– Andrew Macken & Chris Demasi
In starting the new year, we thought we’d take a step back and consider from first principles some of the prevailing questions on equity markets from 2024: Are valuations too high? Are markets heading for a correction? Or should investors stay the course?
We answered those questions in our new whitepaper: Unveiling Hidden Value: How 3 Distortions Mask the True Worth of ‘Advantaged’ Stocks. In the paper we look at how several distortions have made company earnings and valuations appear overvalued. And we show that when you remove those distortions, many of today’s advantaged businesses – including those owned by Montaka – are less expensive than they first appear, a conclusion that helps make us optimistic for 2025 and beyond.
Speaking of 2025, the year is already off to an interesting start and volatility has returned to markets.
President Trump has been inaugurated (again) and wasted no time in signing many tens of executive orders impacting everything from trade, to immigration, to the US public sector, and, of course, international relations.
And it wasn’t just the political sphere that was causing markets to move in January. The tech sector lost around US$1 trillion in value in a single day following Chinese AI lab, DeepSeek, surprising the world with very low cost, open-source, AI models. These models are reportedly comparable in ‘intelligence and reasoning’ with leading models from the likes of OpenAI, Anthropic, and Meta – but with a ‘cost to serve’ (the total cost of delivering an AI service to customers) that is around 20-40x cheaper.
Andy and Amit discuss the implications of DeepSeek’s breakthrough in this month’s Spotlight Series podcast: Investors in a Game of Hide & DeepSeek. As we see it, DeepSeek is a fantastic development for competitively advantaged software application platforms with entrenched customers and huge privileged knowledge sets. Businesses like ServiceNow, Salesforce, and the three major hyperscalers (Amazon, Microsoft, and Alphabet) come to mind as beneficiaries in the enterprise space. While businesses like Meta and Spotify stand to benefit in the consumer space.
On the day DeepSeek wreaked havoc on global markets, chip makers were amongst the biggest decliners – including businesses like NVIDIA and TSMC. Some investors were nervous that future demand for AI chips could well be overstated if requirements for ‘compute’ (the hardware needed to power AI) were much lower than previously expected. Other investors pushed back on this narrative and argued that very-low-cost AI would trigger an explosion in demand which would ultimately require even more AI chips than previously expected.
In our view, from the perspective of our advantaged application platforms described above, the former scenario would be great (because compute costs would be lower and profit margins higher), while the latter scenario would be extremely great (because demand would be so outsized)!
As always, we caution investors on becoming unnerved by the daily gyrations of equity markets. These are typically fueled by captivating narratives that tend to overweight the present and underweight the future. As Andy illustrates in The Tyranny of the Narrative: Why Long-Term Investors Should Ignore the Headlines, the narrative of 2022 was essentially to ‘buy oil and sell Amazon’. And yet, just three years later, that popular narrative (at the time) has not served investors particularly well.
We continue to believe that strong and strengthening business advantages, purchased at reasonable prices, will drive long-term earnings and ultimate value for shareholders.
Sincerely,
Andrew Macken & Chris Demasi
Podcast: Join the Montaka Global Investments team on Spotify as we share real-time examples and investing tips that govern our stockpicks. Click below to listen. Alternatively, click on this link: https://podcasters.spotify.com/pod/show/montaka
Note: Montaka is invested in ServiceNow & Salesforce.
Andrew Macken is the Chief Investment Officer & Chris Demasi is the Portfolio Manager at Montaka Global Investments.
Update from the PMs – February 2025
– Andrew Macken & Chris Demasi
In starting the new year, we thought we’d take a step back and consider from first principles some of the prevailing questions on equity markets from 2024: Are valuations too high? Are markets heading for a correction? Or should investors stay the course?
We answered those questions in our new whitepaper: Unveiling Hidden Value: How 3 Distortions Mask the True Worth of ‘Advantaged’ Stocks. In the paper we look at how several distortions have made company earnings and valuations appear overvalued. And we show that when you remove those distortions, many of today’s advantaged businesses – including those owned by Montaka – are less expensive than they first appear, a conclusion that helps make us optimistic for 2025 and beyond.
Speaking of 2025, the year is already off to an interesting start and volatility has returned to markets.
President Trump has been inaugurated (again) and wasted no time in signing many tens of executive orders impacting everything from trade, to immigration, to the US public sector, and, of course, international relations.
And it wasn’t just the political sphere that was causing markets to move in January. The tech sector lost around US$1 trillion in value in a single day following Chinese AI lab, DeepSeek, surprising the world with very low cost, open-source, AI models. These models are reportedly comparable in ‘intelligence and reasoning’ with leading models from the likes of OpenAI, Anthropic, and Meta – but with a ‘cost to serve’ (the total cost of delivering an AI service to customers) that is around 20-40x cheaper.
Andy and Amit discuss the implications of DeepSeek’s breakthrough in this month’s Spotlight Series podcast: Investors in a Game of Hide & DeepSeek. As we see it, DeepSeek is a fantastic development for competitively advantaged software application platforms with entrenched customers and huge privileged knowledge sets. Businesses like ServiceNow, Salesforce, and the three major hyperscalers (Amazon, Microsoft, and Alphabet) come to mind as beneficiaries in the enterprise space. While businesses like Meta and Spotify stand to benefit in the consumer space.
On the day DeepSeek wreaked havoc on global markets, chip makers were amongst the biggest decliners – including businesses like NVIDIA and TSMC. Some investors were nervous that future demand for AI chips could well be overstated if requirements for ‘compute’ (the hardware needed to power AI) were much lower than previously expected. Other investors pushed back on this narrative and argued that very-low-cost AI would trigger an explosion in demand which would ultimately require even more AI chips than previously expected.
In our view, from the perspective of our advantaged application platforms described above, the former scenario would be great (because compute costs would be lower and profit margins higher), while the latter scenario would be extremely great (because demand would be so outsized)!
As always, we caution investors on becoming unnerved by the daily gyrations of equity markets. These are typically fueled by captivating narratives that tend to overweight the present and underweight the future. As Andy illustrates in The Tyranny of the Narrative: Why Long-Term Investors Should Ignore the Headlines, the narrative of 2022 was essentially to ‘buy oil and sell Amazon’. And yet, just three years later, that popular narrative (at the time) has not served investors particularly well.
We continue to believe that strong and strengthening business advantages, purchased at reasonable prices, will drive long-term earnings and ultimate value for shareholders.
Sincerely,
Andrew Macken & Chris Demasi
Podcast: Join the Montaka Global Investments team on Spotify as we share real-time examples and investing tips that govern our stockpicks. Click below to listen. Alternatively, click on this link: https://podcasters.spotify.com/pod/show/montaka
Note: Montaka is invested in ServiceNow & Salesforce.
Related Insight
Share
Get insights delivered to your inbox including articles, podcasts and videos from the global equities world.