Investment Pitches

Pitch Summary:
Shares of Hyatt Hotels increased 13.1% and added 60 bps to performance in the fourth quarter as the company reported strong RevPAR and unit growth rates despite concerns about a deterioration in the macro economy. In addition, the company also came to an agreement with Chase to extend its credit card agreement with stronger economics for Hyatt given the increase in the company’s World of Hyatt membership. Finally, the company continues to sell its owned hotels at accretive rates and is using the proceeds to buy back the company’s stock. Hyatt continues to have an investment grade balance sheet with 90% of the business coming through fees, yet trades at a discount to peers despite similar growth and mix of business. We believe this discount should narrow over time as investors see the continued growth and resilience of its business model.

BSD Analysis:
Hyatt Hotels Corporation enters 2026 as a leaner, asset-light hospitality leader, having successfully completed a multi-year divestiture program of its owned real estate. The company is currently seeing record-level RevPAR (Revenue Per Available Room) growth, driven by its focus on high-margin luxury, lifestyle, and resort properties. For 2026, the investment case is bolstered by the rapid expansion of its World of Hyatt loyalty program, which now serves as a significant low-cost customer acquisition engine. Management’s focus on the "Apple Leisure Group" integration has made Hyatt the world’s largest operator of luxury all-inclusive resorts, a segment that is outperforming the broader travel market. While global macroeconomic uncertainty remains a variable, the firm’s asset-light model provides a resilient earnings floor with high free cash flow conversion. Analysts project consistent growth in net rooms, supported by a multi-billion dollar development pipeline in high-demand international markets. For 2026, Hyatt offers a premier vehicle for playing the continued "revenge travel" and luxury tourism thematic.

Pitch Summary:
Shares of FIGS increased 69.8% in the fourth quarter and added 161 bps to performance. The company continues to generate strong results, and revenue has recently accelerated from investments made over the past year. This is despite making a conscious decision to pull back on promotions. The company is now seeing more normal purchasing and replenishment trends while also benefitting from specific initiatives around product and marketing that are resonating with its customers. FIGS is also seeing better efficiencies out of its new fulfillment center that are resulting in strong margin improvement as well. We continue to believe FIGS can take share in the attractive $80 billion global health care apparel industry. Health care remains one of the fastest growing employment industries in the U.S. and FIGS benefits from being a need-based replenishment item. The company is well positioned to take share in the industry through its premium, high-quality products. In addition, we believe FIGS will also see growth from its initiatives to grow stores, business to business revenue, and expand internationally. We believe the revenue acceleration combined with margin expansion and strong cash generation should leave the company well positioned for further growth over time.

BSD Analysis:
FIGS, Inc. enters 2026 as a stabilizing brand in the healthcare apparel market, focusing on expanding its "FIGS PRO" corporate program to drive more predictable, institutional revenue. The company is successfully leveraging its direct-to-consumer (DTC) model to maintain premium pricing while expanding into international markets like Europe and Australia. For 2026, the investment thesis is centered on the firm’s path toward higher profitability as it optimizes its marketing spend and streamlines its logistics network. While competition from legacy brands and new entrants remains intense, FIGS’ high brand loyalty and "community-first" approach provide a durable competitive advantage. Management is increasingly focused on product diversification, including footwear and outerwear, to capture a larger share of the healthcare professional's daily wardrobe. Financial results are expected to show a meaningful recovery in EBITDA margins as the company laps tough comparatives from its expansion phase. For investors, FIGS represents a high-potential "valuation reset" play in the specialized retail space.

Pitch Summary:
Property and casualty (P&C) insurance software vendor Guidewire declined 12.6% in the fourth quarter and detracted 62 bps from performance. However, the company continues to do quite well and after a multi-year transition period, the company’s cloud transition is substantially complete and insurers are upgrading to the cloud at an accelerated rate. We believe that cloud will be the sole path forward, with annual recurring revenue (ARR) benefiting from new customer wins and migrations of the existing customer base to the company’s Insurance Suite Cloud. We also expect the company to shift R&D resources to product development from infrastructure investment, which should help drive cross-sales into its sticky installed base and potentially accelerate ARR over time. We are encouraged by Guidewire’s subscription gross margin expansion, which improved by approximately 280 bps in its most recently reported quarter. We believe Guidewire will be the critical software vendor for the global P&C insurance industry, capturing 30% to 50% of its $15 billion to $30 billion total addressable market and generating margins above 40%.

BSD Analysis:
Guidewire Software enters 2026 with an "Outperform" consensus, having successfully completed its transition to a cloud-first model for the global property and casualty (P&C) insurance industry. The company is seeing a massive acceleration in its "Cloud Subscription" revenue, which now accounts for the majority of its total sales and provides a highly predictable, recurring revenue base. For 2026, the investment narrative is defined by the launch of next-generation AI tools that help insurers automate claims processing and enhance underwriting precision. Management has successfully achieved its long-term profitability targets, with free cash flow and operating margins reaching record levels in the current cycle. While the implementation of large-scale cloud transformations for Tier-1 insurers introduces execution risk, Guidewire’s dominant market share creates a powerful competitive moat. Analysts have consistently raised price targets as the firm demonstrates superior operating leverage. For 2026, Guidewire offers a high-growth core holding for the digital transformation of the insurance industry.

Pitch Summary:
We increased our investment in the premium senior housing provider, Welltower Inc. We believe the company will continue to benefit from the structural supply/demand imbalance, due to muted supply growth with secular demand tailwinds underpinned by aging demographics. Welltower recently changed its compensation structure to be even more aligned with the long-term shareholders of the company. CEO Shankh Mitra described this best during the company’s recent earnings call: “As Charlie (Munger) would constantly tell us, show me the incentives and I'll show you the outcome. Following years of deep structural changes in this area, I'm delighted to inform you that my utopian idea of everyone swimming or sinking together is finally taking shape, an ecosystem of internal and external participants where everybody is fully aligned and everybody is all in. “…the changes that are taking place in three distinct steps to achieve the same goal of alignment and ownership. One, elimination of compensation for Welltower management and making them owners through performance-oriented Welltower stock. Two, introduction of RIDEA 6.0 construct where the operator wealth creation is now irrevocably tied to Welltower stock. And three, a $10-million annual grant for site-level employees for the 10 best performing senior housing communities, also in Welltower stock. “All of them capture the five key tenets of the incentive design that we have previously laid out to you. Simple, significant, non-gameable, earned as a team, and duration matched with the immediacy of a role's impact. 10 years to forever for Welltower management, 5 to 7 years for operating partners, and 1 year for site-level employees.”

BSD Analysis:
Welltower Inc. enters 2026 as a premier leader in the senior housing sector, benefiting from the structural "silver tsunami" that is driving unprecedented demand for senior living facilities. The company is successfully optimizing its portfolio through strategic acquisitions of high-quality, modern assets that cater to the affluent aging demographic. For 2026, the investment case is anchored by a significant improvement in occupancy rates and the firm’s ability to drive rent growth above inflationary levels. Management’s focus on its "Senior Housing Operating Portfolio" (SHOP) is delivering superior margins as labor costs begin to stabilize across the healthcare sector. While rising interest rates have historically pressured REIT valuations, Welltower’s strong balance sheet and investment-grade rating provide a significant cushion. Analysts project consistent growth in funds from operations, supported by a multi-billion dollar development pipeline. For 2026, Welltower remains a top-tier pick for investors seeking defensive, long-term exposure to the aging US population.

Pitch Summary:
We also added to our position in Danaher Corporation. Danaher supplies life science tools for lab research, genomics, and bioprocessing/drug manufacturing. It also offers instruments to run clinical diagnostics in large core labs, hospitals, and at the point of care. The stock has come under pressure in recent years along with the rest of the life science tools space due to several reasons: First, biotechnology funding had been constrained, and earlier-stage, discovery research had been under particular pressure. In addition, uncertainty around pharmaceutical tariffs and Most-Favored-Nation drug pricing had been a headwind for large pharmaceutical companies. Second, National Institutes of Health (NIH) funding has been another area of softness, given the priority of the current administration in cutting university grant funding. Finally, China has been a weak geography. For Danaher, their clinical diagnostics business has been subject to volume-based procurement, which is leading to pricing pressure in the region. We view these as cyclical factors that create an opportunity for long-term investors. Recently, we have seen green shoots emerge: • Pharmaceutical companies have announced heavy investments in domestic manufacturing in response to the Trump Administration’s push for reshoring, which opens up a large capital equipment purchasing opportunity. Given Danaher’s dominant positioning in multiple end markets, particularly their scaled bioprocessing portfolio, we believe the company stands to benefit from the upcoming capex cycle. Drug production is a highly regulated industry, and Danaher is a trusted brand that is spec’ed into production workflows. • On NIH, the latest outlays data has seen a rebound into the end of calendar year 2025, which is promising. Regardless, government/academic research is only a low single-digit percentage of Danaher’s business, so we believe Danaher is less exposed to fluctuations in NIH funding policy. • China has also began normalizing for Danaher within diagnostics. Beyond diagnostics, the life science market in China has been robust with new innovations that multinationals are licensing. We continue to see Danaher as a quality compounder with long-term revenue growth of high single digits, 40% operating profit fall-through, and double-digit EPS growth.

BSD Analysis:
Danaher is life sciences and diagnostics infrastructure engineered for long-cycle compounding, not quarter-to-quarter excitement. Its tools and consumables sit inside regulated workflows where uptime and reliability matter more than price. Funding cycles create revenue noise, but installed base demand never disappears. Investors fixate on near-term deceleration and miss how much recurring service and consumables revenue anchors cash flow. The Danaher Business System keeps margins structurally high through relentless execution, not financial engineering. Portfolio recycling steadily upgrades asset quality over time. Capital allocation favors returns, not empire building. This is scientific productivity monetized with discipline while sentiment chases shinier narratives.

Pitch Summary:
Our investments in Elevance Health, Inc. (“Elevance”) are instructive in this regard. We bought our first shares two years after United, when Covid-induced swings in healthcare utilization pressured its earnings. Elevance’s business initially performed well, aided by swelling government-funded rolls and subdued utilization, and the stock benefited from investor demand for perceived defensive healthcare names. Recognizing that valuations were on the high side of fair, we sold nearly half our holdings in 2022. The managed care industry then entered a period of fundamental stress as utilization surged and repricing lagged. Elevance’s shares declined approximately 3% in 2025 after a much larger drawdown the prior year. Both Elevance and United are now under-earning across most business lines. We believe Elevance is attractive at current levels and added modestly during the year.

BSD Analysis:
Elevance Health is navigating a period of margin pressure in 2026, with management projecting profits slightly below some Street estimates due to membership shifts. Despite recent post-earnings bounces, the company faces headwinds from a modest Medicare Advantage rate proposal that has dampened near-term investor sentiment. To counter these industry-wide challenges, Elevance is leaning on its integrated health care and benefit delivery model to stabilize its long-term outlook. Analysts suggest the stock could be a rebound candidate given its historically bullish technical signals and strong position in the managed-care market. The company’s strategic focus on government-sponsored programs and specialty health plans remains a core earnings driver. For 2026, the key for investors will be the firm’s ability to manage medical cost trends effectively while transitioning its Medicaid portfolio.

Pitch Summary:
Within the existing portfolio, our biggest addition during the quarter was to MSCI Inc., a leading provider of indexes and investment decision support tools. While the stock outperformed most of its information services peers in 2025, it lagged the broader markets due primarily to information services companies being perceived as potential AI losers. Specific to MSCI, the company reported steady financial results throughout the year, but did call out some lingering pressure in the asset manager end market (around half of MSCI’s total business) and so some investors are likely waiting to see a reacceleration in net new sales. From an AI perspective, we see MSCI as relatively well positioned with CEO Henry Fernandez recently saying that “AI is a godsend to us”. MSCI has vast amounts of proprietary data and analytics, and nearly everything MSCI sells to customers is proprietary in nature. The index business is further insulated by the nature of its benchmark status where it serves as a trusted common language for industry participants. MSCI should also benefit from AI through increased efficiencies in data collection, which will enable the company to both increase margins and invest more into new product development. We retain long-term conviction in MSCI and continue to believe in their ability to compound growth for years to come. CEO Henry Fernandez is a strong leader who has shown his conviction in several ways: 1) the company repurchased over $1.5 billion of stock in 2025; 2) Henry has personally bought around $25 million of stock over the past year and a half; and 3) Henry has aligned the compensation structure of the company to be leveraged to stock performance, subscription run-rate growth, and net new sales. We believe that subscription growth has the potential to reaccelerate as the company has materially ramped up new product innovation efforts across the business (key areas of focus include private markets, custom indexes and climate), is being much more proactive in selling to non-asset manager client segments and recently called out early signs of improvement with asset managers.

BSD Analysis:
MSCI Inc. remains a dominant force in the 2026 investment ecosystem, benefiting from the continued shift toward passive management and ESG-driven capital flows. The company is successfully leveraging its proprietary data sets to launch next-generation AI and climate-themed indices, which are seeing rapid adoption among institutional asset managers. For 2026, the investment case is bolstered by high retention rates and a recurring revenue model that provides exceptionally high earnings visibility. Management’s focus on "Custom Indexing" and private asset analytics is opening up a new, high-margin growth channel beyond traditional market-cap-weighted benchmarks. While market volatility can impact asset-based fees, the firm’s disciplined cost management ensures that margins remain among the highest in the financial services sector. Financial results are expected to show consistent double-digit growth in adjusted earnings per share, supported by a robust share repurchase program. For investors, MSCI represents a high-quality "toll-booth" play on the global institutional investment industry.

Pitch Summary:
Our investments in UnitedHealth Group Inc. (“United”) are instructive in this regard. We initiated the position opportunistically, capitalizing on a 2019 share price swoon precipitated by “Medicare for All” fears during the runup to the 2020 presidential election. United’s business performed well out of the gates, bolstered by Covid-induced swelling of government-funded healthcare rolls combined with subdued utilization. We recognized that the pleasing results during Covid had not changed our assessment of fundamental value and that valuations were on the high side of fair. Accordingly, we sold almost half of our shareholdings over the course of 2022. As it turned out, the managed care industry then entered a multi-year period of significant fundamental pain driven by rising and volatile utilization. United’s shares declined by over 33% in 2025, making it the worst performing position in the portfolio. We continue to believe United plays an essential role in the healthcare system and may prove attractive over the long term despite elevated policy risk.

BSD Analysis:
UnitedHealth Group offers a robust 2026 outlook with a forecast for earnings per share of at least $17.75, driven by improved margins and strong contributions from Optum Rx. While total revenue may face slight headwinds compared to 2025, the company’s health benefits business continues to cater to nearly 50 million people. Elevated medical costs and lower-than-expected Medicare Advantage rate increases from regulators remain the primary watchpoints for the current cycle. However, the firm’s massive cash position of over $28 billion provides the liquidity needed to navigate shifting risk-based membership trends. Management is focusing on operational productivity and Optum’s diverse service lines to offset rising medical care ratios. UnitedHealth remains a quintessential defensive giant, leveraging its unparalleled scale to manage the complexities of US healthcare.

Pitch Summary:
Shares of Microsoft Corporation fell 6.5% during the quarter while the stock returned 15.5% in 2025 overall. Management highlighted accelerating demand signals across bookings, remaining performance obligations, and product usage, but pointed to supply constraints extending at least through fiscal 2026. Microsoft reported slightly accelerating year-over-year constant currency revenue growth in fiscal first quarter, alongside stable gross margins and expanding operating margins. The company ended the quarter with current remaining performance obligations (cRPO) of $157 billion, up 35% year-over-year, and expects cRPO to rise to roughly $167 billion in the second quarter. Assuming Microsoft’s recently announced $250 billion OpenAI agreement spans five years, it would add about $50 billion to cRPO, implying a potential balance of roughly $217 billion early next year. cRPO is a key forward-looking indicator of commercial revenue growth and now represents approximately 80% of total revenue. We are confident in the durability of Microsoft’s revenue growth profile, while the company’s strong operating expense discipline suggests there is additional room for margin expansion.

BSD Analysis:
Microsoft’s moat is institutional embedment at a scale no competitor can realistically unwind. Once Windows, Office, identity, and Azure are wired into enterprise workflows, switching becomes organizational trauma, not a procurement exercise. Azure doesn’t need to dominate cloud—it just needs to remain unavoidable for existing customers. AI strengthens the ecosystem but locks Microsoft into massive, ongoing capex commitments that raise the bar for returns. Bundling drives pricing power and retention while quietly inviting regulatory scrutiny. Execution has been unusually consistent, which is why even small slowdowns get punished. Margins hold because switching costs are behavioral and operational, not technical. The bull case is AI monetization layered across a captive enterprise base. Microsoft is dominance monetized patiently—not disruption monetized loudly.

Pitch Summary:
As for Alphabet, we had real concerns entering 2025. The company was facing potentially significant antitrust action as well as the most serious competitive threat ever to its vaunted search business in the form of generative AI. We were right to be concerned, and we had a robust debate as to whether the widening range of outcomes justified, at a minimum, a significant trimming of this longstanding and highly rewarding investment. The logic for such a move was eminently reasonable and perhaps even “intelligent.” Instead, we decided to stand pat, because our discomfort was balanced by our appreciation for the fundamental strength of Alphabet’s various businesses and its full-stack AI capabilities, which we believed afforded the company significant scope to endure regulatory action and to respond to emerging competitive threats. Over the course of a few months in the second half of the year, Alphabet saw a US district judge issue remedies that were much milder than feared and released a new version of its Gemini large language model that quickly soared to the top of the AI leaderboards. As a bonus, the strategic value of Alphabet’s full-stack AI capabilities was highlighted by emerging demand for the company’s proprietary AI-specific processing chips, which it began to sell on third-party basis. These positive developments precipitated a swift and significant reappraisal of the company and its prospects. The shares more than doubled off their intra-year lows, and finished 2025 up by nearly 65%. During the fourth quarter, we trimmed our position modestly on account of the weighting and the valuation.

BSD Analysis:
Alphabet is still one of the greatest cash-generating machines ever built, but AI has turned its core business from autopilot into active management. Search dominance remains overwhelming, yet the shift from links to answers quietly threatens ad density even if users never leave. The real moat is distribution—Chrome, Android, YouTube, default placement—not who tops the latest model leaderboard. Cloud adds strategic relevance and optionality, but it drags capital intensity and muddies margin optics. Regulation acts as a slow, permanent tax on valuation rather than an existential threat. Buybacks smooth EPS but don’t resolve the underlying monetization transition. Optionality across YouTube, AI tools, and platforms is real, but unevenly captured. The bull case is AI layered onto scale without cannibalizing intent-based ads. Alphabet wins only if it evolves without breaking the engine that funds everything else.

Pitch Summary:
CoStar Group, Inc. is the leading provider of information and marketing services to the commercial and residential real estate industries. Shares fell 20.4% in the fourth quarter (and down 6.1% for the year) as the company’s net new sales came in below expectations. The stock has been weighed down by significant growth investment in CoStar’s residential product, where sales performance has remained modest. That said, we are encouraged by improving momentum as the company builds out its dedicated residential sales force, enhances its customer targeting, and potentially benefits from changes in Multiple Listing Service practices. We also expect growth in CoStar’s non-residential business to accelerate as sales productivity ramps and the sales team refocuses on core offerings, a trend likely to be amplified by 20% sales force growth in 2025 alone. We believe the value of CoStar’s core non-residential business exceeds the current share price of the stock, suggesting that investors are ascribing little value to the long-term residential opportunity.

BSD Analysis:
CoStar Group enters 2026 with a bold strategic shift, recently announcing a $1.5 billion share repurchase program and a planned $300 million reduction in net investment for its Homes.com platform. Management projects 2026 revenue to reach approximately $3.8 billion, representing a significant 18% increase over 2025 targets. The company is successfully transitioning from its heavy investment phase to a focus on margin expansion, with adjusted EBITDA expected to surge by 83% to nearly $800 million. While the stock currently trades at a high earnings multiple, its core commercial real estate data business continues to deliver industry-leading EBITDA margins of 47%. Analysts maintain a "Buy" rating, pointing to low double-digit organic revenue growth and improved absorption in the U.S. office market as primary catalysts. For 2026, the focus will be on the company’s ability to achieve its medium-term goal of $1.25 billion in adjusted EBITDA by 2028.

Pitch Summary:
Meta Platforms, Inc., the world’s largest social network, detracted from performance as shares declined 10.0% during the quarter, though still finished 2025 up 13.1%. While Meta reported strong quarterly results with 25% revenue growth (year-on-year in constant currency) and 40% operating margins (both above expectations) and provided solid forward revenue guidance, 2026 capital and operating expenditures guidance was above Street expectations, raising concerns that it may be overspending on AI for less certain returns relative to competitors. While hyperscalers have an existing cloud business, through which they rent out GPUs and can therefore generate a short-term return on their AI spend, Meta doesn’t have a cloud business and so its investment profile is longer duration in nature. Still, we believe Meta continues to benefit from its AI investments across the core business, making improvements in content recommendations (with rising time spent) and in ad targeting and ranking (leading to higher conversions and better return on ad spend). Our industry checks also validate strong advertiser adoption and satisfaction, including in newer areas such as easy-to-use AI creative tools and business messaging. We believe Meta will begin to realize returns from its AI investment or rationalize spending over time. Longer term, Meta’s leadership in mobile advertising, massive user base, innovative culture, leading generative AI research and distribution, and technological scale position it well for continued performance, with additional monetization opportunities ahead in areas such as smart glasses and commerce.

BSD Analysis:
Meta’s moat is attention at planetary scale, reinforced by data, targeting, and ad tooling competitors still struggle to match. Engagement across Facebook, Instagram, and WhatsApp remains resilient despite constant predictions of decline. Advertising economics are strong because Meta controls both demand discovery and measurement loops. AI has materially improved ad efficiency, directly supporting margin recovery. The weak spot is capital allocation—Reality Labs is a costly option with uncertain payoff. Regulatory pressure is permanent, but so far it has taxed valuation more than cash flow. Pricing power exists through ad load and performance, not user fees. The bull case is sustained ad growth with AI-driven efficiency and restrained spending. Meta works best when it remembers that ads—not ambition—are the business.

Pitch Summary:
The situations with Rolls-Royce Holdings PLC (“Rolls-Royce”) this past year are instructive in this regard. As noted in last year’s letter, we held firm and in fact added to our position, when Rolls-Royce’s business ground to a halt during the pandemic and its share price cratered by over 80%. Fast forward to the end of 2024 and the stock was up seventeen-fold from the bottom and had become the Fund’s single largest holding. At that point, we seriously considered significantly reducing the position and taking our ample profits. Such a move would have been understandable and in some legitimate sense “intelligent.” However, our updated analysis of the business fundamentals, which we deemed to have improved noticeably versus pre-Covid, led us to conclude that Rolls-Royce remained attractively priced even at a richer nominal valuation. Over the course of 2025, the business continued to make forward progress, in fact more than we had expected. Investor sentiment also improved noticeably. By the time the fourth quarter rolled around, the shares were up over 100% for the year. At that point, we trimmed the position modestly on account of the weighting and the valuation.

BSD Analysis:
Rolls-Royce enters 2026 following a massive turnaround, with return on equity forecast to reach an extraordinary 84% over the next three years. Although annual earnings may show some technical declines due to one-time adjustments, the company’s revenue growth of nearly 7% is expected to outpace the broader aerospace industry. Analysts have consistently raised price targets as the firm exceeds expectations in its civil aerospace and defense segments. High growth in long-term service agreements (LTSAs) and successful contract renegotiations have significantly improved the company’s capital structure and cash generation. While the stock is currently viewed as trading near its fair value, its operational momentum suggests continued outperformance relative to the UK market. Rolls-Royce has successfully transitioned from a troubled legacy manufacturer into a leaner, high-performance engineering powerhouse.

Pitch Summary:
It is important to understand that this culture is not unique to technology companies. Arch Capital, the leading property and casualty insurance company, is a great example of a company and a culture built on its ability to adapt to change. While operating in a highly cyclical industry, Arch’s strategy has been to act anti-cyclically, providing capital and underwriting business when conditions are tight and others would not. When capital is widely available and prices do not adequately represent the risks, Arch would pull back and allow its market share to fall rather than underwrite questionable or unprofitable business. By zigging when others zag, constantly adapting to the changing environment and operating as long-term owners of the business, Arch has built an incredible track record of capital allocation and has proven itself to be a great steward of shareholder capital.

BSD Analysis:
Arch Capital Group enters 2026 with a "Hold" consensus rating, as analysts balance its robust growth against potential headwinds in property premiums and underwriting income. The company has demonstrated impressive top-line performance following the acquisition of Allianz's US MidCorp business, which has successfully bolstered its insurance segment. For 2026, the reinsurance unit remains the group’s largest segment, benefiting from favorable market conditions that have seen gross written premiums grow from $1.9 billion in 2018 to over $11 billion recently. While rising global yields are boosting net investment income, concerns remain regarding a potential 25% decline in underwriting income as pricing competition intensifies. Management is focusing on maintaining its book value, which is projected to reach approximately $75 per share by late 2027. Despite these pressures, the firm’s strong operational earnings and capital generation provide a resilient foundation. For 2026, Arch represents a stable, albeit maturing, choice within the global specialty insurance market.

Pitch Summary:
Since the ChatGPT moment in late 2022, NVIDIA’s stock has been a monster. Its attractiveness, or at least the extraordinary opportunity set as a primary beneficiary of the AI buildout, was immediately apparent to investors even without the benefit of hindsight. Almost simultaneously, the fortunes of Alphabet, the parent company of search leader Google, went in the opposite direction. The bear case was just as easy to grasp – the AI world will likely be dominated by Large Language Models (LLMs) such as ChatGPT, and Google with its near monopoly position in legacy search had the most to lose. This narrative was further reinforced by the seemingly insurmountable lead built by OpenAI, and the innovators’ dilemma confronting Google’s search – a highly profitable business that had to adapt to the AI disruption and required significant changes and massive upfront investments. While investor optimism drove NVIDIA’s shares to unprecedented returns, Alphabet’s stock languished to a point where its valuation dropped to historical lows of 20% below the S&P 500 Index (based on the next-twelve-months P/E multiple) in the second quarter of this year. But here is the thing... you know what else happened in late 2022 after the release of ChatGPT, albeit to much less fanfare? Sergei Brin, one of the two co-founders of Google, returned to the company full time to begin work on Gemini, Google’s own LLM. By early 2025 Brin’s AI team was known for 60-hour in office work weeks and the margin pressure caused by the company’s accelerated investments in AI began to alleviate. By the time the company released its Gemini 3 family of AI products in the fall, the stock was in full recovery mode. Pushing the Pareto frontier on performance and cost of AI models, the number of Gemini monthly active users reached 650 million, closing the gap with ChatGPT’s 900 million, helping Alphabet fully regain its mojo. Not coincidentally, the growth in Google Cloud Platform, its cloud computing business accelerated, while Waymo continued to scale up its autonomous ride sharing platform. Though it took some time, the narrative had flipped and this $4.5 trillion market cap company finished the year with a 65.5% gain. Though the challenges were real, the company proved to be more adaptable to change than investors had realized. The Alphabet story is instructive and will contribute to our collection of “Lessons Learned” insights and perspectives from two different angles. First, perceptions and narratives have always influenced the short-term performance of stocks more than fundamentals, but the magnitude has changed. The rise of passive investing, which lacks a price-discovery mechanism (buying and selling indiscriminate of company-specific prices or fundamentals) combined with high frequency and algorithmic trading accounting for larger and larger shares of the trading volumes have made this phenomenon even more pronounced. When a company finds itself on the wrong side of the prevailing narrative, the impact on its stock price is often significant. In addition to Alphabet, we have experienced other stock price reactions that were downright violent. Broadcom lost 23% of its value over five days in December due to concerns that their customers could one day in-source their chip design. Monolithic Power declined almost 39% at one point in the first quarter on rumors that their products were designed out of NVIDIA’s Blackwell chip, and of course, NVIDIA itself, suffered a 25% pullback after a DeepSeek scare in late January. There were other examples. In most cases, our research and due diligence will lead us to either validate or disprove the prevailing narrative relatively quickly and we would take advantage of stock price dislocations where we can. But it can be quite jarring and disconcerting when it happens to your largest holdings. Second, we have often written about the importance of our businesses being able to adapt to disruptive change. We believe it will be even more critical in the age of AI. The stakes are much higher this time around as AI disruption is coming for ALL knowledge workers and that will be just the beginning. Most physical workers will also likely get disrupted (think autonomous cars, then humanoid robots). To survive, let alone to succeed, our companies must overcome innovators’ dilemmas, challenge conventional wisdom, embrace the disruption by making sure that decision makers on AI are NOT the same people whose jobs are on the line, and most importantly, be willing to invest aggressively and penalize short-term results. Those companies that cannot or will not – will be left behind. This requires having a certain culture. We believe that most companies we own have adopted a similar mindset. NVIDIA started out as a graphics-card supplier for gamers and has evolved into the leading platform for AI infrastructure. The company has been accelerating its innovation cycle at a breathtaking pace, compressing it to an annual cadence by moving to extreme co-design where it designs half a dozen chips simultaneously from networking to CPUs, GPUs, racks, and full AI data centers, while continuously challenging its pre-existing beliefs. At the same time, the company focuses on remaining true to its unique characteristics – a focus on the ecosystem, investing for the long term and solving hard problems that others cannot. NVIDIA’s Co-Founder and CEO, Jensen Huang, described it best in the company’s recent presentation to investors at the CES: “We like to solve insanely hard problems we are uniquely positioned to solve… I like these things that take a long time, but when you finally get there, it's very likely you'll be quite alone… NVIDIA is powering just about every quantum computer in the world and everybody goes 'zero, zero, zero.' “Models change all the time… that's why NVIDIA is the right answer - because we're flexible… versatile… You have finite power... Have to utilize that finite power for the overall consumption of the data center. And the more flexible it is, the better it is… We are constantly trying to come up with a new way to do better… I'm trying to disrupt myself all the time".

BSD Analysis:
NVIDIA is no longer just a chip company — it’s the operating system of the AI economy. GPUs are the visible product, but CUDA, software libraries, and developer lock-in are the real moat. Demand isn’t being pulled forward; it’s being structurally rewritten as compute becomes the bottleneck of modern business. Investors argue about valuation while hyperscalers argue about allocation. Competition exists on slides, not in deployed production workloads at scale. Margins reflect monopoly-like positioning at the frontier of performance, not cyclical semiconductor pricing. Capital-light economics turn revenue growth directly into free cash flow. This is infrastructure pricing power masquerading as a tech stock, and the market still underestimates how hard it is to dislodge once embedded.

Pitch Summary:
During the quarter, we initiated a new position in Quanta Services, Inc., a leading specialty contracting company that provides comprehensive engineering, procurement, construction and repair, and maintenance services for electric and gas utilities, renewable energy projects, telecom projects, and other types of infrastructure. We invested in Quanta due to the company’s world-class track record, compounding revenues and EPS at 14% and 18% CAGR over the last 15 years, respectively. What makes this even more impressive is that Quanta has achieved that result in a relatively flat electric load environment driven by material market share gains. Going forward, we believe that Quanta will increasingly benefit from secular growth tailwinds for energy-related infrastructure. We also like the company’s leading competitive position, which is derived from its reputation and experience completing large-scale infrastructure projects and its ability to utilize its 68,000 person craft-skilled labor force to self-perform projects, ensuring they are completed on-time and on-budget. We believe Quanta can reliably grow its earnings at a mid-teens cadence or better for the foreseeable future and that the company has the right management team in place to execute on the opportunity in front of it.

BSD Analysis:
Quanta Services enters 2026 as the primary architect of the North American energy transition, benefiting from an unprecedented multi-decade cycle of electrical grid modernization. The company is seeing record-level demand for its specialized utility and renewable energy services, driven by the massive power requirements of AI data centers and the global push for home electrification. For 2026, the investment case is bolstered by a multi-billion dollar backlog that provides high visibility into long-term earnings growth. Management’s focus on maintaining a specialized, highly skilled workforce serves as a significant barrier to entry for smaller competitors. While the firm is sensitive to federal infrastructure spending, the bipartisan nature of energy security provides a resilient floor for performance. Financial results are expected to show continued margin expansion as Quanta leverages its scale to improve operational productivity. For investors, the stock remains a premier "picks-and-shovels" play for the modernization of the global power grid.

Pitch Summary:
Broadcom Inc. is a leading fabless semiconductor and enterprise software company, generating approximately 60% of revenue from semiconductors and 40% from software. The company is strategically positioned at the intersection of high-performance AI compute and networking infrastructure, while also demonstrating disciplined execution in software. Broadcom has extended its leadership in merchant networking silicon from the cloud era into the AI era and is regarded as the most reliable silicon partner for AI foundational model builders designing custom chips to train frontier models. Shares rose 5.0% in the fourth quarter, ending 2025 up 50.6%, driven by strong momentum in AI, with key customer Google continuing to ramp and additional large customers entering significant volume production. The company ended its fiscal 2025 with AI revenue growth of 65%, which reached $20 billion (nearly one-third of total revenues), with quarterly AI revenues up 10x in the last 11 quarters. Broadcom also announced overall AI backlog of $73 billion, which is almost half of the company’s total backlog of $162 billion. It now has 5 XPU customers, including Anthropic which was announced in the last quarter. Despite the robust growth, Broadcom guided AI revenues to further accelerate in fiscal year 2026. In addition, VMware integration progresses and the non-AI semiconductor businesses appear to be bottoming, which has driven overall company growth to 24% in fiscal year 2025 with 67% EBITDA margins. We believe that Broadcom’s growth runway is long as an enabler of a full-stack solution as demand is expected to remain durable for years to come underpinned by the AI infrastructure build-out.

BSD Analysis:
Broadcom Inc. remains a cornerstone of the 2026 AI infrastructure market, maintaining its status as one of the world’s most profitable semiconductor companies with a projected EBITDA margin of 67%. The company is seeing record demand for its custom AI accelerators and networking solutions, with its AI-related order backlog reaching a staggering $73 billion over the next 18 months. For Q1 of fiscal 2026, management expects revenue to rise to $19.1 billion, driven by a projected $8.2 billion in AI chip sales alone. While the firm faces risks from high customer concentration, its dominant position in high-end networking for hyperscalers provides a formidable competitive moat. Financial performance remains elite, with recent results showing a 307% jump in EPS and a significant increase in the quarterly dividend to 0.65 USD. Analysts overwhelmingly maintain a "Strong Buy" rating, with top-tier price targets approaching $535 per share. For investors, Broadcom offers a unique combination of explosive AI growth and a disciplined, shareholder-friendly capital return policy.

Pitch Summary:
Align Technology, Inc. (“Align”) is the company behind the Invisalign clear aligner orthodontic system. After years of rapid growth, the business has stagnated since 2021 due to post-pandemic normalization, weaker dental traffic, and increased competition following patent expirations. Despite these headwinds, Align remains the clear global leader with a comprehensive orthodontic ecosystem spanning software, manufacturing, logistics, and brand demand. Clear aligners remain structurally underpenetrated globally across both adult and teen markets. We purchased shares at a low-to-mid-teens multiple of forward earnings, which we believe reflects overly pessimistic assumptions about long-term growth and competitive erosion.

BSD Analysis:
Align Technology is focused on a recovery narrative for 2026, with analysts projecting an 11% upside as the dental market stabilizes. The company maintains an industry-leading 64% gross margin and continues to innovate within its Invisalign system to address more complex skeletal corrections. While EPS growth has seen historical volatility, the expansion of digital dentistry and the "Smiles4Canada" program highlight its long-term brand-building efforts. Management is preparing to announce fiscal results that Wall Street expects will show renewed earnings momentum and improved operating margins. Despite a high P/E ratio, the company’s role as the dominant innovator in clear aligner therapy provides a significant barrier to entry for lower-cost competitors. Investors are keeping a close watch on consumer discretionary spending as the primary determinant for the pace of Align’s 2026 expansion.

Pitch Summary:
Semiconductor giant Taiwan Semiconductor Manufacturing Company Limited (TSMC) contributed to performance during the quarter with shares up 9.0%, and up 55.5% in 2025, driven by robust demand for AI chips. After reporting its most recent quarterly results, TSMC raised its 2025 revenue growth guidance from “close to mid-20s%” year-on-year in the first quarter to “around 30%” in the second, and now to “close to mid-30s%” (in USD terms) as “AI demand continues to be very strong, even stronger than we thought three months ago”. We believe that TSMC’s competitive position in leading-edge semiconductor manufacturing remains unmatched with a 90% market share (and 65% overall). TSMC’s unique positioning in the market is underlined by the company’s ability to raise prices as demand for its next generation nodes continues to be robust. We also believe that TSMC will benefit from a long duration of growth underpinned by the AI buildout. Note that TSMC will benefit regardless of the ultimate market share split between NVIDIA, Advanced Micro Devices, OpenAI, or Anthropic and whether ASICs would garner any significant market share. It’s the ultimate picks and shovels supplier to AI.

BSD Analysis:
TSMC’s moat is manufacturing capability so advanced that customers default to it rather than choose it. At the leading edge, there is no real alternative at scale, which is monopoly physics disguised as competition. Capex is enormous and unavoidable—skipping it would be strategic suicide. Cycles punish earnings, not relevance. Pricing power flows from scarcity and switching impossibility, not negotiation. The real risk is geopolitical concentration, not customer churn or technology leapfrogging. Customers accept margin sharing because failure isn’t an option. The bull case is AI and advanced compute locking in capacity for years. TSMC is a strategic asset masquerading as a cyclical stock.

Pitch Summary:
Accenture Plc (“Accenture”) is the market leader in information technology services, providing strategic advice, systems implementation, IT outsourcing, and business process outsourcing to Global 2000 enterprises. The stock declined sharply in 2025 as investors feared that generative AI would disrupt the IT services model. Our research suggests these fears are overstated, as enterprise customers remain deeply dependent on Accenture’s scale, domain expertise, and execution capabilities. Generative AI is more likely to reshape workflows than eliminate demand, and Accenture is positioned to be a key implementation partner. We purchased shares at a mid-teens multiple of forward earnings, which we believe undervalues the company’s durability and adaptability.

BSD Analysis:
Accenture enters 2026 as a primary "enabler" of the global AI boom, with advanced AI-related bookings recently reaching record milestones. The company has successfully embedded generative AI across its entire service portfolio, allowing it to capture a massive share of enterprise digital transformation budgets. Management plans to return nearly $9.3 billion to shareholders this year through aggressive buybacks and dividend increases, reflecting high confidence in free cash flow. While broader consulting demand can be sensitive to macro shifts, Accenture’s shift toward outcome-based commercial models is enhancing its competitive moat. The firm is also seeing significant growth in data center consulting as clients struggle to build the infrastructure required for large-scale AI workloads. With a clear path to double-digit earnings growth, Accenture remains a cornerstone holding for the modern digital economy.