The BuySide Digest

• The Good — The capital is compounding: Nvidia is the buildout’s supplier, not its payer. Its capital base has grown several times over, but the profit it earns on that base has grown faster still. So its return on capital has multiplied rather than thinned. However, the path wasn’t a straight line. Apple is the mirror image. It has chosen to rent the AI era rather than build it — leaning on partners and the cloud instead of capitalizing its own campuses.
• The Deteriorating — Compressing, but a long way above the line: Microsoft, Meta, and Alphabet are the archetypal builders, and their returns on capital have compressed. Microsoft’s invested capital has grown more than two-and-a-half times in four years, and its return on that capital has fallen from the low forties to the high twenties.
• The Bad — Where the capital hasn’t paid off: Amazon has run the same capital-heavy playbook, and for years it earned roughly its hurdle and no more. Tesla is the cautionary tale the other six aren’t. It ran an aggressive buildout while the return on that capital collapsed from the low thirties to single digits.

Myrmikan Research

• We are optimists about AI for the same reason we are optimists about most powerful tools. Given enough time, people use them to make more, do more, and, eventually, build more. Artificial intelligence is already being woven into the fabric of how organizations operate. In a previous letter, we compared it to electricity. It will find its way into nearly every industry and nearly every life. The internet did the same thing about thirty years ago. It made the economy larger, and almost everyone’s slice grew along with it.
• Beginning early this year, the market staged one of the fastest repricings of an entire sector we have seen in some time. Software stocks shed enormous value in a matter of weeks. The theory driving the selling was simple and, on its surface, frightening. If AI agents can do the work that software used to charge you per user to do, then the per-seat subscription model that built the industry is finished. Enterprises will build their own tools, and nobody will pay for licenses. The moats will drain overnight. That was the theory, at least.
• Here is the heart of it: we believe the best software businesses are potentially among the most resilient assets you can own in an AI world, and we believe this for four concrete reasons.

Kayne Anderson Rudnick

• When it comes to AI-related investments, I remain highly skeptical. I believe that many of these investments will ultimately disappoint investors and generate substantial losses. First, as of late 2025, the valuations of the “Magnificent Ten” appear extremely inflated. These are undoubtedly exceptional companies with impressive financial strength, but their current valuations assume that they will continue growing at similarly high rates far into the future.
• Second, the increasing popularity of passive investing worldwide is also contributing to the sharp appreciation of U.S. mega-cap stocks. As global investors continue pouring money into index funds, the gap between the economic value of these companies and their stock-market valuations is likely to widen further.
• Finally, the enormous capital expenditures currently being made by the leading AI companies could materially weaken their future financial performance. One of the main factors that made the “Magnificent Ten” such attractive investments for many years was their exceptionally high profitability. Sustaining that profitability will become more difficult if capital intensity continues to rise.

Hirschmann Capital

• UK Homebuilders Recover Only Modestly, but the Market Is Missing the Bigger Picture. I continue to believe that investors are overly focused on short-term developments and are missing the bigger picture. These companies satisfy a basic need—housing—that is unlikely ever to disappear.
• Although the industry is highly cyclical, these businesses have generated solid returns on shareholders’ capital across multiple industry cycles. Industry consolidation, changes in the land market, reduced competition, more disciplined behavior, the increased use of land options, and signs of improvement in the residential planning and permitting process all suggest that the industry’s underlying economics remain intact and may even have improved in certain respects.
• Technological and other structural changes have only limited potential to disrupt the business model. Moreover, our portfolio companies in this industry have remained at the forefront of developments in construction methods and operating efficiency, including modularization, the use of new materials, greater vertical integration, and improvements in energy efficiency. These changes continue to occur gradually rather than disruptively.

Legacy Ridge Capital

• Uranium-related shares have fallen sharply from the speculative highs reached at the end of February. Many speculators entered the sector during the preceding rally and have since been shaken out. Fortunately, as prices approached their highs, we had already reduced the Creator Fund’s uranium exposure from approximately 9% to 7%.
• Precious metals remain a scarce asset class that can provide portfolio diversification across a range of market environments. Gold has historically added value during periods of inflation, deflation, uncertainty, and geopolitical change. It also has a tendency to generate returns when investors least expect it.
• We also do not believe that the Federal Reserve, or most other central banks, can maintain a restrictive monetary stance indefinitely. The same underlying forces that support our precious-metals exposure—high debt levels, rising interest burdens, geopolitical fragmentation, and declining confidence in traditional reserve assets—are also making economies increasingly sensitive to high real interest rates.

Boyar Value Group

• We are currently finding a great growth-to-value trade-off in small-cap stocks. The S&P 600, which represents profitable small-cap companies, is trading at its greatest negative spread relative to large-cap stocks. After each of these extremes in the past, there has been a strong trend reversal.
• There are currently two opposing arguments about AI. One argument is that AI is overhyped and will not have as significant an impact as people expect. The other is that AI will become so powerful and influential that the survival of most companies, and even many jobs, will be threatened.The first group points to the lack of real-world evidence that this transformation is already taking place. The other group believes that the world is still in the early stages of a massive exponential adoption cycle.
• A final point on AI is that it does appear to be increasing the formation of new businesses. There are two sides to this development. We need to keep our eyes open for emerging companies and potential investment opportunities while also monitoring new businesses that may disrupt existing companies.

Troy Asset Management