The month of May was a little more eventful than usual – and not just because a New York jury found a former US President guilty of felony charges. Global equity and bond markets experienced some volatility, primarily led by the off-again/on-again fears of sticky inflation and higher interest rates.
In enterprise software, a space we follow closely because of its large long-term opportunity to unlock productivity and value for organizations of all shapes and sizes around the world, we observed some sharp stock price moves.
For example, Salesforce, the world leader in customer relationship management software, grew its near-term backlog of business by ‘only’ 10%, rather than the market’s expectation of 11%, and the stock sold off 20% in a day. The primary reason for the slight deceleration in growth was near-term macroeconomic weakness within customers. This, of course, is short-term and cyclical, and largely unrelated to the far more important long-term opportunity Salesforce has in leveraging AI to deliver substantial value to its customers, in our view.
But therein lies the rub. The opportunity we see (and they see) in AI is enormous longer-term, however, remains in its infancy today. Customers are in the very early stages of experimenting, reorganizing their data estates, and architecting their paths forward. Revenues generated by the likes of Salesforce, and others, today have negligible contributions from AI. But this will change over time – and this is what investors should keep in mind. (Perhaps jittery investors came around to this view 24 hours later when Salesforce’s stock made up nearly half its loss from the prior day).
This month in ‘Why Amazon’s portfolio of ‘flywheels’ could make it a ‘repeat’ multi-bagger’, Chris explores the concept of ‘flywheel’ business models and explains why they are so powerful. Through this lens, one can start to understand why Amazon is one of Montaka’s largest investments. Amazon is essentially a big portfolio of many flywheels across several large, complementary businesses.
In ‘How we uncovered a little-known IBM spinoff gem: Kyndryl Holdings’, Andy takes us on a little treasure hunt to explain how Montaka’s investment team came across an unusual short-term investment opportunity in Kyndryl Holdings. While Kyndryl’s business looks very different to the businesses Montaka would usually seek to own, the extent of the market mispricing and near-term positive evolution we foresaw led us to add a small investment in Kyndryl to Montaka’s portfolio.
Finally in this month’s Spotlight Series podcast, Andy and Chris discuss the unusually high degree of stock market concentration – driven largely by the world’s largest technology platform businesses. Is this cause for concern? Andy and Chris explain why there are at least some strong arguments today for why such high market concentration might be justified.
Letter from the PMs – June 2024
– Andrew Macken & Chris Demasi
The month of May was a little more eventful than usual – and not just because a New York jury found a former US President guilty of felony charges. Global equity and bond markets experienced some volatility, primarily led by the off-again/on-again fears of sticky inflation and higher interest rates.
In enterprise software, a space we follow closely because of its large long-term opportunity to unlock productivity and value for organizations of all shapes and sizes around the world, we observed some sharp stock price moves.
For example, Salesforce, the world leader in customer relationship management software, grew its near-term backlog of business by ‘only’ 10%, rather than the market’s expectation of 11%, and the stock sold off 20% in a day. The primary reason for the slight deceleration in growth was near-term macroeconomic weakness within customers. This, of course, is short-term and cyclical, and largely unrelated to the far more important long-term opportunity Salesforce has in leveraging AI to deliver substantial value to its customers, in our view.
But therein lies the rub. The opportunity we see (and they see) in AI is enormous longer-term, however, remains in its infancy today. Customers are in the very early stages of experimenting, reorganizing their data estates, and architecting their paths forward. Revenues generated by the likes of Salesforce, and others, today have negligible contributions from AI. But this will change over time – and this is what investors should keep in mind. (Perhaps jittery investors came around to this view 24 hours later when Salesforce’s stock made up nearly half its loss from the prior day).
This month in ‘Why Amazon’s portfolio of ‘flywheels’ could make it a ‘repeat’ multi-bagger’, Chris explores the concept of ‘flywheel’ business models and explains why they are so powerful. Through this lens, one can start to understand why Amazon is one of Montaka’s largest investments. Amazon is essentially a big portfolio of many flywheels across several large, complementary businesses.
In ‘How we uncovered a little-known IBM spinoff gem: Kyndryl Holdings’, Andy takes us on a little treasure hunt to explain how Montaka’s investment team came across an unusual short-term investment opportunity in Kyndryl Holdings. While Kyndryl’s business looks very different to the businesses Montaka would usually seek to own, the extent of the market mispricing and near-term positive evolution we foresaw led us to add a small investment in Kyndryl to Montaka’s portfolio.
Finally in this month’s Spotlight Series podcast, Andy and Chris discuss the unusually high degree of stock market concentration – driven largely by the world’s largest technology platform businesses. Is this cause for concern? Andy and Chris explain why there are at least some strong arguments today for why such high market concentration might be justified.
Sincerely,
Andrew Macken & Chris Demasi
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