I’ve been watching Mark work on Meridian Holdings (MRDN) on X for a while now. The stock is down about 80% from where insiders effectively valued it in the 2024 merger. Since then, it’s gone through a reverse split, a CEO departure, and a full rebrand.

Mark hasn’t flinched. In fact, he’s been adding every week.

I know a lot of people will look at that and think he’s throwing good money after bad, but his argument is pretty simple: the company is fundamentally stronger than it was a year ago and the share price doesn’t reflect that.

He’s betting the execution catches up. Or, as he put it to me, he’ll look back at these prices as a gift... or he’ll be living down by the river.

That kind of conviction through that kind of pain/uncertainty is rare. Most people I come across can barely stay interested in a stock for more than a few months.

I don’t know MRDN as well as Mark does, but I’ve looked at it enough to find it interesting. It’s a profitable, insider-heavy gaming company trading at a fraction of its peers with some real catalysts ahead. But I haven’t done the deep work myself. Mark has. And I’ve looked at enough of his research to trust that he’s the right person to walk you through it.

What follows is entirely Mark’s work — his research, his position, his money on the line. I’m just giving him the space to lay it out. If you’d like to see more guest posts like this, let me know.

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Some recent work:

Meridian Holdings (Nasdaq: MRDN) — A Rare Asymmetric Opportunity With An Unusual Share Price To Valuation Disconnection

Meridian Holdings, after executing for decades, has become a high growth and international diversified gaming powerhouse with the necessary proprietary AI technology and synergistic acquisitions required to scale globally, increase revenue, and expand margins. They are a B2B and B2C industry leader with over 1200 employees, transforming the sports-betting and i-gaming industry with their omni-channel ecosystem made up of complimentary companies now reaching 20+ jurisdictions across five continents in regulated or supported markets.

Table of Contents

1. Story and Valuation

2. The Omni-Channel Ecosystem

3. Execution and Skin-In-The-Game

4. Profitability

5. Near-Term Catalysts

6. Global TAM

7. World Cup Brand Opportunity

8. A Long History of Execution and Profitability

9. Global Footprint, Moats, and Long-Term Sector Catalysts

10. Meridianbet’s AI Tech Advantage

11. Player Acquisition Cost Advantage

12. The Content Edge: Expanse Studios

13. Subsidiaries: RKings, MexPlay, and CFAC

14. Proven Leadership with Integrity

15. Risks

16. Disclosure

1.) Story and Valuation

In April of 2024, instead of selling their company to a larger operator, Meridianbet leadership chose to go public (Nasdaq) via a reverse merger with Golden Matrix Group. After years of negotiations they settled on a value of $330 million and accepted the majority of the acquisition compensation in shares at an approximate value of $35 per share (adjusted) demonstrating deep confidence in their ability to continue scaling into new markets, aligning themselves with shareholders, and backing up the CEO’s bold statement of “setting up for the next hundred years”.

Meridianbet and its subsidiary Expanse Studio’s value of $330 million, combined with Golden Matrix, GM-AG, RKings, and MexPlay’s value of $80 million equalled a combined value of $410 million.

This was before two of their more recent acquisitions, CFAC and Fairbet, as well as prior several new valuable licenses including a $6 million Federal Brazil Lic. Add in recent growth of all 6 subsidiaries with a projected annual revenue of nearly $200 million, combined with an industry rare .86 debt ratio with over $18 million in cash, and you have roughly a half billion dollar company valuation.

After the recent share price walked down to $6.88, the company market cap has dropped from nearly $500 mil to $86 million. In my opinion, this is a valuation disconnection that screams “undervalued”. A rare asymmetric set up. It is important to keep in mind, past dilution and debt were not operational but rather acquisition driven, the majority from the Meridianbet merger, to create the ability for growth in the sector for decades to come.

2.) The Omni-Channel Ecosystem

MRDN Holdings is not a one-trick-pony but an entire omni-channel ecosystem including:

Meridianbet: Its legendary flagship brand and a leading operator in 18+ regulated markets across Europe, Africa, and South America.

RKings & CFAC: Specialists in high-volume UK-based digital competitions and Australian trade promotion lotteries.

GMAG: A core B2B segment providing advanced iGaming platform solutions and “white label” solutions.

Expanse Studios: A top-tier proprietary game developer fueling growth with over 70 original titles and growing at over 400% annually.

MexPlay: A fully regulated online casino and sportsbook capturing the expanding Mexican market.

3.) Execution and Skin-In-The-Game

With a proven 27-year history of private execution, Meridianbet, along with its decentralized accretive subsidiaries, are now Nasdaq listed and operating with dedicated CEOs and founders who have meaningful skin-in-the-game (nearly 90%) creating multiple growing and diversified B2B and B2C revenue streams.

Meridian Holdings is built for the future of digital entertainment. With years of double digit growth, record revenues and an aggressive vision for expansion into Brazil and other high-growth territories, MRDN represents a uniquely positioned opportunity for investors seeking an established operator with cutting-edge technological advantages in an early and enduring sector driven by global industry tailwinds.

Consider:

• Consistent history of double digit growth

• Industry low 0.82 debt ratio with one-offs in the rear view

• Conservatively estimated to generate $210 - $220+ million in 2026

• 12.5 million OS shares x $6.88 = market cap of $86 million

• Trading under 0.4X revenue in a 2.5X+ average sector

• At 2.5X, MRDN would have a $500 million market cap — or ~$40/share — representing nearly 600% upside

Share Structure:

• 12.5 million OS shares

• ~90% insider ownership = 1.2 million shares remaining

• 4% institutional = ~700k retail shares

• Remove 2 top shareholders (~200k shares) = ~500k shares actually available

• A single large investor could buy the entire remaining float for under $4 million

In our current market, micro/small-caps are trading on sentiment and momentum rather than fundamentals. A single large investor could buy the entire remaining open float for under $4 million. That is not a huge investment. Whoever the first large investor is, they are certainly going to pay far less than the second, third, and following investors as Meridian Holdings keeps expanding and executing.

With such limited shares available, any visibility or discovery will likely cause MRDN share price to run-up quickly. Any substantial Brazil Market capture, profitability, or an earnings beat could trigger MRDN to re-rate and rip similar to RSI that ran $2 to $20 when they turned profitable after years of consolidation while executing.

With a half dozen decentralized subsidiaries operating in over 20 jurisdictions with multiple diverse B2B and B2C revenues streams and currencies, I won’t even begin to attempt to model a valuation based on DCF or rear view numbers as they can be reverse engineered and modeled to support any thesis.

I will point out the company and all its subsidiaries are growing, paying down the majority of acquisition debt, and after a long period of share price consolidation their disruptive tech is being adopted as the company turns profitable.

4.) Profitability

Meridian Holdings was actually profitable last quarter reporting record Q4 2025 revenue of $49.6 million, adjusted net income of $3.4 million or $0.29 per share, full-year 2025 revenue of $182.9 million, up 21% YoY and beating analyst expectations.

Their balance sheet loss was due to US GAAP principles that required Meridian Holdings to write off a huge 88.4 million “Goodwill” impairment due to their share price drop that decreased the companies market cap/valuation substantially on paper. This one time non-cash goodwill and intangible asset impairment charge is a non-cash accounting adjustment with zero impact on cash flow, operations, or debt covenants.

In short, the business was profitable on an adjusted/operational basis with record revenue and positive adjusted earnings, but the GAAP net loss and big negative EPS were driven almost 100% by that one-time non-cash goodwill write-down. This is a common situation in public companies when stock prices decline sharply and does not reflect underlying business performance.

Personally, I have never seen a fiscally responsible company that is growing, decreasing debt, and doing the right thing, not eventually reflect their execution in the share price.

5.) Near-Term Catalysts

Meridian Holdings has some major catalysts including being recently granted a coveted Federal Brazil Gaming license, the upcoming expanded FIFA World Cup, and the completion of rolling out their “Atlas” AI platform in all regions. They do not have the marketing money of the bigger companies for customer acquisition, but they now have the advantage of 5 accretive subsidiaries allowing them to begin cross-marketing and scaling into their newly licensed regions.

I anticipate steady “organic” growth and estimate they start showing considerable net profit beginning 2026 Q3/Q4 earnings after the 2026 FIFA World Cup exposure boosts their brand recognition. With any new Brazil market capture or subsidiary growth, we are looking at a realistic annual revenue of $220 - $250 mil with $10 - $20 mil net or an EPS of .80 - $1.60 within the next few years.

6.) Global TAM

It is worth noting many stock promotors in this sector quote an inflated global industry TAM of $200 billion or more to show the highest possible runway. A more realistic, company-specific serviceable addressable market (SAM) for Meridian Holdings is estimated at around $15 billion. Although this number is much lower, even capturing a small percent of Meridian Holding’s realistic regional TAM would be transformative.

With that said, it is worth noting that the 2026 World Cup wagering is projected to exceed $70 billion, roughly 3X the approximately $23 billion total US 2026 Super Bowl wagering.

With a 60% increase in matches this event is set to eclipse the Super Bowl betting handles by 200 - 300%, offering smaller firms a unique stage to capture a massive global audience & establish their brands in an industry-defining moment on a worldwide stage.

7.) World Cup Brand Opportunity

The FIFA World Cup presents a monumental revenue & branding opportunity for the online gaming companies that own and control their own high-performance AI tech.

Meridianbet is one of those companies with their 5th generation “Atlas” AI tech rolled out, as well as being one of less than one hundred operators able to obtain a full Federal Brazilian Gaming Lic allowing sports-betting, i-gaming as well as retail locations.

8.) A Long History of Execution and Profitability

Meridianbet was built over 25 yrs privately with zero borrowed money and profitable the majority of their history. Unheard of in the sector. As discussed earlier, they could have sold their company and exited with $330 million but they wanted Nasdaq traded GMGI shares at a value of approximately MRDN $36. After the close of the merger in April 2024 insiders continued to buy and convert shares, now owning nearly 90% of outstanding shares. IMO, there is no way they would keep acquiring shares if they were not confident they can and will continue to execute and grow.

Over a decade ago Meridianbet, wanting to control their own tech and not spend on outsourcing, took the more expensive and difficult route to hire programmers and create their own AI system, knowing it would allow them to capitalize on “micro” and “live” B2C betting, create their own B2B content. They saw the tech advantages of having the ability to personalize each player’s account and collect valuable data that would ultimately increase margins as well as help them to comply with vast regulatory and tax requirements.

9.) Global Footprint, Moats, and Long-Term Sector Catalysts

Meridian Holdings operates in over 20 countries with different currencies, languages, and regulations, processing between a handle of between $2 - $3 billion in annual bets. They have the advantage of a proprietary tech stack as well as a closed loop ecosystem that captures value at every stage. They own their sports-book. They own their odds setting engine. They own their risk management algorithms. They own their casino platform. They own their content. These advantages are rare and will allow them to scale without 3rd party costs, thus driving higher margins in the long run.

Meridian Holdings is an emerging player with multiple B2B/B2C rev stream diversity, a large regulatory and geographic moat in a rapidly growing sector, in an international market with outstanding CAGR of 12%-15%. MRDN has positioned themselves early, as governments globally are fast tracking legislation to obtain the tax revenue while internet access, 5G, and cell service buildout allow for a long runway of access to capture a massive TAM.

Meridian Holdings not only has a regulatory and geographic moat but it is positioned to scale faster due to its proprietary tech advantages. When investors hear a name like DraftKings they immediately think of the sheer size and massive revenue generated, however Meridianbet, as small as it is, actually has comparable AI tech and a sports betting engine that exceeds DraftKings and most others in sheer volume and global breadth of betting markets.

10.) Meridianbet’s AI Tech Advantage

Meridianbet offers over 11 million betting markets per month, pre-match + live/in-play across 20,000 events, covering 800+ leagues worldwide with a deep focus on lower-tier soccer, regional competitions, and niche sports. In contrast, DraftKings offers several thousand markets daily and concentrates primarily on major U.S. leagues and high-profile events.

Meridianbet benefits from a lower-cost player acquisition strategy through its hybrid omni-channel online platform plus nearly 740 retail “Betshops” creating organic traffic and physical presence in 15+ jurisdictions.

Meridianbet, unlike DraftKings, creates their own tech & B2B content, as well as owns multiple synergistic subsidiaries while operating 5 synergistic businesses that deliver revenue diversification and scalable cross-synergies.

In the US, DraftKings and FanDuel, at 80% of the market, are clearly “The Big Dogs”, but Meridianbet’s exceptional diversity, AI-powered personalization Bet Recommender + assistant, and more efficient model, gives Meridianbet a clear competitive advantage for sustained growth in international sports betting and iGaming markets outside the saturated U.S. market.

Globally Meridianbet’s disclosed volume puts it in the top tier for sheer number of events and markets. Bet365 is the only major operator consistently described as having equal or greater breadth across lower-tier and niche sports.

In Brazil, top players Betano, Bet365, and Sportingbet dominate market share and offer deep coverage of Brazilian leagues + major international soccer, but none publicly claim higher raw event counts than Meridianbet’s 20,000/month. Meridianbet’s strength in lower-tier, regional, and niche events gives it an edge for bettors seeking variety beyond the biggest matches.

This difference matters because Meridianbet’s model emphasizes extreme breadth + AI personalization across many smaller events, while larger Brazilian-focused operators prioritize depth/odds quality on high-traffic leagues where most betting volume occurs.

The bottom line is Meridianbet is already an early leader in publicly reported event volume and global diversity. In Brazil and other emerging regions they compete head-to-head with or exceed most peers on raw numbers of betting opportunities, especially outside the major European/U.S. leagues. Bet365 remains the primary global peer in overall market depth.

11.) Player Acquisition Cost Advantage

Meridian Holdings enjoys a significant player acquisition cost advantage that drives superior unit economics compared with industry giants. The CEOs have repeatedly highlighted that the company acquires customers at a fraction of the industry norm, approximately $2 per customer in its sweepstakes operations, $7.60 per player on the RKings and CFAC tournament platforms, with the core B2C sports-book and casino business also far below peer averages although no exact sports-betting/casino CAC number has been made public.

In contrast, larger U.S. operators like DraftKings routinely spend $300 - $1,000+ per player while generating only around $300 in lifetime value, resulting in negative economics for many new users. The much lower CAC for MRDN stems from its hybrid retail/online model in less-competitive emerging markets, proprietary AI-driven personalization, decades of proprietary player data, and efficient sweepstakes-style entry points, delivering strongly positive lifetime value and sustainable profitability where many larger peers continue to burn cash on customer growth. Meridian Holding’s CEO Milosevic has flatly stated “we will not operate in an area at a loss”.

A Starkly Different Player Acquisition Strategy

Meridian Holdings, under CEO Zoran Milosevic, takes a fundamentally different approach to player acquisition than U.S. giants like DraftKings and FanDuel. While the larger operators pour hundreds of millions, and often over $1 billion annually into high-cost celebrity endorsements, influencer campaigns, and blanket digital advertising to drive volume in saturated markets, MeridianBet builds brand recognition and customer trust organically by embedding itself in the communities it serves.

Through its deeply ingrained ESG/CSR philosophy, explicitly described by Zoran as “not a slogan, but how we operate at scale” the company has executed nearly 300 CSR initiatives across 25 markets in 2024 alone, focusing on sports, education, youth programs, healthcare, environmental projects, and responsible gaming. These efforts include customer-involved “Meridian Donate” campaigns, employee ambassadorship, partnerships with regional governments to promote safe and ethical regulations that actively help to reduce illegal and predatory black-market operators.

Complementing this grassroots strategy are its 740+ company and franchised retail “bet shops” across Europe, Africa, and Latin America, which provide tangible local presence and foster long-term loyalty at far lower acquisition costs than the big players’ promotional-heavy models. This culture-first philosophy, supporting both internal employees and external communities, not only differentiates MeridianBet but creates sustainable, trust-based growth that many larger operators simply cannot replicate.

12.) The Content Edge: Expanse Studios

Expanse Studios, Meridian Holdings content making company, lead by CEO Damian Stamenkovic is literally inking a new B2B partner every few days, topping 1,300 operators last year and shooting for 3000 this year. Now in over 20 countries with recent entrance into Romania, Peru, Africa, Sweden, Croatia, US, Brazil with Canada in the process. With 440% yoy growth they are doing it all: AI, Prediction Bets, Crash Games, Social Games, Casino Games, Sweepstakes Games, Mobil first, etc. In-house content creation as well as outsourcing possibilities will create new revenue streams and only expand margins.

13.) Subsidiaries: RKings, MexPlay, and CFAC

Meridian Holding’s subsidiary RKings Competitions in UK and now Ireland’s #1 competition, is led by founder Mark Weir and has doubled revenue since acquisition and is continuing to grow. Recent revenue came in at $35.1M and 25.2M ticket volume, up +137%.

Meridian Holding’s subsidiary MexPlay is its regulated online casino/sports-book in Mexico, exciting with huge growth room as it delivered 52% revenue growth in 2025 amid 85% more registrations in a fast-expanding market also with 15%+ CAGR, low competition, and expecting a 2026 FIFA World Cup boost.

Meridian Holdings CFAC or “Classics For A Cause”, their more recent and smaller accretive acquisition is continuing to scale and increase revenue contributing $8.7 mil full year growing to $2.3 mil in Q4 alone.

These acquisitions are “decentralized” acquisitions rather than “roll-up” acquisitions, meaning the CEO or Founder and team responsible for their success was left in place to do what they do best — continue to execute and grow.

14.) Proven Leadership with Integrity

Leadership is one of the most important factors determining MRDN Holdings success. Meridianbet, by far the largest of the 5 MRDN companies CEO is Zoran Milosevic. Zoran is a steady, deliberate leader defined by an “infrastructure-first” approach. Zoran is the definition of a fiscally responsible, no-hype “execution-based” CEO, emphasizing Meridianbet is not a promised based company but an execution-based company. Exactly what I look for in a CEO.

Zoran champions capital discipline and long-term value creation. Unlike many competitors that rely on high-burn capital raises, he focuses on organic profitability and finding niche markets where the company can maintain margins. He has mentioned several times how Meridianbet simply will not operate in an area at a loss, and emphasizes mitigating risk by owning and controlling their own technology stack.

Meridianbet is not a company that is going to compromise anything to fluff the next earnings numbers. They repeatedly state they are NOT looking at the next quarters earnings, they are looking at the next 100 years. They have no intention of selling their shares and that is a big concern considering the amount they own.

Zoran has a rare strong moral and ethical code explicitly aligned with his business ethics. With Zoran at the helm, there is no “grey” area. He believes Meridian Holdings can increase value for shareholders at the same time as they increase value for society at large by placing an emphasis on responsibility, community impact, and long-term thinking.

As we discussed in marketing earlier, aligning with Zoran’s philosophy, MRDN is second to none when it comes to making a community impact in the regions they operate. Meridianbet conducts nearly 300 CSR, ESG, community impact initiatives, and public service programs per year across 25 markets, delivering massive impact as well as via its Meridian Donate Platform that lets players directly fund healthcare, education, sports, and social projects, thereby building brand loyalty and trust in every community it serves. Unlike others, they don’t spend a large amount of money blanketing media with expensive celebrity ads. They support making authentic positive and needed changes in their regional communities.

15.) Risks

In my opinion, Meridian Holdings is a multi-decade story. A misunderstood, undiscovered asymmetric opportunity. Is there risk? Absolutely, but I try to minimize risk by investing in companies w/a long history of fiscally responsible execution, profitable or turning profitable, multiple revenue stream diversity, a large amount of insider skin-in-the-game, and a share valuation that has not yet run-up. With that said, let’s discuss and address some of the risks associated with Meridian Holdings.

AI Risk

Full disclosure, I am not an expert when it comes to AI disruption or technology threats, but from my research I can find no scenario where AI disruption poses any significant near term material risk to Meridianbet Holdings.

Meridian Holdings recently finished rolling out their most advanced 5th generation platform “Atlas”. They own and control their entire end-to-end tech stack. Real-time operations serving hundreds of thousands of simultaneous bettors demands highly specialized, deeply integrated AI systems far beyond generic tools. These systems must instantly calculate live odds, manage risk, personalize offers, and comply with diverse regulations.

AI programs are tightly coupled with enterprise-grade cybersecurity to protect against fraud, cyber attacks, and money laundering, something off-the-shelf solutions are not near replicating. Most critically, superior performance requires seamless integration of decades of proprietary regional and individual player data that only MeridianBet has accumulated through years of live operations. New entrants or competitors lack this data moat and cannot simply “train” equivalent models overnight. As a result, MeridianBet’s scale, vertical integration, and in-house AI capabilities actually turn the technology into a competitive advantage for personalization, retention, and efficiency, protecting margins and demand across every layer rather than exposing them to commoditization.

Regulatory Compliance Risk

Meridian Holdings CEO Milosevic’s “no grey area of operation” philosophy has gained Meridianbet an impeccable regulatory history with zero “red flags”. The last thing I want to see is media headlines with my investment involved in legal trouble. Meridian Holdings decreases legal and regulatory risks by being actively involved in their regions of operations governments regulatory efforts to decrease predatory black market operators and add credibility to the industry.

Complete Loss of Capital Risk

Personally, I can handle the inherent volatility of micro/smalls as well as waiting the long, sometimes 5+ year timeline for a smaller company to raise cap, execute, scale, pay down debt, disruptive tech to one adopted, and revenue to hit the bottom line, HOWEVER I do not want to lose my entire investment.

As far as a risk profile for complete capital loss (not uncommon in the micro/small cap arena) Meridian Holdings would need to stop growing after 25+ yrs of expansion into 20 countries right after they achieved Nasdaq listing and rolled out their 5th gen AI tech platform “Atlas” that will increase margins. Also, right before the two largest catalysts in their history: World Cup 2026 and being granted a coveted Federal Brazil igaming/sportsbetting license. Highly unlikely.

Expanse Studios, that is growing on steroids, pumping out new games, and on the way to doubling their partnerships would need to suddenly stop acquiring new partners. RKings, now Ireland’s #1 and is growing double digits, would need to come to an unexpected halt and MexPlay, Golden Matrix’s GM-AG, Fairbet and Australia’s CFAC would need to stop growing in their incipient stage.

Original Golden Matrix CEO Departure

It should be noted the original parent company Golden Matrix (Nasdaq GMGI), after an extended 60 - 70% share price drop, recently did a 12/1 split and rebranded from Golden Matrix Group to Meridian Holdings (MRDN) to remain Nasdaq compliant and better reflect their parent brand Meridianbet.

The original Golden Matrix CEO Brian Goodman stepped down but all remaining operational CEOs have been left in place to do what they do best. In the last 5 years Goodman was able to accomplish a number of milestones including a Nasdaq listing and the acquisition of a number of accretive and synergistic companies that brought revenue from approximately $2 million to $185 million however, just as a coach loses too many games, if the share price does not reflect the execution, the coach bears the responsibility and Goodman stepped down.

Recently Goodman has come under fire for selling a fraction of his shares. To put this is context, Goodman has sold around 84k of his nearly 16 million pre-split adjusted shares ( about 50% held in Luxor Capital ) while Meridianbet insiders; Founder Aleksandar Milovanovic, CEO Zoran Milosevic, COO Snezana Bozovic, and CFO Richard Christensen have all purchased open market or converted close to 9,850,000 pre-split adjusted shares. That is massive confidence by Meridian Holdings.

Insiders typically only buy shares for one reason but often sell for many reasons. Goodman has expressed he has full confidence in Meridian Holdings future and would not be surprised if his small sales have something to do with his departure, tax purposes, raising capital for his new venture, or most likely, trying to decrease his ownership stake to under 10% for regulatory purposes. At this point I simply do not know but there will always be speculation. If the amounts were much larger I would be more concerned.

Addressing The Share Price Drop

As far as Meridian Holdings share price drop, large micro/small-cap share price drops are not unique to MRDN in our current speculative and sentiment based trading environment that largely ignores fundamentals in favor of AI and hot sector stocks with social media buzz. I believe the prolonged drop was largely due to a combination of targeted shorting and traders walking SP down into bid. This behavior is inherent with low volume micro/smalls and effectively increases negative sentiment which in turn fuels downward momentum and sentiment based trading algos with gasoline.

This negative momentum cycle and a huge short order, coupled with a lack of US visibility, zero awareness, and no significant shares available for any meaningful institutional positions (leaving mainly emotional retail sellers) are all large negative factors.

Lastly, the dilution required for Golden Matrix to acquire Meridianbet, although non-operational dilution and a common practice with growth-by-acquisition companies, is an easy narrative for traders to spin as a net-negative event to fuel more bad sentiment and downward share price momentum.

16.) Disclosure

I am a long term investor and own shares of MRDN. I am not an advisor. I am not in marketing. I have no affiliation with Meridian Holdings. I do not trade. I do this for fun and consider myself somewhat of a small-cap sleuth as I have now invested for over 35 yrs. I have made large amounts of money and lost large amounts of money. High rewards come with high risk.

I do my best to decrease risk but micro/small-caps are inherently risky. They are often illiquid and their low volume makes them subject to manipulation and difficult to exit. Their long hold timelines require inordinate patience and a tolerance for extreme volatility- but they can at times create life changing wealth.

These are simply my personal opinions and not a recommendation to buy the stock. I do my best to be as accurate as possible but there are quite possibly errors in my article. I am not a professional and advise investors to seek professional guidance.

Feel free to reach out on X (@uboat159) or comment below.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always do your own due diligence before making investment decisions.

It started on the Insteel Industries (IIIN) earnings call last week. The stock fell about ~30% after the print, and I actually ended up starting a small position on Friday, but that’s besides the point…

If you don’t know the company, they make steel wire products. Boring business, sleepy call. But the CEO spent close to four minutes on flatbed tender rejections and freight costs. Steel wire CEOs don’t usually volunteer four minutes on freight. That did grab my attention.

“Freight costs, whether inbound or outbound, have risen substantially following the conflict with Iran, and it happened extremely quickly. It coincided with other factors that reduced driver availability. The practical impact is much higher diesel costs and fewer drivers, which means our costs have gone up, and many of our loads have been rejected by carriers who can find loads that pay more...

I was reading that in the flatbed sector, more than 40% of loads tendered to carriers have been rejected across the economy. We are dealing with something out of our control, but it is our responsibility to manage it from a cost point of view. We debated surcharges versus price increases, and we have elected to increase our prices.” — H.O. Woltz

A few days later I was scrolling X when a post from (@SFarringtonBKC) made me pause.

He reposted a tweet from Craig Fuller showing flatbed tender rejections above ~54%, alongside a note about industrial demand ramping through data centers, power plants, transmission lines, and pipelines.

My mind went straight back to Woltz on the Insteel call. Same exact story, just coming from the other side of the freight transaction.

If you don’t spend much time thinking about freight, quick context on what “flatbed” means. Flatbeds are the open-deck trailers with no walls or roof. They haul the big, heavy, awkward stuff. Wind blades, steel coils, transformers, oil and gas equipment, construction gear, pre-fab modules. If it’s a pain to shove in a box, it usually goes on a flatbed.

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With that in mind, the domestic industrial buildout is clearly strong and it’s not hard to squint and see a mini industrial boom.

Data center capex is running hot. The grid needs enormous transmission and substation work just to catch up. Oil and gas equipment is moving to offset whatever barrels we aren’t importing. The Big Beautiful Bill pushed companies toward American sources for infrastructure construction, and whatever your politics, that policy is working at the margin.

American factories are firing up.

And all of it — the transformers, the turbines, the pipe, the steel — has to move on flatbeds. If the buildout is multi-year, so is the tightness.

It’s not just the rejection data either. Spot rates are ripping too. National flatbed went nowhere for most of 2025, and then late last year it started climbing and just hasn’t stopped. DAT has it at $2.65/mile by mid-May, up 47 cents from the same time last year. Call it ~22% YoY.

All of which got me sitting down and thinking about how to actually play it.

So how do you play it?

The annoying answer is there aren’t many clean ways in. Flatbed is a sliver of the trucking world, and Daseke, the name that used to be the obvious pure play, got taken private by TFI back in 2024. What’s left is a short list of names with varying degrees of exposure.

These are the four most obvious public-market ways to get exposure, at least in my view:

Universal Logistics (ULH)

Closest thing to a flatbed pure play on US exchanges. I’ve seen estimates that around 35% of revenue is flatbed, though the company doesn’t break it out cleanly.

Layer in wind-energy project cargo, heavy-haul, and a big owner-operator network, and you have a real industrial transportation franchise dressed up as a boring trucker. An asset-light model flows more of the rate upside to the company than a fleet of leased trucks that still have to be paid for whether they’re moving or not.

It’s trading around ~1x book vs ~2.5x (ish) historical range, and it’s a controlled company, with Chairman Matthew Moroun owning roughly 73% of the shares. His cost basis is around $25 against a stock price in the mid-$20s. That’s strong alignment, with some take-private tail risk.

Landstar (LSTR)

Asset-light model like ULH, which I think I’d prefer in a tightening cycle. Landstar runs on an owner-operator network (they call them BCOs) with real flatbed and heavy-haul exposure, not just dry van. Not a pure play, but a quality franchise that benefits directly when capacity tightens.

Also less single-name risk than ULH. It’s larger, more liquid, and doesn’t have a controlling shareholder. The trade-off is you pay for that quality in the multiple.

Heartland Express (HTLD)

Mostly dry van truckload rather than flatbed, but tight capacity is tight capacity and the whole sector tends to move together when rates turn. Historically a very well-run operator, until they took on real debt with the Smith Transport and CFI acquisitions in 2022.

The last couple years have been messier than the old HTLD crowd would’ve wanted. They’ve paid the debt down from ~$494M to ~$160M and management is targeting debt-free by 2027, but operating results are still ugly. It’s trading at what looks like cyclical trough numbers, and if the turn is real, pretty asymmetric.

Werner Enterprises (WERN)

One of the more out-of-favor names in the group, and a higher-torque way to express a freight-cycle turn. It’s truckload plus logistics, and results have been ugly through the downturn. CEO Derek Leathers recently called current rejection rates “COVID-like” in public remarks, which tells you where they think the cycle is.

If rates really rip, WERN should have upside. If they don’t, it can keep grinding. But I do think it’s a legitimate way to play the cycle if you’ve got conviction.

I definitely don’t think a broad transportation/trucking ETF gets you what you want here.

Too much dry van exposure that isn’t levered to this specific industrial tailwind, plus the big rails with their own issues. It’s a narrow trade and I think you have to pick names. For now, ULH looks like the cleanest pure-ish play.

While I keep doing my own work on ULH, already published Part I of a small-cap trucks series on the exact same name. Go read it.

Value Degen’s Substack

Small Stocks, Big Trucks Part I: Universal Logistics Holdings $ULH

In October of last year, I wrote about how trucking was in its longest recession in history. Not only was it digesting the Covid durable goods pull-forward, punitive interest rates, and a three year manufacturing recession, but it was also suffering under a wave of CDLs being issued to illegal immigrants who frequently drive in shifts. By driving in s…

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25 days ago · 29 likes · Unemployed Value Degen

He walks through the flatbed exposure, the valuation (ULH trading around ~1x book vs a ~2.5x historical range), the accounting quirks, the Moroun ownership piece, and his base and bull case targets. He also just dropped Part II on Forward Air.

If you aren’t already subscribed to his stack, fix that.

What I’m actually watching

At this point, I’m not really trying to figure out if something is happening in freight. I think that part is pretty clear. The real question is whether this is just a sharp squeeze that fades or the front end of a real turn.

The setup definitely looks a little too obvious to ignore. You’ve got three years of pain in trucking, fewer trucks in the system, tariff certainty, and now demand picking up into a backdrop where a lot of industrial stuff still needs to move.

What makes it interesting, and honestly a little annoying, is that there aren’t many clean public-market ways to express it. ULH is still the one I keep coming back to. Landstar makes sense too, and the others would probably work if trucking broadly turns, but ULH still feels like the cleanest way to play the idea.

A few things nagging at me

I could also be very wrong here… I’m still getting up the curve on trucking, and it’s easy to overread a couple loud data points. I mean I think it’s very unlikely but, it’s entirely possible this could just be an Iran-driven spike — diesel settles, capacity loosens, and the whole thing cools off.

But I also think there’s a real chance people are leaning too hard on the old playbook here. If this is being driven by a genuine domestic industrial buildout, and truck supply has already been beaten up for years, this may not be some quick little squeeze that disappears next month. It could be a better and more durable setup than the market is giving it credit for.

That doesn’t mean I’m smashing the buy button tomorrow morning.

But directionally, this has gone from something that caught my attention to something I feel like I should probably be acting on. The only real question now is what the best vehicle is.

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always do your own due diligence before making investment decisions.

If you read the deep dive I wrote with a few months back, you already know the story. I’m not going to rehash the whole thing here. But this is a company I’ve been watching and wanting to own for a while now and I finally freed up some capital to put behind it.

It really comes down to one thing for me with VNET: AI compute demand in China is growing at a massive pace and it’s not going to slow down anytime soon.

ByteDance, Alibaba, Tencent, and Baidu are all spending like crazy on AI infrastructure, and every one of those chips needs somewhere to live. VNET is basically the landlord. I don't need to know which model wins or which chip wins. I just need the rent to keep getting paid.

For those who haven’t read my original write up and are unfamiliar with the name, VNET is the third-largest carrier-neutral data center operator in China and they run 50+ facilities across the country. When ByteDance or Alibaba or Tencent needs somewhere to park all the AI compute they’re buying, VNET is one of the companies they call.

The wholesale side of the business, which is where all the growth is, was up ~77% for the full year.

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I wasn’t going to write about it, but after reading it I realized it’s basically a summary of everything I’ve been publishing since last year. So here we are…

Their conclusion: China tech is no longer a macro trade. It’s a stock-picker’s market now. Company execution matters. The AI capex cycle is real. Cloud is inflecting. Valuations don’t reflect any of it.

I mean… yeah. Welcome to the party.

It’s always nice when the big shops catch up. Not because I need the validation, but because when institutional money starts saying what you’ve been saying, people tend to pay a little more attention.

Anyway. There’s good stuff in the report and I want to walk through the parts worth paying attention to, add context where I think they were too conservative, and talk about what they missed entirely.

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The Capex Cycle

JPM’s big theme is that AI-related capital expenditure across China’s major tech companies is accelerating and the shift from training workloads to inference-driven demand is improving the economics of the whole thing. More utilization, better pricing power, and a path toward actual operating leverage in cloud.

I’ve been banging this drum for months…

Alibaba’s cloud revenue has re-accelerated into the mid-30% growth range. AI-related cloud products have posted triple-digit growth for ten consecutive quarters. They committed over $50 billion over three years to AI and cloud infrastructure and management keeps hinting the number is going up. And they just laid out a five-year target of $100 billion in annual cloud and AI revenue. That’s roughly a 5x from here. And they’re still rationing GPU access because they can’t deploy servers fast enough.

Tencent is spending aggressively too. They dropped RMB 18 billion on AI last year and the guidance suggests that could double in 2027. ByteDance is targeting nearly $25 billion in 2026 capex alone. Between the big four, China’s tech giants are on track to spend over RMB 380 billion a year on AI infrastructure.

JPM frames this as a reinvestment cycle that management teams are increasingly willing to lean into even at the expense of near-term margins. I agree, and I think that’s actually the right move.

I’ll also note that compared to US hyperscalers, China’s total AI capex is tiny. The US is on track to spend $800 billion+ by 2028. China’s big four combined won’t even crack $200 billion.

And yet the models keep getting better, the cloud revenue keeps accelerating, and they’re doing it at a fraction of the cost. Whether the US is overspending or China is just more efficient is a conversation worth having, but either way, I know which side I’d rather own at these multiples.

Margins

One of the more honest things in the JPM report is the acknowledgment that profitability is stabilizing, not expanding.

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Coughlin Cap

BYD (BYDDY): Investment Thesis

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3 months ago · 20 likes · 2 comments · Brian Coughlin

A big chunk of the argument centered on China’s energy security problem. China imports over 70% of its oil through seaborne chokepoints. Half goes to transportation.

I argued that Beijing treats electrification as a national security priority more than anything else, and that this creates a long-term tailwind for EVs and for BYD specifically.

“This isn’t a sentiment call. It’s a structural reality that will play out over years, and BYD is the best positioned company to benefit from it.”

Then the US went to war with Iran, oil blew past $100, and the Strait of Hormuz shut down…

The stock hasn’t done much since I wrote it up. It’s up about 8%, which is fine, but a lot has happened with the business and especially the macro picture since January that I don’t think the stock is reflecting yet.

Oil, Iran, and Why This Matters

I didn’t expect the energy security argument to get tested this fast…

On February 28th the US and Israel launched strikes against Iran. Within days, tanker traffic through the Strait of Hormuz ground to a halt and Oil surged past $100/barrel. The International Energy Agency called it the largest supply disruption in the history of the global oil market.

As of this week the strait is still effectively closed, Trump is promising to hit Iran “extremely hard” for the next two to three weeks, and oil is sitting above $109. It was around $70 when I wrote the original post…

I’m not going to pretend I saw a hot war with Iran coming. I didn’t. But the whole point of the energy security thesis was that oil dependency creates vulnerability, and vulnerabilities eventually get tested.

Beijing is/has been watching. They were already building strategic reserves and accelerating EV adoption before any of this. Now the urgency is on a completely different level. And the runway is still long.

“In China, EVs now make up about 50% of new car sales, which sounds like the transition is nearly complete. But only around 10% of the cars actually on the road are electric. The other 90% are still burning gasoline and diesel.”

Every one of those cars that gets replaced by an EV is one less barrel China needs shipped through a war zone. And BYD’s supply chain is built for this moment.

Bank of America put out a note calling China’s EV supply chain “relatively insulated” from the Middle East disruption. Makes sense when you think about it. BYD makes its own batteries, its own chips, and increasingly ships on its own cargo vessels. They don’t need anything coming through Hormuz.

Meanwhile a BYD salesman in Manila told Bloomberg he got a month’s worth of orders in two weeks. Showrooms in Hanoi had to hire extra staff after foot traffic quadrupled. Thailand’s new Prime Minister showed up to the Bangkok Motor Show in his own BYD.

The oil shock is turning tire-kickers into buyers all across Asia. One analyst compared it to how the 1970s oil crisis paved the way for Japanese fuel-efficient cars, except this time the technology eliminates the need for petroleum entirely.

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The stock got crushed after the YPF case went the wrong way in court. By the close, the market had basically written off the whole company, which honestly isn’t that surprising when YPF was the reason most investors I know owned it in the first place.

When your biggest catalyst disappears overnight, the stock is going to get hit hard. That part is pretty obvious.

What I’m less sure about is whether the selloff went too far.

I’m not saying YPF didn’t matter. You don’t lose half your market cap in a day over something that doesn’t matter. But Burford without YPF is still a real business.

Messy, yes. Hard to value, yes. Lumpy, absolutely. But still a real business.

I actually used to own this stock. I sold about a year ago, which in hindsight turned out to be one of the luckier exits I’ve had. But I’ve followed the company for a while and I think what happened on Friday is worth walking through for people who are either seeing this for the first time or trying to figure out what to do with their shares.

A lot of people know Burford through the YPF case, but the company itself is much broader than that.

At its core, Burford is a litigation finance business. A company has a legal claim that may be worth a lot someday, but it could take years to play out and cost a fortune to pursue. Burford provides the capital and takes a share of the outcome if things go their way.

Think of it like private equity for lawsuits.

Their clients are big. They’ve received financing inquiries from 94 of the 100 largest U.S. law firms. The economics have been genuinely strong. Concluded cases have delivered an average 83% return on invested capital with a 26% IRR.

Most cases settle rather than going to trial and case outcomes are generally uncorrelated with broader markets.

Christopher Bogart and Jonathan Molot, both attorneys, founded the company in 2009 and still run it. They collectively own about 10% of the stock. They’ve grown from a $130 million fund to a $7.5 billion portfolio.

The business generated over $500 million in cash receipts in 2025. Rolling three-year return on tangible common equity of 13%. There’s also an asset management arm managing about $2 billion of external capital and earning fees on top of all the direct investing.

It’s a real business. But the thing that made Burford a household name on fintwit, and the thing that drove most of the stock’s volatility over the past several years, was one single massive case.

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If you’ve been paying any attention to markets this week you’ve probably noticed that everybody just sort of decided the Trump Put is dead.

Barclays even put out a whole note on Friday making the case. It’s become one of those things where if you’re not bearish on the Trump Put you’re the idiot in the room.

The reasoning is basically that Trump keeps trying to talk markets up with de-escalation headlines on Iran, the headlines aren’t sticking, and so the put is dead or dying.

And I don’t know, maybe I am the idiot in the room, but I think that’s kind of a lazy read.

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It’s been an awful stretch. The S&P just posted its fifth straight weekly loss, which is the longest streak since 2022, and the Nasdaq and Dow both tipped into correction territory on Friday. Oil is pushing $95 with Brent above $110. The whole vibe is terrible. I’m not going to pretend otherwise.

And it’s not like the administration wasn’t trying this week. Trump was out there constantly. Monday morning, pre-market, he posts on Truth Social that he’s pausing all strikes on Iran’s power plants for five days, says they’ve been having “very good and productive conversations” toward a resolution.

Markets went nuts. Futures ripped. Oil dropped something like 15% in minutes. Stocks added about $1.7 trillion in value before most people had finished their commute.

And then Iran came out and said there were no talks, no negotiations, and that the whole thing was just Trump trying to manipulate oil prices. Which, I mean, yeah probably.

That was the only headline all week that actually caused a meaningful rally. And it didn’t even last a full 24 hours.

Not that it stopped him from trying. He was out there every day the rest of the week doing everything short of a PowerPoint presentation for the press pool to try to keep this thing together.

Tuesday he’s telling reporters “this war has been won.” Wednesday a 15-point ceasefire proposal leaks and Iran’s military literally mocks it. Thursday he’s saying Iran is “begging” to make a deal.

None of it moved the needle. Markets just didn’t care anymore.

Thursday was the worst single day for the S&P since the war started and Friday was another 1.7% down. By the end of the week that Monday morning sugar rush had been completely erased and then some.

So I totally get why people are writing the obituary for the Trump Put. He threw everything he had at this week and the market shrugged it off. It does look broken.

But I keep coming back to this: what exactly do people think the Trump Put is?

Because I think there’s a confusion happening between the market’s short-term reaction to any given headline and Trump’s underlying motivation to actually end this thing.

The put was never really about one Truth Social post making the S&P go up. The put is that you’ve got a president who treats the stock market like a personal approval rating, and who now finds himself staring down midterms in November with a 35% approval rating, gas prices that won’t stop climbing, and a war that was supposed to be a “short-term excursion” entering its fifth week.

The political incentive to find a resolution, or at least keep signaling that one is close, is about as high as it can possibly get right now.

And that’s kind of what I actually saw this week? Like yeah, none of it worked. The market didn’t buy any of it. But the guy was out there every single day trying. The pause on strikes, the ceasefire plan, the “begging for a deal” comments, all of it. Iran kept slapping it down and he kept swinging. That tells you everything about where the motivation sits.

Trump literally cannot afford to let this spiral. His party is already polling behind Democrats for the House. Cost of living is the number one issue. You think this guy is just going to shrug and let oil hit $120?

This is the same person who bragged about the Dow hitting 50,000 while it was actively selling off last week. He is not going to develop a sudden zen-like detachment from market performance. That’s just not how he’s wired. At all.

What Barclays and market participants are really picking up on, I think, is headline fatigue.

The market watched Trump try every trick in the book this week and none of it changed the actual situation on the ground, so now traders are just tuning it out. That’s fair. But the put was never about whether algos chase a Truth Social post. The put is about a president who will keep swinging until something actually connects because the alternative is politically catastrophic for him.

Now the bear case on my thinking is pretty obvious...

The Strait of Hormuz is still effectively closed. The Houthis have apparently decided this is a great time to get involved, which is just fantastic. Consumer sentiment is in the gutter and the Fed is trapped between an oil-driven inflation spike and an economy that’s clearly slowing.

If this war drags into the summer with no resolution, you’ve got a genuine stagflation problem and I honestly don’t know what the Fed does. None of that is good.

But I just keep landing in the same place. The people declaring the Trump Put dead are implicitly betting that Trump is going to accept a recession heading into November. That he’s going to watch gas prices blow through $5 and the market roll over and just… not try everything he can think of to stop it.

I don’t see that. I’ve been wrong before but I really don’t see it.

I’m not making any trades off this or anything. Just thinking out loud on a Sunday. Take it for what it’s worth.

Anyway. Go touch some grass.

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Disclaimer: I’m just one investor thinking out loud. This isn’t financial advice. Do your own work before buying or selling anything.

That’s what drawdowns do. They make you question everything. You start second-guessing yourself, and you start wondering if the guy on X/Twitter calling you a bagholder might actually have a point.

But I’ve been through enough of these to know that stock prices don’t tell you much about a business over short periods of time. They tell you about sentiment. And right now the sentiment and the fundamentals are living on different planets.

The broader thesis on China/China Tech hasn’t changed. I actually think it’s the strongest it’s ever been. Which I realize sounds like exactly what a bagholder would say…

But instead of getting emotional about it I’m going to do my best to zoom out and focus on what actually matters in terms of returns.

The tape looks awful. The underlying buildout doesn’t. That disconnect is the whole reason I’m still here.

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Fear + Volatility = Opportunity

It’s been a rough stretch. And not just for China names, but especially for China names.

Iran and the Strait of Hormuz have global risk appetite in the gutter. VAT tax rumors on internet companies sent everyone scrambling for the exits back in February. The Supreme Court struck down Trump’s IEEPA tariffs and threw the whole trade framework into question.

And mainland investors have been yanking billions out of Hong Kong-listed tech because they’re tired of watching these companies spend aggressively on AI without seeing it in the earnings yet.

Oh, and Alibaba’s Qwen AI team had some leadership departures. Three senior guys this year. Cue the hot takes about Alibaba abandoning open source and the whole AI strategy falling apart.

You stack all of that on top of each other and yeah, I get why people are running for the exits.

If you’re a sentiment-driven trader, this is a nightmare. Go sell. I’m not mad at you.

But the long-term tailwinds haven’t changed. There are 1.4 billion people moving online, and a government actively pushing domestic consumption while going all-in on AI. Nothing has actually gotten worse.

A big reason HSTECH in particular has been under so much pressure is the margin compression from the e-commerce price war. And that’s fair. It’s expensive and the near-term margins are getting destroyed.

But I think people are seriously underestimating what a company like Alibaba will actually earn in a normalized environment once the subsidy wars wind down. And regulators are already stepping in to cool things off, which basically locks in the gains for the companies that already won share.

More importantly, the story is shifting. Alibaba is becoming a cloud and AI-first company. That’s where the investment is going and that’s where the growth is. But they also have something none of the pure-play cloud or AI companies have, which is a massive existing user base, a mountain of commerce data, and an ecosystem that’s probably better positioned for agentic AI and AI-powered shopping than anyone else in the world.

When AI agents start actually buying things for people, who do you think has the infrastructure for that?

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The S&P is down four weeks in a row. The Russell 2000 just entered correction territory, down over 10% from its January peak. The VIX surged 11% on Friday. Oil is above $112 a barrel. Gas prices are climbing. And the whole thing is being driven by a conflict in the Middle East that, three weeks in, shows no real signs of stopping.

The Strait of Hormuz is effectively blockaded, the IEA has called it the worst oil supply disruption in history, and the knock-on effects are hitting everything from airline stocks to Asian equity markets. Even gold, which is supposed to be the safe haven in situations like this, just had its worst week in four decades.

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I’m not going to sit here and tell you I know how this ends. If the war drags on, oil stays above $100, and inflation expectations re-accelerate, the selling probably continues. Maybe it gets worse before it gets better. That’s a real possibility and I’m not dismissing it.

But…

Some very good businesses are starting to trade at valuations where I think there’s genuine margin of safety, even if you assume things stay ugly for a while. The kind of prices where you look at the multiple, look at the earnings power, and the math starts working even in a bearish scenario.

So here are five names I think are worth paying attention to right now… I own all five and I've been adding to most of them this month.

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I want to get some quick thoughts out while the call is still fresh, because I think the reaction today is wrong.

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I wrote a whole post back in January walking through exactly what management was telegraphing on the pre-earnings sell-side calls.

They told the Street to lower the bar on basically everything. Cloud, e-commerce, margins, all of it. And then they delivered pretty much right in line with what they guided.

Stock was down about ~7% today. I honestly don’t get it…

Maybe some of us (myself included) thought they were sandbagging a bit more than they were. Fair enough. But the quarter wasn’t bad. It just looks bad on a headline basis because of the divestitures and a late Lunar New Year that pulled activity out of the December quarter and into March.

Strip out Sun Art and Intime and you’re at ~9% like-for-like revenue growth.

Customer management revenue grew ~1%. That is soft, I won’t sugarcoat it. But Wu said on the call that heading into the March quarter:

“our physical goods GMV and CMR trend have significantly recovered.”

Lunar New Year spending falls into Q4 this year, Qwen crossed 300 million MAUs with 140 million users trying AI-driven shopping in February alone, and 88VIP members crossed 59 million. I think the e-commerce numbers look noticeably better next quarter.

Quick commerce grew ~56% to RMB 20.8 billion, very impressive growth… unit economics continued to improve sequentially.

Wu laid out the ambition on the call: over RMB 1 trillion in quick commerce GMV by FY28, profitable by FY29.

The market clearly doesn't love this part of the business. I think a lot of people were hoping the unit economics would improve faster, and hearing a profitability target of FY29 instead of FY27 or FY28 probably spooked a few holders. The economics are getting better, losses per order have come down meaningfully since the summer, but "better" and "good" are two different things and the market wants good.

I still think they end up as the dominant player here. Going from a third of Meituan's share to roughly ~50% in under a year is not something you give back to make one quarter's margins look nicer.

Cloud

Ok, now let’s get into the part I actually care about.

Cloud revenue hit RMB 43.3 billion, up ~36% year-over-year (very impressive). External customer revenue grew ~35%. That’s an acceleration from ~34% last quarter and ~29% the quarter before that.

AI-related product revenue posted triple-digit growth for the tenth consecutive quarter. Cloud EBITA came in at RMB 3.9 billion, up ~25%, with a ~9% margin that held steady while they’re simultaneously pouring capex into capacity expansion.

But the real headline from the call wasn’t the quarterly numbers.

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I’ve written about it a lot, probably too much… but demand for AI compute over there is not slowing down. If anything it’s accelerating.

Alibaba is rationing GPU access. ByteDance keeps raising capex. Between the four of them, China's big tech giants are on track to spend over RMB 380 billion a year on AI infrastructure. The demand for physical compute capacity is massive and shows no signs of letting up.

Which brings me to VNET Group

VNET runs over 50 data centers across 30+ cities in China. They're carrier-neutral, cloud-neutral, and when ByteDance or Alibaba or Tencent needs somewhere to put all that compute, a lot of them are calling VNET.

And just a couple weeks ago, ByteDance signed a 500MW data center deal with VNET, the largest order in company history.

I first came across the name through jukan05 on X a couple months ago. If you’re interested in the data center and semiconductor space he’s definitely a must-follow.

Once I started looking into the company, I was immediately intrigued. I then reached out to , who I knew had been following the name closely, and he was kind enough to share his work with me. Turned out we'd arrived at pretty much the same conclusion independently, so rather than write my own version we decided to collaborate.

A lot of the detailed modeling and industry work below is his, with my commentary and framing layered in throughout.

If you’re not already following P14, you should be. He writes about SMID-cap opportunities on Substack and knows this name inside and out.

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Business Overview

Founded in 1996, VNET (formerly 21Vianet) launched the first carrier-neutral data center in China in 1999. Before that, most data centers were owned directly by state-run telecom companies. It went public on NASDAQ in 2011 and today runs three segments.

The retail IDC business makes up about 40% of trailing revenue. Think cabinet space rented to banks, Microsoft Azure, and SMBs. Stable, recurring, growing at low single digits. As of 3Q25, VNET operated about 52,288 retail cabinets with utilization ticking up 170 basis points year-over-year to 64.8%. Their Retail MRR has been gradually rising as legacy cabinets get repurposed for higher-performance workloads like fintech and autonomous driving.

The wholesale IDC business is the most intriguing. It’s about 36% of trailing revenue but growing at ~96% year-over-year. This is the large-scale, customized capacity measured in MW that hyperscalers like ByteDance, Alibaba, Tencent, and Baidu lease under multi-year contracts.

Wholesale capacity in service has gone up roughly 2.7x in three years to 783MW as of 3Q25, and those 400-450MW of deliveries in 2025 are 100% supported by orders on hand.

VNET’s customer move-in timelines have compressed from 24 months down to 6-12 months, which means wholesale customers are reaching maturity much faster. Management says mature IDCs are inching toward 95% utilization.

As P14 notes, wholesale IDC earns monthly recurring fees under long-term contracts, typically 3+ years.

“Hosting fees make up most of the monthly bill, while consumption fees reflect variable usage tied to power consumption and utility pass-throughs.”

Pricing is hard to isolate cleanly because rapid capacity additions cloud MRR per MW, but the bottom line from P14’s work is that:

“It is safe to assume that there is no pricing pressure in the industry.”

Given the demand environment right now, that tracks.

You’ll notice revenue spikes in the summer months for both retail and wholesale because increased cooling needs and higher seasonal electricity tariffs get passed through to the customer. And in the wholesale business specifically, VNET benefits from billing by consumption because domestic AI chips are less power-efficient than global alternatives, consuming roughly 70% more electricity for the same workload.

That translates directly into higher revenue per unit of compute. It's a weird dynamic where US chip restrictions end up being a tailwind for the data center operator.

There’s also a non-IDC segment at about 25% of revenue (cloud solutions, VPN services). Decent margins but not the growth engine.

The revenue model is roughly 90% recurring. Multi-year contracts and monthly billing. As the wholesale mix keeps growing, the overall margin profile keeps improving. Gross margins have expanded nearly 350 basis points since FY22, and EBITDA margins have followed.

Management is guiding for about 30% adjusted EBITDA margins in FY25, with the trajectory clearly pointed higher as wholesale takes a bigger share.

The Industry

China’s data center market is being pulled by two forces pointing the same direction: demand acceleration from domestic AI and supply relocation driven by national policy.

The sector hit a step-change in 2025. China's data center construction market reached roughly RMB 399 billion (~$55 billion) with 31% growth, the fastest year on record. AI-specific infrastructure accounted for over 80% of new IDC investment in the first half. And the growth doesn't stop there, the market is projected to nearly triple to over RMB 1.1 trillion by 2030.

China's recently released 15th Five-Year Plan places explicit emphasis on AI infrastructure, and the "AI Plus" initiative is expected to generate trillion-yuan-scale markets by integrating AI across manufacturing and services.

Beijing alone is targeting a core AI industry value of RMB 1 trillion (~$140B) by 2030 versus about RMB 450B in 2025. The government is backing it with R&D tax deductions (200% in some cases), a national AI fund ($8.2B annually), and energy subsidies.

On the supply side, the “East Data, West Computing” policy introduced in 2022 established eight national computing hubs to balance data demand with resource availability. Third-party operators like VNET have benefited because they’re more agile in navigating the regulatory approval process.

The central government’s “window guidance” through the NDRC has tightened new power quota approvals to about 10% of submitted projects to prevent overbuild. So the available supply in attractive regions, where power costs are significantly lower, is constrained. Pricing has stayed healthy as a result.

And the cost differential between regions is massive. Electricity in western regions like Inner Mongolia runs about RMB 0.32/kWh versus Tier-1 cities at RMB 0.60-0.80/kWh. The government also enforces differentiated power tariffs based on Power Usage Effectiveness (PUE), which raises the bar for new entrants and benefits operators with strong green energy credentials.

At Coughlin Cap, I cover the companies, themes, and macro trends I think matter most. Subscribe to get full portfolio visibility, in-depth research, and ongoing updates as my positions evolve.

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It’s obviously not a secret that Hyperscalers want to build some in-house capacity, but they’re increasingly leasing from third parties because of faster time-to-power and balance sheet flexibility. The industry structure has shifted accordingly.

Third-party providers now control over half the market. That's a full inversion from a decade ago when state-owned telcos ran the show. China Telecom, China Mobile, and China Unicom still combine for about 48%, but they've been losing share steadily as hyperscalers have gravitated toward carrier-neutral operators who can move faster and build to spec. VNET sits in that 52% bucket, and the share shift is still going their direction.

VNET also has a unique edge that’s easily overlooked…

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The number everyone is using to explain why China loses from the Iran war is off by two orders of magnitude. And nobody seems to care.

The Hudson Institute posted that China “invested over $400 billion in long-term infrastructure and energy investments in Iran.” The Washington Post literally built an entire opinion piece around it. And now my feed is full of people confidently explaining how China is fucked…

And it’s complete fiction.

Ramez Naam called out the bullshit: actual Chinese investment in Iran since 2007 is about $5 billion. Not $400 billion. Five. The $400 billion comes from a framework agreement in 2021 that was basically a press release with a big number stapled to it. Nobody signed a check.

Glenn Luk piled on and pointed out that total FDI in Iran from every country on earth is only about $57 billion. China’s share is roughly 8%. Russia is actually the largest foreign investor in Iran, not China. China has more money in Venezuela than Iran.

So “China’s enormous bet on Iran” is a $5 billion position in an $18 trillion economy. But nobody checks because the big number makes for a better headline and it fits the story everyone already wants to tell.

I’m not a geopolitics expert. I want to be clear about that upfront. I’m just a guy who owns a few Chinese stocks and has been following this stuff closely for over a year because I think there’s opportunity, I also enjoy being contrarian.

But I’ve been paying close attention, and what I keep running into is this remarkably massive gap between the story the market is telling about China and what’s actually happening if you just... look.

The US and China are getting along. Like actually getting along. And I think the relationship between these two countries is on a better trajectory right now than at any point in the last decade.

I know. I know. We’re in the middle of a shooting war in the Middle East. The think tanks are running victory laps about how “China’s grand strategy has failed.” Matt Pottinger is on Bloomberg explaining his “Axis of Chaos” theory. The energy/oil crowd on Fintwit has decided the whole thing is really a 4D chess move to squeeze Beijing.

I think they’re all operating from a framework that stopped being accurate about a year ago.

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The old framework is broken

For years, the default assumption has been that US-China is adversarial and getting worse. Decoupling, tech war, trade war, Taiwan. Every single event gets run through this lens. Something happens in the Middle East? Must be about China. New tariff? Escalation. Military exercise? Provocation.

The framing is always confrontation, always zero-sum.

And for a while that was mostly right. The tariffs, the Huawei ban, the chip export controls, the balloon incident. It was ugly. If you were long Chinese equities through that period, you know exactly what I’m talking about.

But something shifted in the past year and most people haven’t updated their model. They’re still running the old playbook.

We saw the tariff escalation get ugly enough that both sides stared into the abyss and didn’t like what they saw. By early 2025, tariffs on Chinese goods had been ratcheted up to 57%. Trump was threatening 100%. China had fired back with retaliatory tariffs, slapped export controls on rare earths, gallium, germanium, and antimony, and launched investigations into US semiconductor companies.

It was spiraling and it was getting stupid.

Then the Busan summit happened in October. And for some reason, nobody talks about the actual substance of what they agreed to.

China suspended all retaliatory tariffs imposed since March 2025. Lifted rare earth export controls for a year. Opened up exports of gallium, germanium, and critical minerals to US end users. Committed to buying 12 million metric tons of US soybeans immediately, followed by 25 million metric tons annually for the next three years. Dropped investigations into US chip companies. Resumed trade from Nexperia’s China facilities.

In return, the US cut the overall tariff rate from 57% to 47%, extended Section 301 exclusions, and suspended the Affiliates Rule that would have expanded export controls to subsidiaries of blacklisted firms.

Read that list again... That’s a comprehensive de-escalation across trade, agriculture, critical minerals, and technology. Both sides agreed to renegotiate annually, which means there’s a structural incentive to keep the relationship stable going forward. And yet nobody on my timeline seems to think it matters.

Since Busan, Trump has accepted an invitation to visit Beijing March 31 to April 2. There are reports of a deal for up to 500 Boeing aircraft being lined up as a deliverable. The Supreme Court struck down Trump’s IEEPA tariffs in February, which further weakened Washington’s ability to escalate unilaterally. Trade negotiators are meeting in mid-March to prep for the summit. Senior officials are now talking about four leader-level meetings in 2026. Four. That would be unprecedented in the history of the relationship.

And it’s not just the US making nice. There’s been a parade of Western leaders heading to Beijing that honestly feels like a velvet rope situation at this point. Macron visited in December with six cabinet ministers and 35 corporate executives. Starmer in January. Canada’s Carney in January. Germany’s Merz in February with 30 executives from Mercedes-Benz, BMW, and other major firms. China overtook the US to become Germany’s largest trading partner again in 2025. German investment in China hit a four-year high.

These aren’t countries that think decoupling is working. They’re hedging, and they’re hedging toward Beijing.

Oh, and Wang Yi came out just yesterday (while a war is happening that’s supposedly all about squeezing China) and said 2026 is a “big year” for China-US relations and that the agenda for high-level exchanges is “already on our table.” This is the Chinese Foreign Minister, on the record, telling you the relationship is moving forward.

But sure, Cold War 2.0. Any day now.

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The Iran narrative is Exhibit A of the old thinking

This is where it gets fun, because the folks claiming Iran is really about China is a perfect example of people using the old adversarial framework to interpret something that clearly doesn’t fit it anymore.

If the US is engineering a geopolitical squeeze on China, why is Trump flying to Beijing at the end of this month to sign a deal? Why are trade negotiators meeting in mid-March while bombs are falling on Tehran? Why did we just cut tariffs, ease rare earth restrictions, and agree to four summits? You can’t be simultaneously waging economic warfare against a country and planning signing ceremonies with its president. Pick one.

And the numbers behind the China investment in Iran fall apart even faster than the logic.

I already walked through the $400 billion fiction. Here’s the rest…

The oil relationship is in fact real. China bought about 1.38 million barrels per day of Iranian crude in 2025. Sounds like a lot. But flip the numbers around and it’s about 13% of China’s total imports. Thirteen percent. And most of it is bought by small independent refiners in Shandong province through shadow fleets, relabeling it as Malaysian to dodge sanctions. The big state-owned firms won’t touch it.

China has been diversifying away from Iranian crude since last June. They’ve ramped up Brazilian imports by 28%, bought more from Russia, and stockpiled reserves at five times the rate of the prior year. They saw this coming. Or at least they hedged like they did.

When 80-90% of your oil exports go to one buyer and that buyer accounts for 8% of your total foreign investment and has been quietly replacing you for months, you’re not their strategic partner. You’re their discount gas station. Iran needs China way more than China needs Iran, and that’s not up for debate.

And the idea that the US would deliberately tank the economies of South Korea, Japan, India, and Europe — its own allies — just to make China’s oil bill slightly more expensive?

Look at the scoreboard…

KOSPI fell 18%. Japan fell 6%. Europe fell 3%. China’s CSI 300? Down 1.4%. Every US ally in the region got smacked harder than China did. But sure, tell me more about how China is the big loser here.

Does deliberately cratering your allies’ markets sound like a Donald Trump move? The guy who celebrated falling gas prices every other week? If you want to pressure China on energy, there are about 50 tools you could use before stating a war and closing the worlds most important shipping lane.

Tighten sanctions enforcement. Go after the shadow fleet. Secondary sanctions on the teapots. You don’t burn down your neighbor’s house to kill a spider.

Taiwan is Exhibit B

While we’re at it, let’s talk about the other thing every armchair geopolitics expert on the internet is absolutely certain about.

Xi is going to invade Taiwan. It’s imminent. The Iran war is the perfect distraction. This is it. For real this time.

I’ve been hearing this for years. Every few months a new article drops from a very serious person at a very serious institution explaining why this is finally the year China makes its move on Taiwan. And every few months it doesn’t happen. And then the same people write the same article again six months later with a slightly different headline.

The latest round got kicked off by a Foreign Affairs piece from Yun Sun predicting Xi may make a move in 2026, which Gideon Rachman at the FT helpfully amplified with “in case you don’t have enough to worry about.” Thank you Gideon, very helpful.

Liqian Ren — someone I follow closely and respect a lot when it comes to China — put it perfectly on X:

“If China doesn’t make a move on Taiwan in 2026 and didn’t take advantage of US distraction in the Mideast, would these people acknowledge in a year their framework of analysis on China/Pres Xi is a bit off? We shall find out.”

That’s exactly my point. These predictions never come with accountability. The invasion is always six months away. When it doesn’t happen, nobody goes back and says “huh, maybe my model is wrong.” They just write another piece explaining why next time is the real one.

There’s a few things the fear-mongers keep conveniently leaving out.

Xi just purged nine more military officials, including the ground forces commander who literally ran the Taiwan invasion drills. This is part of a military housecleaning that’s been ongoing for over a year and has gutted the PLA’s most experienced leadership. CSIS — not exactly a pro-China outfit — published research showing these purges have already degraded China’s ability to conduct exercises near Taiwan.

In 2024, China reacted to what it considered provocative behavior from Taiwan within days. By 2025, response time had stretched to 12-19 days. That’s not a military gearing up for the most complex amphibious operation in human history. That’s a military in the middle of reorganizing itself.

The 2026 National Defense Strategy doesn’t mention Taiwan. Xi’s own government work report this week still leads with “peaceful reunification” as the operative phrase — the same language every Chinese leader has used going back decades. If Xi intended to signal a shift toward force, he would have changed the wording. He didn’t.

And the other thing nobody on Fintwit seems to want to grapple with: the political trends in Taiwan are actually moving in Beijing’s favor right now. The ruling DPP has low approval ratings, a deadlocked legislature, and internal party fights. The opposition KMT is more open to engagement with the mainland.

Why would Xi risk a catastrophic military gamble — one that would make Russia’s invasion of Ukraine look like a cakewalk logistically — when he’s gaining ground without firing a shot?

A failed invasion would be existential for Xi. No Chinese leader could survive a bungled attempt at taking Taiwan, and Xi knows it. He hasn’t been reckless in 13 years. He’s not going to start now, especially not when he’s about to host the American president for a state visit and the trade relationship is the healthiest it’s been in a decade.

Taiwan is a real long-term risk. I’m not waving it away. But the idea that it’s imminent doesn’t line up with anything that’s actually happening on the ground. It just makes for a good headline and a scary tweet.

What’s actually going on

I’ll admit it’s a pretty simple view. But in my experience, simple is usually closer to correct than clever.

The US and China are the two biggest economies and the two biggest militaries on the planet, and both sides have slowly, grudgingly, in their own stubborn ways, come around to the realization that they need each other more than either one wants to admit out loud.

The world works better when these two countries are talking, making deals, and functioning like adults. It works worse when they’re threatening each other. I don’t think that’s a controversial opinion. I think it’s obvious. And I think Trump, whatever else you think about him, actually gets it on a gut level. He’s a deal guy. He wants to negotiate. He’s not looking for a fight with China. He’s looking for a win he can put on TV.

The Iran war makes this even clearer. You cannot be in a shooting war in the Middle East, burning through munitions, deploying carrier strike groups, spending billions — and simultaneously pick a fight with the other superpower. That math doesn’t work. Nobody fights on two fronts against the world’s two largest militaries at the same time. The last time someone tried something like that it didn’t go well for them and we read about it in history books.

So I don’t think the war pushes the US and China apart. It pulls them together. Washington needs Beijing to not arm Iran, to not escalate on Taiwan while the military is pinned to the Gulf, and to keep the trade relationship stable while the US deals with its mess in the Middle East.

China has every reason to do exactly that. Both sides benefit from the relationship working right now, and both sides know it.

The broader point

I think there’s a version of the next few years that looks a lot different from what most people expect, and almost nobody is positioned for it.

In that version, the US and China keep moving toward a functional relationship — not because they love each other or because the tensions magically disappear, but because the alternative is too dangerous and too expensive for both sides.

Trump keeps doing deals, Xi keeps showing up, the tariffs keep coming down, and the geopolitical discount on Chinese equities gradually fades as the market realizes that Cold War 2.0 isn’t actually happening.

In that version, the Iran war becomes a catalyst for this trend rather than a contradiction of it, because Washington needs Beijing too much right now to pick additional fights, and Beijing is smart enough to take the win.

I know this is an optimistic view. And I know the default in markets and media right now is pessimism about everything involving China. There are real risks and I’m not dismissing any of them. I could be wrong about all of this. It wouldn’t be the first time…

But I also know that 90% of Western investors and commentators have a reflexive bias against anything China-related. It’s baked into how the media covers it, how the think tanks frame it, and how the market prices it. That bias has been a headwind for years.

Biases create mispricings though, and mispricings create opportunities.

I’ve been watching this relationship evolve for over a year now. I’ve watched the rhetoric soften, the deals accumulate, and the summits multiply. And I’ve watched the market completely ignore all of it because the old adversarial framework is so deeply embedded in how people think about China that they literally can’t see what’s right in front of them.

I think that gap between narrative and reality is one of the most interesting opportunities in markets right now. Not just because Chinese stocks are cheap (though they are) but because the reason they’re cheap is based on a view of the world that I think is becoming less true by the month.

The two biggest economies on earth are getting along better than they have in a long time, and most people haven’t noticed. I think they soon will.

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Disclaimer: I’m just one investor thinking out loud. This isn’t financial advice. Do your own work before buying or selling anything.

Q4 results came out about a week and half ago, and I actually feel a lot better about the position now than I did when I first wrote it up. For the first time we have actual forensic data from Mandiant and Palo Alto Networks on what happened with the breach.

Management walked through the findings in detail on the call. And the picture that’s emerging is very different from the one the market priced in.

The core business was growing ~16% in constant currency right up until December. The breach knocked the wind out of it for one month, January looks like it was the trough, and things are already recovering. Meanwhile the stock is still trading near its lowest multiples ever and the market seems to have completely forgotten that Taiwan exists.

There’s a lot to get into here, so let me just walk through it and share where my head’s at.

Q4 Highlights

Total revenue was $8.8 billion, up 11% year-over-year or 14% in constant currency. That’s a step down from the 18% constant currency growth they posted in Q3, and basically all of the deceleration traces back to December when the breach started hitting customer behavior.

Product Commerce did $7.4 billion, up 12% constant currency. But for the three months before December, the business was running at a completely different pace. From the CFO on the call:

“For the three-month period prior to December, Product Commerce was bringing strong revenue growth of 16% in constant currency. And we believe the softening of those growth rates reached the lowest levels in Jan with an estimated 4% constant currency growth rate adjusted to the timing of Lunar New Year holiday. And we have seen improving trends since then.”

So the organic business was humming along just fine, the breach news hit, people panicked, some deleted accounts, and the month fell off. January was the trough and February is already improving…

Active customers came in at 24.6 million, up 8% year-over-year but slightly down from Q3’s 24.7 million, and WOW membership saw elevated churn in December. Again, all of it concentrated in that one month.

Product Commerce EBITDA was $567 million at a 7.7% margin. If you strip out a one-time fire insurance gain from the prior year comp, margins actually improved 85 basis points year-over-year. The core business is still getting more efficient and that part is getting completely overlooked.

Consolidated EBITDA was $267 million, down 37%. That looks terrible until you realize it’s the combination of December softness and the fact that Developing Offerings (Taiwan, Eats, Farfetch) lost $300 million in the quarter. The core Korean business is doing just fine.

Free cash flow for the year was $527 million, down from about $1 billion last year, mostly because working capital got hit in Q4 from the breach and capex is ramping as they build out Taiwan.

Overall it was a decent quarter all things considered and nothing really stood out as a reason for concern.

Ok, the Breach. Let’s Talk About It.

This is what everyone cares about at the moment so I’m going to spend some time here.

My view hasn’t really changed since my January post, but the Q4 call gave us something we didn’t have before: actual forensic results from Mandiant and Palo Alto Networks. And the findings are about as good as you could hope for given the circumstances.

Harold Rogers, the General Counsel, walked through the whole thing on the call.

A former employee, a 43-year-old Chinese national who left the company in 2024, kept his access credentials and used them to poke around the database over about five months. Coupang detected unusual activity in early November. The guy technically accessed 33 million accounts but only retained data from roughly 3,000 of them, and he later deleted it.

They recovered his laptop from a river. He’d thrown it in weighted down with bricks, packed inside a Coupang delivery bag. I’m sorry but that detail is still wild to me… lol

Here’s what Rogers said on the call:

“Third-party forensics and cybersecurity experts, including Mandiant, have confirmed that no highly sensitive data was ever accessed. No financial data, no passwords, and no government issued IDs were compromised.

All of the former employees’ devices known to have been used in the attack have been recovered. Mandiant has also found that the forensic evidence is consistent with the conclusion that the former employee retained data from approximately 3,000 user accounts in Korea and one user account in Taiwan and later deleted the data. Importantly, there is no evidence that any of that data was ever viewed by anyone else. This is also supported by the fact that there have been zero confirmed instances of any of this customer data being exploited.

We have retained the services of multiple outside experts to monitor, among other places, the dark web and deep web, including CNSecurity. To date, there has been no detection of the misuse of customer data attributable to the incident, nor is there evidence that any Coupang user data attributable to the incident exists in those sources. The Korean National Police Agency and the government’s investigative organization, the JIT, have also indicated that they have found no evidence of any misuse of customer data or any secondary harm resulting from this incident to-date.

Palo Alto Networks, one of the world’s foremost cybersecurity firms, concluded from their investigation that “Coupang’s security controls are aligned with industry standards. The recent incident was not caused by a systemic failure of security measures but was the result of a targeted attack executed by a malicious, former employee who leveraged inside knowledge of systems and exploited a valid software development process.” This was a crime committed by a former employee against Coupang and against our customers. We have called for him to be brought to justice and prosecuted to the fullest extent of the law.” — Harold Rogers

The narrative that’s been floating around is that Coupang had some kind of negligent security failure and millions of customers had their financial data stolen. The forensics clearly say otherwise.

The company’s cybersecurity spend has been top three among all companies in Korea for the past four years. A former employee abused a position of trust and committed a crime. It happens, and Coupang clearly needs to tighten up their offboarding procedures, but this is not the story the headlines told.

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Holy fuck is this thing oversold…

As I mentioned over the last couple weeks, the cheaper BABA gets heading into earnings, the more bullish I get. And man have we have gotten a lot cheaper.

The stock is sitting in the low $130s with an RSI around 22. That is full-on capitulation territory. The 52-week range is $96 to $193 and we’re a hell of a lot closer to the bottom of that range than the top, sitting well below every relevant moving average after a 30%+ drawdown from the highs.

And I don’t think this sell-off has much to do with Alibaba the business.

Asia has been getting absolutely killed this week. The Hang Seng dropped to two-month lows as the Iran situation blew up. U.S. and Israeli strikes, missiles going back the other direction, the Strait of Hormuz in play, oil ripping higher, etc.

South Korea’s Kospi fell so hard it triggered a trading halt. Hong Kong financials, tech, consumer, everything got smoked. When stuff like this happens, correlations go to one and everything sells together. Margin calls and forced liquidations made it worse. BABA just happened to be in the blast radius.

On top of that, there’s been a wave of selling from mainland Chinese investors pulling out of Hong Kong-listed shares. Reportedly billions of dollars worth in outflows over the past week as frustration builds over tech companies spending heavily on AI without showing earnings growth yet.

So you’ve got geopolitical panic layered on top of an AI sentiment unwind layered on top of forced selling. It’s a mess, and it has very little to do with whether Alibaba is a good business at a good price.

The Qwen situation, and what people are getting wrong

There’s been a lot of talk about the Qwen leadership departures this week. Junyang Lin, the tech lead, stepped down. Yu Bowen, the head of post-training, also resigned. That’s three senior departures from the AI unit this year. This certainly added fuel to the fire as BABA dropped another 4-5% in Hong Kong on the news, and I’ve seen a lot of people jumping to the conclusion that Alibaba is about to go closed-source and replicate the Google/Gemini playbook.

I don’t think it’s that simple.

Google can afford to run Gemini as a closed moat because GCP is a mature business with massive enterprise penetration. They already have the customers. Alibaba Cloud is nowhere near that scale. They're the undisputed leader in China and Asia, but globally they're still competing for share against GCP, AWS, and Azure while domestically fending off Bytedance who are cutting prices aggressively to try to claw their way in.

For Alibaba, open source IS the customer acquisition strategy. You don’t just torch the most popular open-source model family on earth to copy a playbook from a company in a fundamentally different competitive position.

What’s more likely happening is that Alibaba is tightening the link between model development and cloud monetization. The path from free downloads to paying cloud customers gets more deliberate. That doesn’t mean open source goes away. The frontier “Max” models have always been closed. The smaller models have always been open. That has literally been the strategy since Qwen 2.

So the leadership shakeup is definitely worth watching, but reading this as “Alibaba is abandoning open source” misreads the competitive situation. They need developers building on their infrastructure more than they need API margin on frontier models right now. At least that’s how I view it…

And for whatever reason I think most people are looking at the wrong part of the AI story with Alibaba anyway.

Yeah, the Qwen models are impressive. Qwen 3.5 is competitive with frontier models globally, the consumer app went from basically nothing to over 200 million monthly active users in two months, and they’re the most downloaded open-source AI models on the planet. I’m glad they’re doing well. But I actually think large language models get commoditized over time. In fact, we’re already seeing it.

The moats in AI aren’t going to be in the models themselves, they’re in the infrastructure layer underneath.

Alibaba Cloud is the clear leader in China. They have the full-stack offering (compute, storage, networking, the AI platform layer on top) and they’re the only Chinese cloud provider that can credibly compete across the entire stack. The only real comparable competitor is Bytedance, which has been cutting prices to try to win share, but Alibaba already has the installed base, the enterprise relationships, and the developer ecosystem.

Cloud revenue continues to accelerate and AI-related cloud products have posted triple-digit growth for nine consecutive quarters. Eddie Wu said on the last earnings call that they’re rationing GPU access because they literally can’t deploy servers fast enough to meet demand. They committed $53 billion over three years to AI and cloud infrastructure, and I’ve heard rumors they plan to increase that number.

Every company in China racing to build AI applications needs compute. And when they need compute, most of them are going to Alibaba.

Valuation

At $133, BABA is trading at roughly ~12x LTM EV/EBITDA. You can actually call this thing “cheap” again.

On top of that, I think this company is underearning right now. Margins have been compressed by all the heavy AI and cloud investment spending, competitive pricing pressure from Bytedance, and the quick commerce losses which I believe have peaked.

I think we’ve hit the bottom on margins and they start to improve from here. As that capex starts converting into paying cloud workloads and the pricing war stabilizes, you should see gradual but meaningful margin expansion.

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The stock is down over ~60% from its highs and now trades at a nearly 13% FCF yield, which for a payments business growing 25%+ is about as cheap as it gets.

Every quarter feels like it should be the one that turns sentiment, and every quarter the market finds a new reason to sell. CEO transition. Global Blue noise. Guidance confusion. Pick your poison.

At some point you do start to wonder if the market knows something you don’t…

Sure, a lot of the skepticism is fair. There are real questions and concerns here. But when you look at the actual results and the valuation the market is putting on this business, and it’s really hard to take the sell-off seriously.

That said, if you’ve been following my coverage of FOUR, you know this is one of my largest positions. You probably also know this isn’t the first time I’ve had to sit here after earnings and explain why I’m not selling.

But as usual, I’ll walk through the results and give my thoughts.

So What Happened?

I’ll keep the results quick because they don’t deserve much debate. The core payments business continues to hum. Volume was $59 billion in Q4, up 23%, and Shift4 has now grown volume at a 46% four-year CAGR. The Americas business is growing mid-teens organically, the international payments business is growing in the high-20s, and the company now has over 80,000 merchants outside of the Americas.

For the full year, GRLNF came in at $1.98 billion, up 46%. Adjusted EBITDA was $970 million, up 43%. Free cash flow was $500 million. These are strong/healthy numbers.

So why did it sell off? I think there’s a few reasons…

First, the 2026 guidance came in lighter than what the street was hoping for. Management guided to $2.5-2.6 billion in GRLNF (26-31% growth), $1.165-1.215 billion in adjusted EBITDA (20-25% growth), and $490-510 million in adjusted free cash flow at a 42% conversion rate. Non-GAAP EPS guidance of $5.50-5.70 was a full dollar below the consensus estimate of ~$6.45. On the surface, that’s a whiff.

The implied EBITDA margin at the midpoint is about ~47%, down from Q4’s ~50%. That looks like margin compression, and for a market that is already deeply skeptical of payments stocks, that was enough to hit the sell button. But that 47% isn’t the business deteriorating. It’s the business absorbing the largest acquisition in its history. More on that in a minute.

Second, the $1 billion free cash flow target that management had been dangling? That’s now on the back burner. They’ve shifted the framing to FCF per share instead of absolute FCF, and they’ve been plowing capital into buybacks rather than paying down debt.

The logic makes some sense. But the messaging was clumsy, the slide just disappeared, and the market read it as a retreat from a target they’d been promised. I have a lot more to say about this, so I’ll come back to it.

Third, and this is the one that I think people are overstating: Global Blue. The CEO (Taylor Lauber) was upfront about it.

“The acquisition of Global Blue represented a step-function increase in the pace of progress for Shift4. We have acquired a highly unique product capability that is deeply intertwined within the critical workflows of many of the world’s most well-known luxury brands. We have the benefit of an excellent team operating all over the world, and we view 2026 as an important year given it will be our first full year as a combined company. We are currently scaling our go-to-market cross-sell efforts throughout Europe, and remain excited about the opportunities to unlock meaningful revenue synergies in the months and years ahead. In the near term, Global Blue is gross margin accretive, but slightly dilutive to our adjusted EBITDA margins and also to working capital. However, as revenue synergies are realized, I anticipate Global Blue’s adjusted EBITDA margins will begin to trend towards that of Shift4, which in turn will benefit our adjusted FCF conversion levels.”

This is where I think the market is being way too impatient. The Global Blue deal closed in July. It’s been less than eight months. The company is integrating an international tax-free shopping business that operates in 75+ countries into a payments platform that was primarily U.S.-based until recently.

That takes time.

Personally, I never expected Global Blue to be meaningfully accretive this quickly. If you bought this stock expecting the biggest acquisition in the company’s history to boost margins within two quarters, I don’t know what to tell you. That 47% EBITDA margin in the 2026 guide? That’s the integration math working through the P&L. It’s temporary, and it’s exactly what you’d expect.

The organic growth in Global Blue’s TFS business is running mid-single-digits on a pro forma basis, which is below the high-single-digit growth they expected when they underwrote the deal. Some of that is macro. China and Japan tourism dynamics, FX headwinds on translation. And some of it might just be conservatism in the guide.

I’d flag this as something to monitor. If it doesn’t reaccelerate as cross-border travel normalizes, that changes the math on the deal.

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Disclaimer: I’m just one investor thinking out loud. This isn’t financial advice. Do your own work before buying or selling anything.

This is a brief follow up to my last post…

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There’s a small-cap company headquartered in Mount Airy, North Carolina that is the largest domestic manufacturer of a product that goes into essentially every bridge, highway, parking deck, and building in America.

Revenue is growing 20%+, earnings more than doubled last year, and the stock trades at just ~8x normalized EBITDA. It has essentially no debt, a clean balance sheet, and a $700 million market cap that keeps it off most institutional radars.

Federal infrastructure spending is ramping. Data centers are the hottest construction market in America right now, and it’s not particularly close. And a set of tariffs that have been in place since 2018 just handed domestic producers like this one a structural pricing advantage over imports that they haven’t had in years…

Much to my disappointment, I’ve mostly missed the “picks and shovels” trade around the AI and data center buildout. I’ve watched it happen more than I’ve participated in it.

This time feels different. The numbers are real, the setup actually makes sense to me, and for once it doesn’t look like the market is already five steps ahead.

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Some of this you’ve probably already seen. But the drama is worth unpacking because there’s genuine confusion around the name right now, and honestly, a fair amount of it is warranted.

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Alibaba is a name I cover frequently here at Coughlin Capital. If you missed my last two posts on the company, here they are:

1260H List

You know how some movies get sequels that nobody asked for? This is that…

We saw it in November with the White House memo. We saw it Thanksgiving week with the Feinberg letter. And now we’re seeing it again. The timing is always suspicious.

Around 8 AM on the Friday before Valentine's Day, Walter Bloomberg tweets that the US is expected to add Alibaba to the Pentagon's list of firms allegedly aiding the Chinese military. Stock immediately starts selling.

Less than an hour later, the Pentagon actually publishes the updated 1260H list on the Federal Register. Alibaba is on it, along with BYD, Baidu, Huawei, NIO, and a handful of others.

Then, roughly an hour after that, the entire list gets yanked. No explanation…

I want to explain what this list actually is, because I think a lot of people see “Pentagon” and “military” in the same headline and assume the worst — even though, as of now, Alibaba is not on the list.

The 1260H list is basically a name-and-shame list. It bars the Pentagon from buying goods and services from companies on it. That’s it. It doesn’t restrict US investors from owning shares. It doesn’t trigger sanctions. It doesn’t trigger trading bans.

It is not the NS-CMIC list, which is the one that actually restricts securities purchases. Those are two very different things. And Alibaba has said publicly they do zero business with US military procurement, so even the one thing this list actually does is completely irrelevant to them.

We have a recent precedent for exactly how this plays out. Tencent and CATL were both formally added to this same list in January 2025. They both initially fell on the news but recovered. Both went on to make new highs. Both are operating today with zero business impact from the designation. Tencent literally called it “clearly a mistake” and went about their day.

Alibaba’s response was nearly identical. They said there was “no basis” for the designation and hinted at legal action. Xiaomi went through this exact process a few years ago, challenged it in court, and won.

Worth noting: the Feinberg letter behind all of this was written on October 7th — three weeks before the Trump-Xi trade truce. Months later it still hadn’t been formally acted on. And now it resurfaces right as Trump is actively de-escalating with China ahead of his expected April visit. The administration has spent months negotiating Nvidia chip sales to Chinese companies and shelving a proposed ban on China Telecom. The whole trajectory is “let’s make a deal.” And then someone publishes a list adding China’s biggest tech companies, it causes a selloff, and gets pulled within the hour?

I think somebody jumped the gun and somebody higher up wasn’t happy about it.

When something like this happens and the stock immediately dumps, I do find myself wondering who was positioned for it. Maybe that’s too cynical. But a list that briefly appears, causes a wave of selling, and disappears without explanation is awfully convenient timing for someone.

I’m not telling anyone what to do. But the algos don’t read context. You should.

China’s AI Landscape

That’s the headline that rattled the stock on Friday. Now let me talk about what’s actually been going on in China over the past two weeks, because it’s way more interesting than any Pentagon list.

The Lunar New Year kicked off what I would call “The AI War.” Every major Chinese tech company is burning cash to get consumers hooked on their AI platforms.

Alibaba committed 3 billion yuan (about $430 million) to promote Qwen through red envelope giveaways and subsidized shopping. Tencent put up 1 billion yuan for Yuanbao. Baidu dropped 500 million yuan on Ernie. ByteDance partnered with the CCTV Spring Festival Gala — think China’s Super Bowl — where they literally gave away luxury cars through their Doubao chatbot.

The Qwen campaign numbers are impressive. Within six days, the app processed over 120 million consumer orders and daily active users hit 58 million. That’s a 7x increase from baseline. Nearly half those orders came from people in smaller cities and rural areas. And about 1.56 million people over the age of 60 made their first online purchases through the app.

It’s wild to me that so many people over 60 were buying something online for the first time because of an AI chatbot… AI is already changing behavior in ways that I couldn’t even imagine for Alibaba.

What they’re really testing here though goes beyond a holiday promotion. The goal is to collapse the app layer into an AI agent layer. Instead of opening Taobao, searching, comparing prices, adding to cart, and checking out — you just tell Qwen what you want and it handles everything. Execution wasn’t perfect…

The system got confused on some orders (delivering Cudi when someone asked for Luckin Coffee is a rough start), merchants couldn’t keep up with volume, and some features still kicked you back to the underlying app. Growing pains. But the core pipeline worked at massive scale, and that’s the part that matters.

On the model side, Alibaba dropped Qwen 3.5 last Sunday. It’s a 397 billion parameter model built on a sparse mixture-of-experts architecture — only 17 billion parameters are active per query, which is how they get it to 60% cheaper and 8x more efficient than its predecessor.

Alibaba claims it outperforms GPT-5.2, Claude Opus 4.5, and Gemini 3 Pro on several benchmarks — but those are self-reported numbers, so take them directionally.

The honest picture is it’s strong on vision and agentic tasks, trails a bit on pure coding and math. Either way, this is top class model and it’s open-weight. Qwen’s open-source models have now crossed 900 million downloads globally, making them the most downloaded open-source AI models in the world.

This comes right after ByteDance released Doubao 2.0, also claiming to match frontier US models. ByteDance also dropped Seedance 2.0, a video generation model that went viral and drew immediate comparisons to DeepSeek’s breakout moment last year. Alibaba’s DAMO Academy unveiled RynnBrain, an AI model built for robotics. And DeepSeek is expected to release their next-generation model any day now.

Think about the DeepSeek moment from January 2025. One model release from one Chinese AI lab shook global markets and completely rewired how people thought about Chinese AI. That was one company. We’re now watching Alibaba, ByteDance, Baidu, Tencent, Zhipu, and DeepSeek all dropping major model upgrades inside the same two-week window. Another DeepSeek-type moment during this cycle wouldn’t surprise me in the slightest.

A year ago the consensus was “Chinese AI is behind.” Good luck saying that with a straight face now.

What This Means for Cloud (And Margins)

The AI excitement is real, but I think some people are going to miss the margin picture heading into earnings.

On the demand side, everything looks great. Alibaba Cloud is the largest cloud provider in Asia. Revenue grew 34% last quarter. AI-related products have posted triple-digit growth for nine consecutive quarters. They’ve committed at least $53 billion to AI and cloud infrastructure over three years.

You also have the Apple Intelligence partnership for China which is still sitting in regulatory purgatory — announced over a year ago, still not launched, which is getting old — but the deal isn’t dead.

And the Nvidia H200 situation continues to go back and forth. Beijing gave conditional approval for Alibaba, Tencent, and ByteDance to purchase over 400,000 units, but the terms keep shifting, some approvals reportedly aren’t converting to actual purchases, and there’s a domestic chip purchase requirement layered on top. Every week there’s a new headline and nothing ever feels fully resolved. Welcome to investing in China.

The competitive dynamics on the supply side, though, are intensifying and it’s going to show up in the numbers.

I covered this in my guidance call piece. ByteDance stockpiled high-performance chips before US export restrictions hit and is now using that excess capacity to undercut enterprise cloud customers at basically any price. Alibaba is matching in some cases just to protect key accounts.

And on top of that, everyone is spending like crazy on AI infrastructure at the same time — Alibaba, Tencent, Baidu, ByteDance, DeepSeek, all of them, all at once. Long-term that’s bullish because it means the ecosystem is maturing and compute demand keeps growing. Short-term it means pricing pressure and margin compression.

None of this should be a surprise though. Management already told us. They guided cloud growth to “in excess of 35%” when analysts were around 38%, and flagged that “Other Businesses” losses would widen due to investment in Qwen and AutoNavi. If cloud margins come in soft, just remember what’s actually happening — it’s a spending war, not a demand problem. Those are very different things.

I think it’s fine. This is a land-grab moment and the companies that build infrastructure and lock in users now are the ones that win the next decade. Alibaba has the scale, the ecosystem, and 600 million open-source downloads to show for it. Messy margins for a few quarters is the cost of playing offense.

Earnings

I’ve gotten a lot of questions about when earnings actually drop, so let me address it — because this comes up every single quarter without fail.

There is always confusion around Alibaba’s earnings date. Various sites are throwing around February 19th, the 20th, the 24th. IG has one date, Wall Street Horizon has another, TipRanks has another. Half the internet says “confirmed” and the other half says “estimated.”

Every. Single. Time.

Alibaba always officially announces the date with a press release at least a week in advance. As of right now, I haven’t seen that press release. Until I do, nothing is confirmed. My best guess is we’re looking at the first or second week of March. If they were reporting on the 19th or 20th, we’d already know about it.

Whenever it does land, the setup is about as negative as I’ve seen from this team. In my guidance call piece that I mentioned earlier, management walked down expectations across the board on their pre-earnings calls with the major sell-side shops — e-commerce slowing, quick commerce losses not narrowing, cloud growth “only” 35%, buybacks decelerating.

I said at the time I thought they were sandbagging. I still think that.

Cloud demand is outpacing supply. Eddie Wu said on the last call that they’re rationing GPU access because they can’t deploy servers fast enough. Quick commerce share has hit nearly 50% and unit economics have improved meaningfully since October. Regulators cracking down on subsidy wars effectively locks in Alibaba’s gains.

When management goes out of their way to walk everyone’s numbers down while the underlying business is steady improving, they’re either genuinely worried or setting up a beat.

The stock has pulled back to about $155 which is well off its highs of $190+ from last October. That’s roughly ~14x EBITDA for the largest cloud provider in Asia, the most downloaded open-source AI models on the planet, a dominant quick commerce position that didn’t exist a year ago, and a pending deal to power Apple Intelligence in China whenever that finally gets through regulators.

I know what I own and why I own it. Earnings can’t come soon enough.

Disclaimer: I’m just one investor thinking out loud. This isn’t financial advice. I own BABA and several other Chinese names. Do your own work before buying or selling anything.