There is no vision
META and MSFT are running out of steam. Whats the endgame?
If you were to try to explain the 2019-2025 investing regime in simple terms from today’s vantage point - you would inevitably drift towards discussion of S-curves. This theory is so ubiquitous that every successful investor today feels obligated to anchor his success through this construct.
I am not saying that S-curves don’t exist. They clearly do. Enough literature documented them in details across hundreds of years of human history.
But I suspect that no one found a robust enough way to exploit them.
S-curve is a recurring mental model that describes technology (any technology, not just Internet or AI) adoption.
New technologies diffuse and improve along an S-curve with a slow start, steep middle where adoption compounds fast and plateau at the end.
The challenge for growth investors is to correctly identify where specific company or technology situated on this curve and estimate how high the curve can go.
And this is difficult.
Take recent SaaS blow-up. Where would you put Adobe on this S-curve? Or Salesforce? Top of the curve? What if you stick AI on top of them? Bottom? Who knows?
Whale Rock Capital - clearly one of the current top-performing investment funds that I track. But struggled to outperform in 2022-2023. Why? Here is a hint.
In recent interview Alexander Sacerdote mentions that in April 2022 they had 40-50% of their AUM in software. Sold almost all of it and switched to chips and AI. Performance radically improved since.
Forgive me. But if you drive your investing strategy with S-curves and dead-sure about where to put each company, wait for it to hit 50% of the curve then cash-out, then SaaS story is the cleanest example of how darn near impossible it is to use this tool effectively.
I have a better explanation of growth investing. It’s pure vibes.
And vibes shift.
Take any SaaS name now - vibe is way down. Many of SaaS stocks are now comfortably in the value-investing territory. But be aware of falling knifes.
NVDA, TSM, SPCX - vibe is way up. But anybody trying to place it on the S-curve anywhere other than bottom part - just ignore them. Its clear FOMO-landgrab-supply-restrained bs.
What is more exciting (for me) is the gray area where vibes are not way up or way down - it’s where vibes are off.
Want to guess who is in this vibes-are-off category?
Meta and Microsoft. What a couple.
Both are still richly priced and both are candidates for SaaS-like demotion into the value-land.
But why?
Both have been dabbling in models. Both are heavily investing in building data centers for inference. Both have a strong foothold on their respective feudal lands (smartphones and desktops).
But both clinically lack any sort of vision. Or at least failing to communicate it clearly.
Meta is already paying the price.
Backrunner universe shows consistent outflows in shares held since 2024 by top investors.
Conviction is flat since 2023. That means long-term holders are taking their profits elsewhere.
Thats not how growth looks.
Microsoft is in the same place.
Shares held - trending down.
Conviction is also trending down. There are many more long-term holders of MSFT than META, so there is a certain floor which will be supporting the stock price. But overall picture looks dim.
Q2 just ended and in 45 days we will have an updated view on how META and MSFT perform in terms of convincing investors they are worth buying at current valuations. I doubt we will see any progress.
Both are still above value-land, but are trending there.
Both are still stellar businesses.
But the vibes are off.
And no vibes - no growth.
And no promise of hopping on the next S-curve can help them.
The only thing that can salvage the situation - is a clear vision. But as of right now Zuck is much more convincing delivering his vision of perfect beef, rather than how Meta can keep growing on the exponential schedule.
42:00 timestamp - pure comedy gold.
I would much prefer the same attitude towards scaling the AI-challenge.
Don’t let FOMO eat you alive!
This is not an investment advice. Do your own research.