inspiration my whole career says best is you know it's it's indistinguishable from being early and being wrong.

Yeah that's true right I mean it's absolutely true so you can be ahead of your time and and feel really wrong for a period time but in the end these math things do work.

Yeah that's great backdrop backdrop and context and you know pretty sobering just given the market to are in now but if you do look at a snapshot of things currently and the US earnings and revenue are still strong so you know we're almost through fourth quarter reporting season you know this was from a few days ago so.

You know slightly more than 423 of the 500 companies in the S&P have now now reported get this going and you can see that on the top line results have a beat to the upside so 8.8% growth versus you know 7.3% expected coming into the air and earnings have you know really beat to the upside you know 13.9% reported earnings growth versus 8.9% back in January.

And if you look at the the forecasters you can see that you know that top line growth is expected to continue looking at this chart here to expect to moderate a little bit but still you know grow.

Mid at the high single digits and then if you look at you know the earnings forecast so the red line is 2025 that's that's done with now.

You know 2026 you know expecting you know low teens earnings growth and then you know further you know high growth going into 2027 so as of now you know looks like this isn't talking about valuations which is talking about the fundamentals.

You know top line growth and earnings growth is expected to still be strong you know yet.

You know the S&P is is barely positive and the NASDAQ is down for the year.

You know but other parts of the market are are doing just fine so you know the the act we kind of looking at international stocks is up 4% year to date.

Emerging markets are up with strong 14% small cats stocks looking at the Russell 2000 you know 7% and you know international stocks have really been the standout so far in fact you know US stocks are after their worst start versus international market since 1995.

And some respected global macro investors like you know Rob Citroen for example a discovery capital or saying it could get get a lot worse and you kind of see some data here.

You know that supports the uplift and small cap stocks you know earning revisions going up you know if you look down here you can see that earnings revisions in the US are actually starting to turn down a little bit while they remain strong and international markets international developed and continue to to look really strong and emerging market.

And importantly you know even with these you know current and expected to stay stay good fundamentals in the US you know valuation is a very important part of the equation so.

You know we're at a very high starting point here you know S&P trading at 20 27 times forward P and international markets so look at the MSI world X the US you know much more reasonable at 19 times.

So the US is almost near you know prior recent peaks international markets you know still you know not cheap but you know much more.

You know headroom to get back to to prior recent peaks looking at the data here you know what's really interesting about that Corey is.

You know if you go back to to last year really since since April of last year.

These these same trends have have shown up international particularly emerging markets in particular places like China and Greece and a few others.

Just dramatically outperformed like two and three times.

Korea for example in the fourth quarter and into this year has has I think almost five times NASDAQ so.

There's been this this movement but one of the most surprising the upper left here is small caps.

You know small caps that underperformed large caps for going on 11 or 12 years and I'm losing track but.

Since the middle of last year small caps outperformed and this year interestingly right and you know it's we're most of the way through two thirds of the way through.

First quarter so still a lot of wood chop but you know NASDAQs down about 2% the S&P is up a little less than 1% the Dow is up 3% but small caps stocks are almost 8% that is a very very dramatic difference and and it masks actually some of the carnage in small caps.

In small cap you I mean a large cap US you know some of the software companies are down you know 50 60 70%.

As I say we saw just a rolling you know we all seen the meme of the grim reaper going door to door and he's been going door to door.

Lately across a lot of you know white collar job.

You can see that under performance right here mark.

Yeah so just looking not at the software names specifically but some of them you know there's some large cap and make a cap software names like like a Microsoft.

But just looking at the mag eight and it's funny because there's the mag eight and the mag seven you sometimes people throw Netflix in there but just looking at the date on the left this is for the the mag eight you can see that you know since.

You know fourth quarter last year.

Indivier and really sharp under performance versus the rest of the market so to your point you know if you look at.

1031 through a couple days ago mag eight down 7% and if you look at the individual names you know Google down to Amazon down 11 Apple basically flat.

Meted down one I mean Microsoft the big under performer down 17% netflix down nine and video.

You know after weakness today essentially flat Tesla and this is sorry a year today performance but you know paints the same picture you know Tesla down 10% so really really sharp under performance from the.

The mega caps versus everything else looking at these these bar charts here over the last last couple of months and you know some of it's maybe justified some of it's maybe profit taking you know if you look at the revenue.

Expectations for the you know now mag seven so taking Netflix out of the mix versus the remaining 493 stocks and the S&P 500.

You know fourth quarters finishing up here and still really strong top line.

Or sorry this EPS growth 31% the rest at 12% but it's expected to moderate you know after the first quarter you know go from the 30s down to the you know 20% range while the rest of the market is expected to increase from the mid 10 mid teens closer to the 20% range so.

I think some of that forward expectation is you know being baked into the market right now in terms of the this price action here the last last few months.

And then.

You know are these the most important charts for the markets right now I kind of think so so you know if you look at the chart on the upper left.

You know you're seeing many renditions of it you know but the hyperscaler cat backs is just you know increase massively you know from a couple hundred billion dollars you know which is still a big number.

A few years ago to you know 412 billion last year to expect and expected 660 billion this year increase another expected 20% next year to 792 billion.

But you know this chart here the preponderance of mag 7 cat backs is now you know close to 35% right at 35% of overall S&P 500 you know cat backs so you know if you recall you know kind of post GFC you know companies were really rewarded for returning cash the shareholders.

You can see the number of buybacks increasing pretty stable dividends pretty low growth and cat backs but that's really all changed in the last couple of years and the more these companies have spent until recently the more their share prices have been rewarded.

And you know now the markets really starting to scrutinize this cat backs you know demanding ROI and we'll talk a little bit more about that later.

You know but you can see that starting to not be as well received in in the marketplace so this is definitely important metric to pay attention to this is really driving you know a lot of GDP growth in the U.S. and the numbers.

As of now we're just getting bigger and bigger.

And let's let's go back to math right you know companies are pretty simple things right they generate revenue they have expenses they have to pay if they can't pay their expenses out of the revenue they they can issue debt and borrow money.

And and that's what these companies have resorted to and in some cases unfortunately the covered was bear on their ability to generate good revenue and so the market suddenly said whoa this I've seen this movie before right credit default swaps start to blow out people get nervous about whether company can pay back the debt and the worst offender is this company oracle.

Which everybody knows and you know last year they went up 25% in a day.

I think Larry Ellison in a day made some crazy number I can remember was a hundred and a hundred billion dollars or something.

And it was based on the fact that that open AI and Oracle had signed a deal now they didn't actually exchange any money but they signed a deal that said you know they would.

Work together and one would you know buy a bunch of services from the other so oracle stock went up lot well as.

The only way they could could build the capacity that opening I was supposedly going to use was that borrow money well problem was they were already at a 500% debt equity ratio which is.

Really really high I mean just off the charts high and credit default swap started to blow out and you know stock has just been in complete free fall it's now lower than where it was the day before when I'm 25% and seemingly goes down just about every day and.

It has that vibe of a i g if you remember the credit default swaps on a i g and all the hedge funds john griffin actually spoke at our our hedged conference up in in New York at Julian's office and he said you know this just doesn't look right feel right and i'm very very long a i g credit default swaps now i'm not saying we're long oracle credit default swaps but.

My point there is that if you get the right hand upper right hand chart.

Those numbers all have to foot right you can't do everything you can't pay dividends and do buybacks and do catbacks so.

When buybacks go up you can you can control earnings per share and you know apple's been the master of that right apple has the same core.

Income gross income over the past decade haven't had any growth really and yet their earnings per share goes up every year because they've been buying back stock like crazy.

But if you're spending all the money on catback so there's no money to spend on buyback so buybacks go down and and that has been a source of of the mag seven you know levitation so there's a bunch of things going on and and you know i want to just give you a sense of of of just how.

Punishing the market is being when it decides the cupboard is bare right if if it if the market decides that something's going to happen to your cash flow and and.

They will punish you don't give you some example so you know i just said oracles down a lot but just this year right so we're not talking a lot of time talking eight eight nine weeks just this year into it is down 47% 42% sorry gardener down 40.

Day down 38 app loving down 37 go daddy down 36.

Service now down 31 Robinhood down 31 Accenture down 28 IQ via down 28 sales force down 28 Aries capital down 28 so those are those are big moves and what they're saying is you know a eyes coming for their cash flows well how is they I come in for their cash flows whether you know.

There's a lot of models that that can replace their thing but.

One one comment here from the peanut gallery and i'm stealing this from somebody where she would give them credit but.

You know CRM companies like sales force or down a lot and service now but here's the thing yes an LLM because it violated copyright and trademark and you know anthropics being sued.

Billion and a half dollar fine because they violated copyright on eight books documented real real jury verdict or judge verdict maybe that's just on eight books they they trained on a lot of stuff they probably weren't supposed to so maybe there's more there but.

Yes you can ask Claude to write you a CRM program and it will do it again violating copyright and trademark and a bunch of other things but it'll do it well.

Somebody said I wish I could remember who was said you know I doubt many corporations are going to ditch.

Sales force for some.

You know CRM vibe coded by a 13 year old in China.

It doesn't matter for the China and in chapical North Carolina I just don't think it's going to happen but but you know we'll see but it.

There could be some babies in the bathwater in the software space.

Okay so Mark come off the soap box for a second we'll definitely return to topics like that later in the presentation as well but yeah the market's getting a lot more surgical here starting to differentiate between the the oracles and the the Googles and the metas of the world and I think that's that's healthy and natural and.

After the one way near street that AI has been the last you know a couple of years you got to choose your spots a lot a lot more selectively and carefully now.

But yeah I mean this is an interesting start chart you know I think it's very thought provoking and you can look at it kind of two different ways you know one very bullish being like oh the Nasdaq is finally about to break through the ceiling.

You know after you know 20 25 plus years and we'll continue to to turn higher or you can look at a very bearishly saying wow we're at the ceiling that that's never been breached last time we're here you know in February 21 I mean I'll know it happened you know after that so you know interpret how you will I just think it's you know very thought provoking and you know definitely a ratio to to follow pretty closely here.

Over over 26.

And then you know we talked a lot about mag seven AI cat backs valuations but another big factor that's obviously top of mind is is the midterm elections and here's some good data from from strategist think you know Dan Clifton there does incredible work.

And this you know could be an even bigger factor you know driving markets so you know as of now you know markets kind of tracking tracking the typical trend during the four year cycle year two tends to be weak.

See that in the chart here also in the chart chart below and the weakness is really punctuated and then in the second quarter which we're only a month away from at this point.

So expect there to be no volatility going into November but importantly and this could be a buying opportunity you know with any substantial weakness you know the market has never been is a dangerous statement but the market has never been you know negative in the 12 months looking at the S&P.

You know post the midterm elections going back a long time to 1942 so you know don't one time things too much that's dangerous but you know could be some serious volatility weakness and markets that may be presented itself now you know going into to November.

And we showed this last time and kind of asked you know will there be a second wave of inflation you know last time last time we did this back in November.

You know inflation is certainly on Mr. markets mind you know lots of Trump's Trump administration's policies objectively you know are inflationary you know tariffs crack down on on immigration tax cuts etc and you know if you look at past cycles.

There's usually usually a resurgence in inflation a second wave which we'll see if it transpires or not but if you look at you know some of the forward indicators they're perhaps pointing to yes.

So if you look at PPI you know tends to be a leading indicator if you look at what companies are saying you know prices are going up it's pointing to you know potentially you know higher inflation going forward which could make.

You know the Fed's objective to or you know Trump's you know wanting of the Fed to cut interest rates going forward you know prop problematic so definitely something you know also worth you know watching closely you know going going forward.

And you know maybe that's why you're the curve is starting to flatten a little bit here I mean everybody's expecting the curve to steep in but we've actually seen some flattening the curve you know here recently.

So you know I think this is an important indicator to of you know future economic growth that the market could be missing right now and expecting it to steep in you know where if you look at you know the actual price action on the 230 curve it's it's kind of stowed out here.

And actually over the last you know a couple weeks a couple months again to flatten a bit so maybe perhaps pricing in less economic growth you know surprise you know the first or I guess fourth quarter in terms of growth not being as strong as expected and also less rate cuts then they're currently priced in looking at the front end.

So you know slow and steady still wins the race.

You know always pick on on arc and in Kathy Wood terms of mo mo investors but you know if you just look at this data versus the the Bloomberg equity long short hit.

Heged index and this goes back to marks you know earlier comments at the opening of the webinar you know it's it's it's not a sexy.

Now it's kind of boring but over the long run you know the model tends to outperform so you know even after three really strong years here for markets and momentum you know following the 2021 2022 sell off you know the average hedge fund you know looking at this index is still you know beating Kathy would up 102% versus 76%.

And importantly doing so with much much less volatility so 13% volatility versus 65% so maybe switching from the macro to some themes.

You know regardless of markets you know we still see a lot of great ideas out there you know we run a very concentrated best ideas portfolio and you know right now there's kind of four themes that.

You know we are the most overweight to one being innovative health care talked about this a bunch.

You know the XBI is up a year to date and up over 40% over the trailing year and up over 80% from the post liberty liberation day lows last year.

Biotech is finally emerged from its five year bear market we think there's room to run here you know flows are starting to turn defensive you know looking at sectors like health care.

You know relative to to growth year sectors like tech especially large cap tech and you know we think this is a good place to to hide out you know if there truly is going to be a lot of volatility you're going into the midterm elections and beyond so still very excited about this one Chinese recovery plays.

You know if you just look at the stock market China's winning the trade war so you know since Jan 2025 the HSI and Hong Kong is up 33% versus 17% for the S&P so about 2X higher the HSI is now up over 80% from its its late 2022 lows but like health care like biotech.

Still see you know room to run here despite the recent run you know looking at mainland China stock specifically you know they're all still trading below.

You know on average look at the indices they're 10 year average in terms of P E multiples dividend yields are strong and short term rates in China you know remain very low so this will likely continue to attract flows.

You know we've been being in the table on specific opportunities one being you know within the you know anti-involution so destructive competition campaigns being carried out by the policy makers.

You know play this theme successfully and things like mech coal back in 2015 I've seen similar success and you know parts of the Chinese market in aluminum and policy again here more recently.

And you know our favorite within this you know sub theme in China is the solar sector so these stocks are up you're strongly to start the year 10 20 30% across the board.

You know policy action and consolidation the sector is really picking up steam as we speak so we think this could be a real source of alpha generation going forward also seeing good ops in China and the consumer sector.

And in tech stocks so not just anti-involution plays but still like you know China a lot here relative to other global markets going going forward.

And then if you look at this as rifle shot short oh yeah it should be rifle shot shorts but I was missing an hour there.

But some of the most you know speculative parts of the the markets you know really plummeted you know Mark went through some some names that are off in a 20 30 40% start the year.

I love this index the mean index because it was actually created in 2021 and then it was actually shut down after the collapse in 2022 and then was restarted in the middle of last year.

And you know it's kind of a contra indicator if you will as you know the index is down you know 37% since it's October highs.

And you know there's a really interesting Bloomberg news article here recently where you know it said that you know more than a quarter of the approximately 250 companies that went public on NASDAQ smallest listing tier since 2023 were promoted in WhatsApp group chats and subsequent subsequently crashed or were suspended by the US SEC ever concerns about potentially manipulative trading.

So in other words you know the fraudsters and promoters are are back orchestrating these pump and dump schemes very active in the market.

You know easily persuadable retail investors are sadly the ones usually left holding the bags when these schemes ultimately collapse.

And as some of the stories in the article please pull it up and read it at your leisure are really you know almost too wild to believe.

You know call a capitalism creative destruction animal spirits whatever you know it's a destructive development in the market that you know comes and waves and cycles and are in that part of the cycle currently.

So one needs to tread carefully but you know these things also create incredible opportunities for skilled skilled short sellers some of which we're partnered with.

And I think this also argues for you know kind of a great separation trade in the market between quality and junk along the lines of the late teen late 90s early 2000s which as Mark was talking about earlier was really the hey day for a lot of long short managers just given the market distortions caused by the Internet.

See kind of similar distortions being caused now by by AI so you know this this is definitely a fertile hunting ground and something we're seeing our managers increasingly you know capture and take it take advantage of.

And then lastly you know the big one artificial intelligence so you know we've we've been early here we've been pounding the table back in.

And this webinar in mid to 2023 showed this chart said you know AI could be big like really really big chat GPT just launched at about 100 million users they now have ever 800 million users many other models are nipping at their heels the competition is break neck and you know likely only to intensify.

You know just kind of looking at the poster child you know Nvidia's up almost 5x since this.

Now since we started talking about it but that said you know and as alluded to no stock is so good that high price can't make it that you know the reverse is also true.

And maybe we're seeing a little bit of that now in Nvidia as a result yesterday actually beat expectations on all accounts but the stocks down.

And the hyperscalers in general but the trend you know looking at the CapEx numbers is pretty undeniable.

You know I personally believe you know we're in the midst of you know not just a technological revolution but an industrial revolution given the CapEx required to build out the AI infrastructure.

Nvidia just reported 68 billion dollars of revenue in one quarter that's just three months with 45 billion of EBITDA.

They're expected to do 345 billion in revenue this year 445 million excuse me billion next year with EBITDA of 250 billion.

So the stock trades at 20 times that EBITDA number don't think it's crazy cheap that's a forward number but also don't think it's a crazy you know bubble valuation.

That signals you know broad fraught in the market GPU clusters and the millions are about to go live compute continues to grow exponentially.

You know people tend to think in linear terms so it's really hard for folks to fully appreciate the growth underway in AI but we still still see lots of opportunities in the space.

You know that being said you can't simply just own the hyper hyperscalers here case in point performance the last 4 or 5 months still think the opportunity set.

You know it was big on the infrastructure layer side of things starting the shift you know to the application layer.

But if you just look at the CapEx numbers 792 billion expected next year to too big to ignore.

Again you know it's hard to kind of wrap your arms around the breadth of opportunity set.

You know a couple just buying this guy things I think about that think help frame things if you look at you know global GDP it's about 110 trillion now you know knowledge based.

GDP as a percentage of that is about 30% and you know if you listen to some of the experts they think you AI could increase that to to 40% in the next 5 years you're talking about.

You know potential global global GDP capture and excess of 10 trillion so spending a trillion of CapEx today for near term over the next 5 years call it 10 trillion plus of of Tam opportunity doesn't sound insane to me.

And you also remember US GDP you know back in 2000 was was 10 trillion it's 30 trillion today will a triple again over the next 25 years no idea.

But you know could with a big AI productivity driven boom so you know US GDP triples from 30 trillion to 90 trillion that's a lot of GDP so I think that you know very high level pie in the sky.

Analysis kind of just you know frames what you know is potentially at at stake here and in terms of bubble watch I've mentioned this before but four things were watching closely you know is LLM user growth stalling so far now it's slowed in some for some players but overall still continues to grow.

Are there any dark GPUs so far not the case you know is compute token demand continuing to grow this really is driving the application layer so far not not at all as actual revenue growth starting to show up for some of the players.

Yes but it's still it's still early and that's what the market is as wrestling with with right now you know if you look at the chart in the top right here.

You know mag seven free cash flow growth is it is starting to creep in the positive positive territory again after the huge cap X spend the last few years.

I will be important for that to continue will see over the course of 26 and 27 and you're not saying there is but maybe there's a buying opportunity and the mag seven right now given weakness the past you know six months or so.

As if you look at the next 12 month P relative to the S&P overall you know it's trading near the lowest levels of the last six years so you know not a screaming by but you know probably looking a little bit you know more interesting by the day here as as that space under performs so.

So to sum it all up and I'll let Mark jump in here my high conviction view on all this is that you know AI row kill will be the Amazon road killed theme for those hedge funds seen the ball clearly in AI over the next decade and produce no terrific returns for investors and our job is to really make sure that we're you know picking the right managers within tech to to capitalize on this this massive opportunity set.

Yeah I think one once point to make here and it changes every day you know according me these slides this you know earlier this week and then today I guess it was last night you know something gets released and and changes a lot but not everything but you know we're in this I don't actually call it war for lack of a better term but it's it's not up you know not a kinetic hard war but a.

A war of of technological superiority primarily between you know the US and China although it's interesting a bunch of the US firms are actually led by European guys they happen all be guys but.

So someone just someone in Europe we're trying to make the case oh you were important to yeah but they they all left Europe and came to the US and start their companies but.

Um you know Byron we said is you know Europe's on its way to coming a good open air museum but my point here is that what happened last night was a Bob a released their latest model when 4.5 I think is the number they'll use these weird numbers but bottom line is this number he it blows all the other models away so.

Chatchy PT Anthropic all of them and it just keeps happening right you know one ups the other one and the other ups the other and the other stuff but but the thing they did that was was meaningful is they put it on hugging face for free.

So now you can download and actually you can download it onto your PC this is the crazy part is long to have enough RAM and you can run it locally so you can run it privately.

So it's it's a really big deal and.

I think course pointed is spot on in that you know the great managers are going to do really really well in the public markets picking the winners and the losers like the Amazon road kill thing I think what what what's going to happen and I feel bad there for these people who did but I think the people who who were throwing money into these these private companies.

At these multi hundred billion dollar valuations I think they're well I'm pretty sure they're going to be very disappointed.

You know the competition is fierce the price is heading lower and these are going to these are going to be tools right they're going to be a commodity they're going to be a utility and the application layer is going to be monstrous.

It's going to end up kind of like the internet right the guy who invented TCP IP did not get rich the guy who invented worldwide web did not get rich.

We'll see how it plays out but I I think this this new release is a big deal so.

Okay yeah that's a great point in like the frontier you know for these models in terms of in terms of their capabilities keeps getting pushed out and out and out and you know there's a seemingly positive development.

Each day as Mark's talking about it and it's not just from the US it's from the Chinese and you know.

There's a longer conversation but big differentiation between closed source and open source and closed weight and open weight and yeah you got to know what you're doing to figure it out loud.

There's going to be a lot of money made there's going to be a lot of money lost and you know that's what we're here to help with in terms of steering that capital.

You know to the to the to the managers on the GPs that know what they're doing and also take advantage of you know direct opportunities you know on the co investment and private side that that come out of their channels so.

Let's get some questions we've got one here but would love some more those are kind of all the prepared remarks for today you know the first question.

Could you make a chart similar to the hyperscaler CapEx charts showing the key companies that are selling that 660 billion to the hyperscalers this year.

So it's actually not other companies selling that 660 billion to the hyperscalers it's a hyperscalers hyperscalers spending that money themselves on building out building out the infrastructure.

So I mean the companies that are receiving that are in videos receiving a lot of it you know with the other chip companies you know the infrastructure companies.

So some real estate players you know some of the energy companies that are powering the data centers you know a lot of the you know inter connect companies that are connecting all the servers and the racks and the chips.

You know a lot of them are our public and some are private but it's it's the other way around in terms of where that the money is flowing.

So that's the only question we have so far don't be shy not not sure mark if you have any general questions but if not we can we can.

I think the general question and it's the you know 64 billion trillion whatever you want to say quadrillion dollar question is.

Heads you know with with capital D is a philosophy right it's it's a belief that talented managers can you know find alpha through this structural advantage of you know using the combination of leverage post short selling to actually reduce risk and increase long term returns.

And you know we had like as you mentioned and I mentioned you had the hey day in the late 90s into the actually that's not true we had the exact opposite right you know the end of 99 in 2000 was was the absolute non heyday in fact it's what forced you know Julian to hang up his spurs in March of 2000.

But then the heyday was kind of from 2000 to 2002 and then there was another heyday around the globe financial crisis and and in the in the QE era hedge funds kind of got a bad name right they were overpriced and they they couldn't beat the S&P.

As a long long question to say why do we think the the time actually is right and we actually we've always been right but why do we think the time is right now for these very talented analysts and PMs to shine.

Yeah maybe to to to quip another famous investor here been Graham you know in the short term the market's a voting machine but in the long term it's a Wayne machine and the market is a random walk and you know it can be a random walk above fair value for a long long time but you know per jammy

is you know long term forecast and I think he does seven and ten year for gas and not one in three year forecast for a reason you know fundamentals ultimately drive valuations and you know I think on top of that though you need a manager that can see see these big trends these big themes.

John Burbank actually on our first podcast and you make the most money by investing in things that have never happened before so you know to really outperform to generate the hedge fund returns that we all want you know the 20% net which was kind of the industry standard when you know this this business you know really started to before really start the institutional wise.

You not only need to be a good stock picker you need to be a good identifier themes and there's some huge themes in the market right now I think there's huge stock picking opportunities and yeah I think every time the markets you know is a Wayne machine and it's been a voting machine here for a while looking at things like you know the meme index being created not not once but twice but over time you know the weight of cash flows and

fundamentals ultimately ultimately drives the day you know it's it's so well said Cory and and and we didn't rehearse this actually but but you quoting you know John who you know we loved for for many years and had capital with and he's kind of gone into retirement and raising his young family and but that quote you know you do the best when you invest in things that never happened before also applies to the thing I'll leave

listeners with which is you know why now when when everyone said well you know AI tools are just going to dominate asset management and everything's just going to be an agent to AI they can work 24 or 7365 and and for for arbitrage strategies and for commodity trading advisor strategies and for things where pattern recognition and speed of execution.

You know like literally what can Griffin does you know moving his servers closer to the stock exchange so he can trade within you know five nanoseconds instead of seven nanoseconds I agree AI is going to take all of that and I think you know being a quant manager or a CTA we've already seen those those alphas erode and and the ranks get thinned but for for people who truly can

you know think about things that haven't happened before use intuition which the AI's do not do right they can't think they can pattern recognize and they can work really fast but there's lots and lots of data on this and you know Chris on is the best example and he's not in our portfolio because he's you know more long than short.

But you know Chris has compounded at extraordinary rates for for a very long time he's you know set the record last year with a 18.7 billion dollar payday yes the guy who buys six or seven large cap stocks that everybody's heard of that he figures it out what they're going to do that other people just can't comprehend whether it was the railroads.

Back when he and Buffett were buying the railroads when you know there were enough pipelines built so they were going to carry oil or you know whether it's you know he made a ton of money last year in GE member GE that was the darling for 30 years and then was the pariah for 15 years I mean it has been reborn in terms of aerospace and engineering and and nuclear and a whole bunch of other areas so.

People who who have that gift of of intuition and and strategy you know they they're they're rare but man what you find them and and once you can tap into the relationships and then once you can supersize their best ideas so winning combination so.

You know the hedged part matters but the talent part matters and you can't print talent with an AI you you can you can print you know history and fact finding and search and synthesis like it can reach Shakespeare way faster but it can't write Shakespeare and we've all seen that so.

We are we're going to focus on finding the the Shakespeare's of this craft we've got a bunch of them in the portfolio and and they make you know that they they make our life richer right by our interactions and in Corey gets to do most of that which is is the fun part of what we do so thanks everybody on the call for your support and partnership and Corey last word to you.

No that's perfect I'm out of breath and I have to pick up my kids from school so we will we'll end it there and be back and touch if you guys shortly and do this again and in a couple months thanks for your time.

Thanks so.

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