Management had just put out 2026 guidance that came in well below what the Street expected. The old $1 billion free cash flow target disappeared from the presentation. Global Blue was dragging on margins and cash conversion. And after years of questionable communication, the market basically decided it was done giving this company the benefit of the doubt.

I understood the frustration. I was frustrated too.

Then the stock went on to fall another 20%.

FOUR eventually traded down to $34 in June before bouncing back above $50. From the low, the stock is now up nearly ~50% in a little over a month. After watching it get pummeled for most of the year, I will gladly take it.

But whenever a stock rallies this quickly, you start hearing the same question: did we miss it?

I don’t think so.

At $39, which is where I built the model below, Shift4 was trading at roughly 4.2x my estimate of 2027 free cash flow. At today’s price around $50, the multiple has increased to roughly 5.3x.

I want to be very clear about the denominator here because this is where the math can get sloppy.

The ~5x figure is not based on the old $1 billion free cash flow target management quietly removed earlier this year. I’m using approximately $740 million of adjusted free cash flow in 2027, with roughly 78 million diluted shares.

That works out to around $9.49 of free cash flow per share. The stock is trading at just over five times that number.

My estimate is actually more conservative than the $800 million to $900 million year-end run-rate I discussed in March. The $740 million represents free cash flow earned across the full year. Shift4 could exit 2027 at a higher run rate without producing $800 million or $900 million during the calendar year itself.

Either way, I do not need the abandoned $1 billion target for the valuation to work.

The Cash Flow Ramp

The whole thesis now comes down to whether cash conversion recovers as the Global Blue integration matures.

Shift4 generated approximately $500 million of adjusted free cash flow in 2025. I have them producing roughly the same amount in 2026, followed by $740 million in 2027, $920 million in 2028 and just over $1 billion in 2029.

That sounds like a large jump, and it is. But the assumptions underneath it aren’t especially wild.

For 2027, I’m estimating:

• $3.15 billion of gross revenue less network fees

• $1.56 billion of adjusted EBITDA

• A 49.5% adjusted EBITDA margin

• 47.4% free cash flow conversion

• $740 million of adjusted free cash flow

The conversion assumption is the most important piece. Shift4 converted roughly 51.5% of adjusted EBITDA into free cash flow in 2025. Management is guiding to only 42% in 2026 as the company works through Global Blue integration spending, heavier interest expense and some ugly working-capital timing.

My 2027 estimate assumes conversion recovers to 47.4%. That would still be below the 2025 level.

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Management had been holding pre-earnings calls with the Street, and notes from those conversations started making the rounds. The message was that quick commerce losses are coming down much faster than people expected and that the June quarter, which Alibaba reports next month, should look better than feared.

That was basically it. The money-losing business is apparently losing less money.

Alibaba did the same thing back in January. Those calls leaked too, and I spent a weekend writing up what management was telling people.

Except in January, the message was the exact opposite. And the stock is now about a third lower than it was when those calls happened.

That’s the part worth sitting with for a minute because it has been a rough few months to own this thing. The stock went from $193 to $140, then slowly bled from around $112 into the mid-$90s during June. I’ve been long the whole way, written about it the whole way, and none of it was fun.

I also put out a post last week saying China tech had become one of the most ignored corners of the market because every dollar chasing AI was getting sucked into the semiconductor supply chain.

Then Alibaba ripped 48 hours later.

I’ll take it, but I’m not going to pretend I saw that coming.

January’s Message

The January message was pretty negative.

Take your cloud numbers down. December-quarter e-commerce was slowing materially and CMR kept decelerating. Quick commerce losses weren’t narrowing because Alibaba was still spending heavily to push its market share above 50%. The buyback was non existent, with management rightly prioritizing investment in AI and cloud growth instead, and there was no suggestion it would pick back up anytime soon.

Somebody even asked directly whether e-commerce growth could fall from 9% to 3% or 4%, and management wouldn’t answer.

I thought they were sandbagging. They mostly weren’t. The quarter came in around where management had pointed, and the stock still sold off.

The interesting part is that management clearly knows these calls move expectations. If they were worried about the quarter they’re about to report, I doubt they’d be going out of their way to tee up good news seven weeks early.

The details inside the notes are worth paying attention to, but the direction of the message probably tells you more. In January, management wanted estimates coming down. This time, they went out of their way to tell people things were improving.

The funny thing is, almost none of what came out of the call should have been a surprise.

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This time it’s two names, calls on both, together a little over ~10% of the portfolio.

I genuinely can’t think of a more hated corner of the market right now. Actually, hated might be generous. Hated implies people are paying attention. These names are just ignored, for now.

Every dollar in the world is chasing the AI bottleneck trade, memory, power, anything with a supply constraint attached to it, and that trade is sucking capital out of everything else. This group sits on the wrong end of that rotation. Money has been walking out the door for months, and a buyer base that supported these names for years recently flipped to net selling for the first time in years.

The index that tracks this group is down more than ~30% from its highs and some of the biggest names in it just traded at their lowest levels since early 2025.

The funny part is that the two biggest names in this corner are about as clear AI beneficiaries as you'll find anywhere. Actual AI revenue growing fast, with real usage behind it, and the market refuses to pay for any of it for reasons that have nothing to do with the businesses themselves.

I've watched enough of these rotations to know how they usually end. The crowded trade gets more crowded, the ignored stuff gets cheaper, and it feels permanent the whole time. Then the valuation gap gets stupid enough that people start looking around. I think that point is very very close.

Now obviously “cheap” alone didn't get me back in the trade. It was cheap a few months ago too and the market did not care. What changed is the buying. There's a very specific buyer showing up in these names every single trading day right now, and the pace picked up noticeably in the last couple weeks.

I got burned last time, and part of that was on me. I didn't buy enough time, so when the trade needed a few more months to work, I didn't have them.

Though in fairness, I'm not sure anyone saw the kind of route these names went on from there coming…

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I’ll be honest, my first reaction was relief. Which is a strange thing to feel when a company you own just caught the biggest fine of its kind ever handed out, but if you’ve followed this saga you probably felt it too. Since last fall, every conversation about Coupang has really been a conversation about the breach, and now that’s finally over. There’s a number, and the number is far better than feared.

The market seemed to feel the same way, because the stock rallied the day the news hit.

Remember what people were tossing around this winter? A possible business suspension, even a forced breakup, with fine estimates running into the billions. What actually showed up works out to about just ~1.4% of revenue. Coupang is obviously appealing, and either way it will land in the Q2 numbers, but this is a bill they pay without breaking stride.

If you're new here, fair warning: I've written about Coupang a lot. There's the original deep dive from last November, the buying opportunity post from January when the breach had everyone panicking, and the Q1 earnings review in May that dealt with all the voucher noise. At this point Coupang is less a stock I cover and more a recurring character on this newsletter. So I won't rehash any of it. The short version is the business came through fine, and if you want the full saga, it's all there.

What’s been bugging me lately is something else entirely.

The breach is mostly behind us now, but the stock still hasn’t really moved on from it. That would be annoying on its own. What makes it harder to dismiss is what’s happening around it: Korea has suddenly become one of the hottest markets in the world, and Coupang has basically sat out the entire move.

Maybe the market is right and Coupang doesn’t deserve to be part of the Korea trade. I get the objection. This isn’t SK Hynix. It doesn’t make memory chips, and nobody is buying Coupang because AI capex is exploding.

But that’s also why it’s interesting to me. If the AI trade is making Korean households richer, if brokerage accounts are up, bonuses are getting paid, and people are feeling a little more comfortable spending, then Coupang should eventually feel some of that?

Maybe not immediately. Maybe not in some clean one-for-one way. But it’s hard for me to believe the company showing up at everyone’s door every day gets zero benefit from a country suddenly having more money.

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Here’s the past twelve months performance for context. Korean market (KOSPI) in green, Coupang in blue…

At first, the underperformance mostly just annoyed me because I own the stock and, well, that’s how underperformance works. But now I’m less annoyed and more curious. Coupang is still near the bottom of its own valuation range while the country around it is having one of the strangest/largest wealth booms ever.

I know that sounds dramatic, but I don’t really think it is…

The KOSPI has roughly doubled this year alone, its best half-year on record, on top of a ~75% gain in 2025 that was already its best full year since 1999. SK Hynix is up something like ~340% and just passed Samsung as the most valuable company in Korea for the first time since 2000, a ranking Samsung is disputing, which tells you how close it is. Samsung itself is up around ~200%, and the two of them together now make up more than half of the entire index.

The whole country is levered to AI and the trade is working.

All of that money is going somewhere, and where it’s going is Korean brokerage accounts. Stock ownership in Korea went from about 6 million people in 2019 to over 14.5 million now, and JPMorgan estimates household stock wealth has grown by more than 1,000 trillion won this year. That’s a quadrillion won of gains in a country of 51 million people.

Then there’s the part that almost sounds made up. SK Hynix agreed to pay employees ~10% of operating profit as bonuses with no cap, which on this year’s expected profits comes out to roughly 700 million won per employee, about $460,000 on average.

Samsung’s chip workers spent months threatening strikes until they got a deal of their own, an average payout somewhere around $340,000.

It’s reached the point where the Korean press reports SK Hynix engineers have become the most sought-after bachelors in the country’s matchmaking market, suddenly ranked alongside doctors and lawyers, and the Bank of Korea is warning about bonus checks stoking inflation because card spending near the chip campuses in Gyeonggi is running visibly hotter than the rest of the country.

And apparently the matchmaking is working, because Korea is having babies again.

And again, this is Korea. Basically the global example everyone uses when they wants to talk about collapsing birth rates and long-term consumption problems. Births have now risen year over year for 21 straight months. March was up 19.4%, the biggest jump in over three decades, and the monthly fertility rate touched 0.99 in January, nearly back to a whole baby per woman!

Marriages are also at their highest level since 2018, and in Korea marriage is basically a two-to-three year leading indicator of births, so this probably isn’t done.

To be fair, the rebound started in mid-2024, before the rally, and demographers mostly chalk it up to post-COVID catch-up weddings and a big cohort hitting their early thirties, not the KOSPI. Fine. But a country full of newly minted millionaires can’t be bad for weddings, and every wedding and baby is a future Coupang household.

Overnight diapers were literally the original Rocket delivery pitch. The oldest knock on Coupang has always been that it’s the best retailer in a shrinking country, and for the first time in nearly a decade that curve is bending the other way.

So you’ve got millions of newly flush households, tens of thousands of workers getting life-changing bonuses, and now more weddings and babies on top of it. Somebody is going to sell those people more stuff.

My money, literally, is on the company that already sells Korea most of its stuff.

Now the pushback, because there’s a real one. Koreans historically don’t spend stock gains the way Americans do. The Bank of Korea’s own research says only about 1.3% of equity gains become consumption there, versus 3 to 4% in the US, because Korean wealth traditionally gets parked in apartments rather than spent at the mall.

And the spending that has shown up so far skews rich: department stores up 15%, luxury watches flying, jewelry up triple digits at stores near the chip campuses. The old knock, and I’ve leaned on it myself, is that Coupang sells diapers and bottled water, not Rolexes, so a luxury-led boom mostly passes it by.

Except that line is a couple of years out of date.

Coupang bought Farfetch for $500 million in early 2024, back when everyone treated the deal as a strange distressed detour, and has since dragged it to roughly breakeven. Then came R.Lux, the luxury vertical that started with high-end beauty in late 2024 and folded in Farfetch’s entire catalog about a year ago. Today it carries something like 1,400 luxury labels, watches and fine jewelry included, with import taxes baked into the price and WOW perks attached.

The timing worked out better than anyone could have planned, because Korea’s homegrown luxury platforms spent the past two years collapsing, Balaan into court protection, Trenbe and Must’It with revenue cut in half, right as the biggest per-capita luxury spenders on earth minted a fresh class of rich people. I won’t pretend R.Lux is about to rival the marble halls at Shinsegae, since most of this boom’s luxury money is still walking through department store doors. But Coupang built a net for high-end spending right before the fish showed up, which is not nothing.

Beyond the luxury angle, two more things keep me from letting the bear case kill the idea.

First, even the stingy 1.3% applied to a quadrillion won is about $28 billion of new spending, which happens to be JPMorgan’s estimate as well. Coupang’s Korean revenue runs around $29 to 30 billion, so it doesn’t need to catch much of that flow for the numbers to move. If it captures even a modest slice, roughly in line with its share of overall Korean consumption, you’re talking about a billion or two of extra revenue landing on a network that’s already built and paid for.

Incremental volume at Coupang shouldn’t cost what average volume costs. The network is already built, and more volume running through that network should come with better economics than the average order. On a company that earned about $200 million in net income last year, even a billion or two of extra high-quality revenue would change how the business looks pretty quickly. It’s the difference between the market yawning and the market repricing the stock.

Second, the 1.3% figure was measured in a world where every Korean windfall went into real estate, and the government is actively closing that door. The lending curbs and cooling measures rolling out right now exist specifically to keep this boom from becoming another housing bubble, and if the traditional destination for windfalls is blocked, more of the money leaks into daily life.

It’s also worth noting that the people making this money skew under 50, which is exactly the demographic that already runs its entire life through a WOW membership.

Is there any evidence yet, or is this all just me connecting dots? A little, and I’d call it early evidence with the emphasis on early.

Coupang’s app user base held basically flat through the worst months of the breach and then made a new high in May at about 33.7 million monthly users. Web visits jumped from around 200 million in February to the 240 to 250 million range this spring. And Google search interest for 쿠팡 (Coupang) has been climbing for years but just spiked to a five-year high in the latest reading.

I’m not going to pretend a few months of third-party panel data proves a macro thesis, and some of that recovery is surely just people drifting back after the breach scare. But if Korean consumers were pulling back, or if the breach had done lasting damage, engagement is exactly where the cracks would show up first, and instead everything is pointed the same direction.

It’s not proof. It’s just what you’d hope to see if you were right, and so far it’s what we’re seeing.

To be clear about what I’m claiming here: the wealth effect is not my Coupang thesis.

The thesis is what it’s always been, an untouchable logistics network compounding year after year, now trading near the bottom of its range because of a scandal that just formally ended. The wealth effect is the free option sitting on top. If Korean consumption inflects, Coupang is the single most obvious beneficiary and nobody is modeling it, and if it doesn’t, I still own the best retailer in Korea at a price I like.

But it is a strange thing to watch. A country mints a quadrillion won in stock gains, the central bank starts worrying about bonus checks stoking inflation, and the dominant consumption platform in that country still trades like the breach never ended…

One of those two things is wrong. We’ll find out which sooner than later.

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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 runs WeChat, and calling it a messaging app really undersells what it is. People message on it, pay with it, hail rides, order food, book doctor appointments, run entire small businesses, all without ever leaving it. More than a billion people open it every single day.

“WeChat has one of the widest moats I’ve ever seen.”
— , Saber Capital

There’s no real western equivalent and there isn’t a second app in China that comes close. That kind of position doesn’t get competed away. People have been trying to dislodge it for fifteen years and nobody’s gotten anywhere.

On top of that you’ve got the largest gaming business on the planet, an advertising machine that’s accelerating, a cloud and fintech arm, and a giant portfolio of stakes in other companies. The whole thing throws off enormous amounts of cash and earns very high returns on the capital it puts to work. This is about as high quality as large-cap tech gets, anywhere in the world.

And the stock is sitting at 52-week lows. Down almost 40% from its October highs. Trading around ~12x forward earnings and ~9x EV/EBITDA.

I keep staring at this and I struggle to make it make sense.

Why is it so cheap?

I think it starts with the market Tencent trades in, but I want to be careful with how I frame this, because it’s not the same as 2022 or 2023.

Back then the whole China complex was basically radioactive. Nobody wanted anything. Mainland stocks, Hong Kong stocks, ADRs, internet platforms, consumer names, property-adjacent names, all of it got thrown into the same uninvestable bucket.

This time is a little different.

Mainland China stocks have actually been acting pretty well. A-shares have rallied, AI names have ripped, and there’s plenty of speculative energy in parts of the domestic market. Some of the mainland AI stuff honestly looks quite frothy at the moment. Money is chasing semiconductors, robotics, AI infrastructure, domestic replacement, and anything that smells like policy support.

Hong Kong, on the other hand, has been left for dead.

Tencent, Alibaba, Meituan, Kuaishou, JD, and the rest of the group have been trading like investors want nothing to do with them. Some of that is macro. China’s economy has been sluggish and the consumer recovery hasn’t been nearly as strong as people hoped, myself included.

Property is still a drag, confidence is weak, and consumers remain very cautious.

I do think China eventually comes out of this, though more stimulus is probably needed. Right now the economy feels stuck in this odd half-recovery where certain parts are fine, certain parts are even hot, and the consumer still looks tired.

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Then there’s the flow problem.

Money that might normally find its way into Hong Kong internet is getting pulled toward mainland AI instead. A domestic investor can look at a semiconductor name ripping in Shanghai or Shenzhen, then look at Tencent grinding lower in Hong Kong, and the short-term choice becomes pretty obvious.

Why sit in a cheap mega-cap internet stock when the party is happening somewhere else?

I get it.

But these rotations always feel permanent while they’re happening. The hated group gets cheaper, the crowded group gets more crowded. Then at some point the easy money in the hot stuff gets made, the valuation gap gets stupid, and people start looking around again.

Tencent is on the wrong side of that rotation right now. That’s painful if you own it. It’s also why the opportunity exists.

The other piece is the AI perception thing.

There’s been a narrative for a while that Tencent is behind in AI. And to be fair, a year ago that had some truth to it. Tencent was slow and cautious at the start of the AI boom while Alibaba, ByteDance, DeepSeek, Baidu, Moonshot, and a bunch of others were moving as fast as possible to cement their place as AI leaders

I don’t think that’s a fair read anymore.

Tencent hired Yao Shunyu, a former OpenAI researcher, as its Chief AI Scientist last year, and reorganized the whole AI effort around Hunyuan. Then they launched the Hy3 preview model in April, and management has been clear that it’s now good enough to use across real products.

It’s been the top-ranked model on OpenRouter by token usage since late April, which is about as real-world a measure of developer adoption as you’ll find.

I’m not going to pretend I can tell you which Chinese model will be the best two years from now. But I also don’t think that’s really the Tencent story.

The advantage for Tencent is where the AI can go. They already own the place where people spend their time. That’s the part I care about.

It reminds me a little of Apple. Everyone has spent the last couple of years yelling that Apple is behind in AI, and maybe that’s true. But Apple has the device in your pocket, the operating system, the default apps, the payments layer, and the customer relationship. Being late matters a lot less when you already control the surface area.

Tencent has a version of that in China through WeChat.

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But that kind of euphoria always creates ignored corners somewhere else. While everybody is piling into the same handful of trades, real businesses with real cash flow keep grinding away at multi-year lows because they don’t fit the theme of the moment.

So I want to do the unfashionable thing and write up five names I think are too cheap right now. Some of these I've written about before. Some haven't gotten as much airtime lately. What they all have in common is the stock has been getting worse while the actual business has been doing fine. Or in a couple of cases, very very well.

None of them are AI plays, at least not the kind people are chasing right now. That's not an accident.

That does not mean these are easy. Cheap stocks are usually cheap for a reason. Sometimes the reason is stupid. Sometimes it is very real. The job is figuring out which one you’re dealing with.

In no particular order…

Markel (MKL)

Markel is the lowest blood pressure name on this list.

No one is going to confuse this with a rocket ship. It’s specialty insurance, an investment portfolio, and a bunch of operating businesses inside Markel Ventures. That mix has always made the “mini-Berkshire” comparison easy, even if the comparison has been beaten to death at this point.

The stock has finally gotten interesting again. At around $1,850, you’re paying roughly ~1.3x book. That’s not a screaming 50-cent dollar. But for Markel, which has historically gotten more respect than this, it’s a reasonable starting point.

The insurance business also looks better than the headline numbers suggest. Q1 GAAP operating results were messy because of equity portfolio marks, but adjusted operating income was up 4%. The insurance combined ratio improved to 93%, and Markel Insurance adjusted operating income rose 31% to $369 million. That’s the stuff I care about.

Markel also bought back $134 million of stock in Q1, while adjusted underwriting gross premium volume still grew 10% excluding the impact of Global Reinsurance and Hagerty-related changes. I’m not looking for fireworks here. I’m looking for quiet compounding and intelligent capital allocation, and that’s what they keep delivering.

You don't need perfection from Markel. You need underwriting to stay disciplined, Gayner to keep allocating capital decently, and the share count to shrink when the stock is cheap.

This is not the name I expect to double overnight.

It is the one I expect to wake up ten years from now and be glad I owned.

The other four names are for paid subscribers.

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I was listening to The Compound and Friends podcast a few weeks ago and Batnick brought up this Paul Graham idea about how experts can be wrong specifically because they’re experts on an earlier version of the world.

He also talked about the 1950s, how investors who’d been scarred by the Depression literally could not believe that stocks yielding less than bonds was a real thing. They had decades of experience telling them it was wrong. The experience was the problem. The regime changed and the people with the best historical pattern matching were the most confused by it.

I haven’t been able to stop thinking about it because I’m pretty sure I’m that guy.

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I’ve spent a lot of time over the years reading investing books and trying to study the greats. Buffett, Druckenmiller, Marks, all the usual suspects. And when you go down that road long enough you inevitably end up deep in bubble and crash history too. Tulips, 1929, Nifty Fifty, Japan, dotcom. I know the signs and patterns. Concentration at the top of the index, retail euphoria, everyone convinced the old rules don’t apply anymore.

And all of that reading did make me a better investor (I think). It gave me a real framework for risk. Kept me from doing dumb stuff when things got heated.

It also probably cost me a bunch of money over the last few years but let’s not dwell on that. (We’re going to dwell on that.)

What happened is I’ve been too skeptical of the US market for a while now. Not just big tech, kind of the whole thing. I’d look at valuations/market conditions, convince myself the whole thing was about to fall apart, and either pass, keep it small, or sit on cash waiting for the pullback that was always six months away. I found plenty of stuff to do overseas and in smaller value/GARP names and some of that worked well, but the broad US market? I was mostly just watching from the sidelines telling myself I was being disciplined.

Disciplined is a generous word for it. Scared is probably closer.

And the frustrating part is the market didn’t go up on nothing. It’s not some situation where stocks were floating on hopes and dreams. Earnings have been legitimately great. There’s a massive AI investment cycle underway where companies are spending absurd amounts building out real infrastructure, funded from their own cash flows. Whether all of that spending turns out to be perfectly allocated I have no idea, but it’s real economic activity backed by real money. That’s a different animal than what my brain keeps trying to compare it to.

I think what Paul Graham was describing is exactly what happened to me. I learned the historical patterns so well that anytime I see something that rhymes with a prior setup my brain just fills in the ending. Market’s concentrated? Must be a top. Multiples look elevated? Bubble. Everybody’s excited about new technology? Must be 1999. Except sometimes it isn’t 1999.

The historical record can only tell you about stuff that already happened, and sometimes the new stuff matters more than the rhymes.

Could it still end badly? Obviously. I’m not going full perma-bull here. There are parts of this market I still wouldn’t touch. But I do need to look at the scoreboard, and the scoreboard says I’ve been predicting nine of the last two crashes. Not exactly a great hit rate.

The Nifty Fifty is a good example/case study. Most folks know the cautionary version. Polaroid traded at something like 90x earnings at the peak, dropped over 90% in the crash, eventually went bankrupt. But if you actually go back and look at what happened to that group over the following decades, a bunch of those names worked out fine from those prices. McDonald’s. Coke. Philip Morris. You overpaid and the business bailed you out over time. The lesson everyone took away was never pay up for anything. The real lesson was more like… don’t pay up for the wrong businesses. Completely different takeaway. Funny how the second version barely gets mentioned.

When you look at who actually compounded real wealth over long periods, it’s never the people who called every top. Buffett didn’t make his money being the smartest macro guy in the room. He just owned good businesses for a really long time and got aggressive when everyone else panicked. He sat through some ugly drawdowns. Didn’t matter. The businesses kept compounding underneath.

It’s been the same for me. The wins came from doing the work on individual names and having the conviction to size them. Not from macro calls. Every time I’d look at forward estimates I’d convince myself there was no way companies could actually hit those numbers, and then they’d go and hit them. Over and over. That skepticism felt like discipline at the time. In hindsight it was mostly just wrong.

I still think parts of the AI trade look bubbly. I’m not abandoning all skepticism here. But the internet had bubble dynamics too and then went on to change basically everything about how the world works. Plenty of smart people called the dotcom mania correctly and then spent the next twenty years on the wrong side of the biggest wealth creation event in history. They were right about the bubble. Didn’t help.

I think at some point being the skeptic just became my default setting and I didn’t totally notice it happening. Caution always sounds smart. That’s what makes it tricky. You can spend basically any point in the last decade worrying about valuations and sound perfectly reasonable doing it. But sounding reasonable and making money aren’t really the same thing, and I’m trying to remember that going forward.

Anyway. No clean takeaway here, mostly just rambling. Back to regular stuff soon.

Now that Meituan, Alibaba, and JD have all reported, I wanted to try and get a clean read on where market share actually sits today. Not the perfect answer, because that doesn’t really exist here, but a reasonable estimate using the best public data we have.

The annoying part is that none of these companies make this easy. Meituan stopped giving clean food delivery GTV years ago. Alibaba gives the best disclosure, but even that revenue line is net of subsidies. JD basically buries the whole thing inside New Businesses.

So this is not me pretending I have the number nailed to the decimal. I don’t. Nobody does. But after going through the filings, earnings calls, management comments, and sell-side estimates, I do think the rough picture is pretty clear.

The short version: the last eighteen months have been brutal for Meituan, with Alibaba and JD both in full attack mode.

For newer readers, I spend a lot of time writing about China, China internet, and AI. A few related pieces that might be helpful:

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The favor first, and it’s mostly for the paid crowd. I want to know what actually pulled you in. Was it a specific name/stock, the China stuff, or just the general way I think through things? I ask because I genuinely don’t know, and I’d rather not guess.

When you write for a while you build a story in your head about who’s reading and why, and that story is usually half wrong. If a bunch of you came in for one name and I’ve been off writing about something else, I’d like to know that before I spend another three months on the wrong thing.

I put it in a quick survey, it’s four questions, takes about a minute. No pressure, and obviously feel free to skip the ones that don’t apply. I promise it's not going into a void... your responses will actually change what I write and spend time on, so weigh in.

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For what it's worth, the usual suspects aren't going anywhere. Asia/China stays front and center, and so do my largest positions. The survey is really about everything past that. I tend to start more things than I finish, and knowing what you'd actually want to read would help me close a few of those tabs.

Last thing, and then I’m done asking you for stuff. Through end of day Sunday, May 31, I’m running 30% OFF the annual plan. If you've been on the fence, this is the cheap window. And if you're already paid, ignore this part and just go yell at me in the survey.

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Thanks for reading, as always. It’s a strange and great thing that any of you do.

But I still think it’s worth writing up because nothing about the actual opportunity/thesis has changed. The stock is just less cheap than when I started.

The company is a semiconductor equipment maker. Sells the tools Chinese fabs need to build chips domestically. Cleaning, plating, furnaces, deposition, packaging. I actually first came across it through on X, he honestly knows this name and the broader semi space way better than I do. If you’re not following him you absolutely should be.

A few years ago this was basically a single cleaning-tool business. Now it ships across six or seven product categories, with the newest lines growing triple digits. And even after the recent run, it trades at a roughly ~45% discount to the public market value of its own subsidiary.

The stock’s entire market cap is less than half of what its stake in the subsidiary is worth… oh and there’s about $1 billion in net cash sitting on the balance sheet.

I believe domestic chip production in China is going to accelerate significantly over the next several years, driven by AI demand and hardened by export controls. If that view is even roughly correct, the companies selling tools into that buildout are going to do very very well. This one is already starting to do well, the market just hasn’t fully caught up to it yet IMO.

I really do think this is one of the more interesting risk/reward setups I’ve come across in a while.

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At the time, Baidu had something like $30 billion in market cap with $27 billion in net cash and equity stakes sitting on the balance sheet. You were basically getting paid to take the operating business for free.

I wrote it up, laid out a sum-of-the-parts, and the conclusion was very, very simple: even if you were deeply skeptical about AI, robotaxis, and everything else management was pitching on conference calls, the math didn’t require any of it to work…

The stock has roughly doubled since then. The original cheap-stock pitch has mostly played out and the “easy” money has been made.

But the business has also gotten more interesting, which is why I’m writing about it again. And most of that comes down to Kunlunxin.

Kunlunxin is Baidu’s chip subsidiary. I mentioned it last year but honestly I didn’t spend much time on it. It was making AI chips for Baidu’s own data centers, which was fine, but it wasn’t a real business yet.

It didn't stay that way for very long. Kunlunxin is now pursuing a dual-track IPO in Hong Kong and on Shanghai’s STAR Market with a reported target valuation of at least $14.7 billion. Jefferies has the range at $16-23 billion.

I completely missed this, and I think it’s a good example of why buying stocks trading around net cash (even in China) tends to work out. You were sitting on free call options all over the business. Kunlunxin was one I didn’t even know I had.

So I want to spend most of this post trying to actually think through what the chip business could be worth and what that means for Baidu’s valuation today.

They just reported Q1 earnings though so I guess we should start there.

Q1 2026 Results

Baidu reported on May 18th. Revenue was RMB 32.1 billion, and Baidu General Business (which strips out iQiyi) came in at RMB 26 billion, up 2% year-over-year. First quarter of positive growth in a while.

The AI-powered business crossed ~50% of General Business revenue for the first time. RMB 13.6 billion, up 49%. AI Cloud Infra did RMB 8.8 billion, up 79%. GPU cloud revenue grew 184%. Impressive huh?

Online marketing revenue was RMB 12.6 billion, down 22%. Search ads are shrinking, and honestly faster than I expected. Although part of me wonders if AI is just growing so fast that it’s making everything else look worse by comparison. A year ago search was 63% of General Business revenue. Now it’s 48%. Either way the business is moving.

Non-GAAP net income was RMB 4.3 billion at a 14% margin, adjusted EBITDA was RMB 6 billion at 19%, and they beat EPS estimates by a few percent.

The balance sheet has roughly $40.5 billion in total cash and investments against about $12.6 billion in debt and debt-like financing, so call it roughly $28 billion of net cash and investments.

That number is still in the same ballpark as when I first wrote about Baidu in 2025, helped by slightly lower debt.

The quarter confirmed what we already knew, which is that AI is becoming the business while search slowly fades into the background.

The Chips

So, back to Kunlunxin.

The quarter is mostly context. Baidu has been moving this way for a while now. AI is becoming a bigger piece of the business, and each quarter has made that a little harder to ignore.

But Kunlunxin is the part I think still needs more attention.

The company went from roughly RMB 2 billion in revenue in 2024 to an estimated RMB 3.5 billion in 2025, and it reportedly hit breakeven, with external customers (meaning not Baidu) crossing 50% of revenue for the first time.

The customer list is pretty hard to argue with: Tencent, Vivo, China Mobile (which gave them a contract worth over RMB 1 billion), with JD, Meituan, ByteDance, State Grid, and China Merchants Bank all in various stages of testing or deployment. By unit volume, Kunlunxin is the #2 domestic AI chip shipper in China behind Huawei’s Ascend.

Two years ago this was an internal cost center. Now it has a legitimate third-party customer base and it’s filing for a dual-track IPO.

The reason all of this happened is pretty obvious, at least in hindsight. Nvidia can’t sell advanced chips into China anymore, and no major Chinese company is going to build its AI future assuming that changes. Whether the restrictions ease or tighten, the pull toward domestic compute was always going to accelerate once it started. Kunlunxin happened to be in the right place with working silicon when the demand showed up.

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The bears call the top every week. The bulls won’t shut up. And both sides sound way too certain for my liking.

I saw a tweet from the other day that I thought was genuinely well put:

People keep confusing a bubble with “stocks go up and get overvalued”. A bubble is when a prevailing trend and a prevailing misconception about that trend interact reflexively, each reinforcing the other until the gap between perception and reality becomes unsustainable. A bubble is not when everyone realizes that right now every iota of AI demand eventually, at some point upstream, must move through memory OEMs. Nor is it when estimates continue rising because things are better than expected. And it’s not just when stocks trade expensive to historical valuations. The reason behind the moves in the AI infrastructure layer so far have been simply that we don’t have enough. They’ve been driven by the fundamental reality more than the perception of the future. It’s why the bulk of the most bullish parts of this cycle have been lumpy and centered around earnings season when companies uniformly come out and confirm there’s still not enough. In the bubble, the reality is driven by the market - not the other way around. Everyone keeps saying “people are gonna freak out if it’s not a bubble!”. I think that’s silly, we have a transformative new technology that needs crazy capital to fuel it coming to fruition, that has and always will result in a bubble as long as we have financial markets. But if you want to call the top in a bubble, you need a much stronger view on what the misconception is and what negative catalyst forces broad perception to align with realizing it than you do on valuation.

I think he’s right about the definition. And I think he’s wrong about where we are.

Or maybe not wrong. I don’t know. That’s sort of the whole point of what I want to say here.

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I think AI is almost certainly a bubble. I also think that’s a completely normal and expected thing to say about a revolutionary technology.

Railroads were a bubble. Radio was a bubble. The internet was a bubble. The technology was real every single time. The valuations just got ahead of themselves because humans are humans and financial markets are financial markets.

That’s the part people always forget. Calling something a bubble tells you almost nothing about timing.

You can be completely right and still get destroyed financially because you were early.

Druckenmiller told a great story about this years ago. He had already called the top in early 2000. Sold everything. Thought the tech mania had gone too far. He was right. But then he watched younger traders around him making absurd amounts of money every day while he sat there in cash feeling like an idiot.

Eventually he cracked and bought billions worth of tech stocks almost right at the top.

“So like around March I could feel it coming. I just, I had to play. I couldn’t help myself. And three times the same week I pick up the phone, don’t do it. Don’t do it. Anyway, I pick up the phone finally. I think I missed the top by an hour. I bought $6 billion worth of tech stocks, and in six weeks I had left Soros and I had lost $3 billion in that one play. You asked me what I learned. I didn’t learn anything. I already knew that I wasn’t supposed to do that. I was just an emotional basket case and I couldn’t help myself” — Druck

This is one of the greatest investors ever. Four decades without a down year. And even he got sucked into it emotionally at the worst possible moment.

So when I see people acting completely certain on either side of this market, it honestly annoys me a little.

The person arguing that the fundamentals are real might be right today and still get crushed later when sentiment turns.

The person calling this another 1999 might also be right and still watch these stocks double before it matters.

Neither of them knows. I don’t know either. I just think admitting that is more useful than pretending otherwise.

What I do feel pretty strongly about is that risk management matters a lot more right now than squeezing out the last bit of upside. And that mostly comes down to understanding what you actually own.

A lot of people think they’re being disciplined buying semis because the forward multiples don’t look insane. But cyclical businesses almost always look cheapest near the top. The estimates assume demand stays strong, pricing stays high, and customers keep spending.

Take memory. A huge chunk of the earnings explosion recently has come from pricing power, not just volume growth. HBM demand created shortages, suppliers raised prices aggressively, and suddenly stocks screen “cheap” on forward earnings.

That works until it doesn’t.

When cycles turn, estimates get cut at the exact same time multiples compress. That combination gets ugly very fast.

I wrote about this in my Folly post last month when SOXX had already gone vertical. Since then it’s gone even higher, which honestly just reinforces the point. Being early feels exactly the same as being wrong in real time.

But I’d still rather think carefully about risk now than convince myself this time is different because stocks keep going up.

I’m not saying don’t own anything. I’m not even saying don’t own semis.

I’m just saying know what you own and what has to happen for the valuation to work.

If you’re paying huge multiples for cyclical businesses because AI demand looks endless today, you need that demand to stay elevated for a long time. Maybe it will. Maybe it won’t.

That’s a very different setup than buying a good business at a reasonable price where you don’t need everything to go perfectly.

Investors willing to think three to five years out still have a lot of opportunities right now. Real ones. Good businesses, reasonable prices, actual earnings power that doesn’t require everything to go perfectly.

The hard part is looking away from the stuff everyone else is making money on. That takes discipline. Usually the kind people only develop after getting burned.

And a lot of people in this cycle have not been burned yet. So yeah. Don’t get too cute. Don’t let the timeline bully you into doing something stupid.

Anyway, make of that what you will. Nobody actually knows how this ends. Stay humble, stay diligent, and know what you own.

The reported numbers were definitely a bit confusing/mixed. Revenue was fine, profitability was pressured, and quick commerce is still weighing on margins. None of that is new though. That has been the setup for the last few quarters.

What was different this quarter, or at least much clearer, was the shape of the business itself. The restructuring is mostly behind them, the divestitures are fading out, and you’re really starting to see Alibaba as just two businesses at this point: E-commerce and Cloud/AI.

And on the cloud side specifically, this was the quarter where management got a lot more direct about the AI revenue trajectory and where margins are heading.

Cloud

Cloud revenue grew ~38% year-over-year, with external revenue up roughly ~40%. Cloud EBITA was up ~57% on a roughly ~9% margin. Management once again guided to further acceleration from here.

AI-related products hit RMB 9 billion in the quarter, triple-digit growth for the eleventh straight quarter, now representing about ~30% of external cloud revenue.

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Alibaba and Tencent both report Wednesday morning, then Trump heads to Beijing Thursday and Friday to sit down with Xi. Earnings from the two largest China internet names and a US-China summit, all within 48 hours. There’s going to be a lot to digest.

I’m focusing on Alibaba because it’s the name I know best and the one I have the most conviction in heading into the print. Tencent and the summit will bleed into the broader read across China tech, but Alibaba is the one I care about most here.

And thankfully, Alibaba decided to report like a normal public company this time…

Last quarter was a bit ridiculous. The December quarter ended December 31st and Alibaba didn’t report until March 19th. The prior three December quarters were reported on February 7th, February 20th, and February 23rd. So for reasons nobody bothered to explain, investors got to sit around for an extra month waiting on stale numbers while the next quarter was already basically underway.

Very cool.

This time, the date went up on April 29th, about six weeks after quarter-end. I don’t know who found the calendar over there, but I appreciate the effort.

Anyway, jokes aside, this is an important print.

The stock is sitting around $140 after running all the way to $193 and then getting smoked back down toward the lower end of its 52-week range.

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Consensus is looking for revenue around RMB 246.5 billion and EPS near $0.90, which implies adjusted earnings down roughly 50% year-over-year.

So yes, the headline P&L is probably going to look ugly. No, I don’t really care.

The reason Alibaba has been beat up is not Cloud. Cloud has been working. The problem has been the quick commerce investment cycle and the margin compression that came with it. So for this print, I’m mostly watching whether the things that actually pulled the stock down are starting to turn.

Last quarter, Cloud grew 36%, quick commerce grew 56%, like-for-like revenue grew 9% excluding disposed businesses, and adjusted EBITA fell 57%.

The market saw the margin pressure and crushed the stock. I saw a business still investing aggressively into areas that could matter a lot more over the next few years, and I’ve repositioned pretty aggressively since.

Cloud

Consensus is around 40%. I think that’s about right and I personally expect roughly 41-43%.

The number I care about more is pricing.

Right before the last earnings call, Alibaba raised pricing across several AI computing and storage products. T-Head AI computing cards were raised by 5-34%, while Cloud Parallel File Storage pricing was raised by 30%. Tencent, Baidu, and Zhipu have also been pushing pricing higher across parts of the AI stack, while ByteDance is increasingly monetizing Doubao usage instead of just giving everything away.

That is a key part I don’t think people are paying enough attention to.

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The market clearly wanted more.

I’ve written about this name a lot over the past six months so I’m not going to rehash the whole thesis. What I want to do is walk through what actually happened this quarter, why I think the selloff is overdone, and where I stand.

These results shouldn’t be a surprise to those who follow the company closely, this was always going to be a rough quarter. January was the peak effect of the data incident impact. Management told us to expect Product Commerce in the 5-10% constant currency growth range and they came in at about 5%.

Total revenue was $8.5 billion, up 8%. Not a blowout, but roughly what we were told to expect.

Margins

Gross margin came in at 27%, down 228 basis points. Adjusted EBITDA margin went from 4.8% a year ago to 3.2%.

Two things drove the compression.

The first is the voucher program. Coupang committed roughly $1.2 billion in platform credits to customers after the breach, and those get netted against revenue. That means they hit the growth rate and the margin at the same time. Management said the bulk of that cost landed in Q1 with a small tail into early Q2. After that, it’s done. It doesn’t repeat.

The second is that Coupang had built out its fulfillment infrastructure, delivery routes, and supply chain commitments for a level of demand that temporarily didn’t show up. You can’t mothball a nationwide same-day logistics operation for a couple months, so they carried the full fixed cost base against lower volumes. As demand normalizes, utilization will follow.

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But if you don’t have the time, the short version is: Kaspi runs basically the entire digital economy of Kazakhstan through a single app. Payments, e-commerce, lending, groceries, travel, bill pay, all of it. 15 million monthly active users in a country of 19 million people. The thing prints money.

Back then the stock was ridiculously cheap because they’d suspended the dividend and were pouring billions into acquiring Hepsiburada, Turkey’s second largest e-commerce platform.

The market didn’t love that.

And then you’ve got the Kazakhstan label on top of it, which carries a permanent discount for most allocators. So nobody wanted to touch it. I thought the market was being waaay too pessimistic.

Fast forward to today, the Hepsiburada deal is done, the dividend is back, management is turning its attention back to shareholders, and yet the stock is still sitting at ~7x earnings and roughly ~4.5x EV/EBITDA. It hasn’t re-rated at all.

Anyways, the business has kept moving since October even if the stock hasn’t so I wanted to put out a quick update.

Tencent Takes a Stake

Tencent bought a ~3.2% stake in Kaspi on April 20th as part of a group that picked up 6 million ADSs from the Baring Fintech Venture Funds. The whole block was worth about $518 million. Lomtadze — the founder and CEO — also bought shares alongside them with his own money, as did other members of senior management.

On top of that, Spice Expeditions (a fintech investment firm), the Washington University endowment, and the University of Wisconsin Foundation came in as new holders.

“Tencent pioneered the super app ecosystem business model, and we have long admired its ability to combine innovation at scale with disciplined execution. We are delighted to welcome Tencent as one of Kaspi.kz’s largest shareholders. My own investment, together with those of key members of our senior management team, reflects our strong belief in Kaspi.kz’s Super App business model, long-term strategy and future growth opportunities…

The combination of strategic, management and highly respected institutional capital comes at an exciting time for Kaspi.kz as we build on our market leadership in Kazakhstan and expand into Türkiye.” — Mikheil Lomtadze, CEO and Co-Founder of Kaspi.kz

Look, Tencent invests in stuff all over the world. That’s kind of their thing. They were early in Shopee, MercadoLibre, tons of gaming companies. So I’m not going to sit here and pretend like a Tencent stake in Kaspi is some massive revelation about the quality of the business. They like super apps. Kaspi is a super app. Makes sense.

But Lomtadze buying more stock alongside them is a nice look too. He already owns a massive chunk of the company. He doesn’t have to buy more. He knows the tax headwinds coming, he knows the Kazakhstan base rate is at 18%, he knows Turkey is going to lose money near-term. He bought anyway. And he did it at the same time as a bunch of institutions with 20+ year time horizons.

The market liked it, stock popped about ~9% on the day. Tencent, the founder, university endowments all buying at the same time is a pretty solid vote of confidence.

The Dividend

This is the bigger deal, in my opinion.

For several quarters the market was getting increasingly frustrated with Kaspi because the company was funneling all its cash into the Hepsiburada acquisition and not returning anything to shareholders. And I mean, I get it. You’ve got this incredibly profitable business generating a ton of free cash flow and you’re just watching it go out the door to fund a Turkish e-commerce acquisition while the stock drifts lower.

That chapter is done. The board recommended a quarterly dividend of KZT 850 per ADS, which works out to roughly $1.71 per quarter at current exchange rates. Lomtadze said in his shareholder letter that this is the baseline going forward. So if you annualize that, you’re looking at about $6.84 in dividends, which at ~$86 per share is roughly a 9% yield.

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I know. That sounds obvious. It’s the thing you’re supposed to figure out before you ever buy a stock. But in certain markets it becomes easier to forget. Prices go up, everyone feels smart, the hot stuff keeps getting hotter, and eventually people start confusing the direction of the stock price with the quality of the decision.

That’s usually where the trouble starts…

“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” — John Templeton

I don’t know if we’re in a bubble. Nobody really knows that in real time, and most people who scream “bubble” every week (guilty) eventually become just as useless as the people saying valuation doesn’t matter.

But I do think there are pockets of the market where expectations have moved from optimistic to goofy.

Semiconductors and many of the names riding the AI wave are probably the most obvious example.

The SOXX (Semiconductor Index) is sitting at all-time highs, up ~53% YTD and roughly ~153% over the past year.

Most of the names inside it are historically very cyclical businesses — and some don’t even look that expensive right now, which is sort of the point.

Cyclicals can look quite cheap at/near the top of a cycle.

None of this is to bash NVDA or AMD or AVGO. These are great businesses and the growth has been nothing short of remarkable. But that kind of growth doesn’t last forever, and the market is starting to price parts of the group like it might.

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But even if you believe the AI story, this move in semis has gotten pretty ridiculous. Through Friday’s close, SOXX has logged 18 consecutive up days — the longest winning streak in its history. The previous record was 15 sessions back in 2014, and that one delivered a gain of about ~8%. This streak has delivered roughly ~45%.

April is on pace to be the biggest monthly gain in semis since February 2000. If that month doesn’t ring a bell, ask someone older.

Here’s where some of the actual names inside the index are trading right now:

I’ll give it to NVDA. At ~25x forward earnings, that one you can actually defend. Highest revenue growth in the group at ~65%, cleanest financials, the most direct line to where the spending is actually going. It’s also been the worst performer on the page — up “only” ~12% YTD while everything around it has gone vertical.

The rest is where the math starts to get… silly.

• AMD at ~52x forward earnings and ~133x trailing earnings, after running ~69% in a single month.

• AVGO at ~31x forward earnings and ~82x trailing earnings.

• ARM at ~121x forward earnings and ~313x trailing earnings, up ~102% in three months.

• Intel at ~80x forward earnings, up ~87% in a single month and ~123% YTD, on TTM revenue growth of just ~1.4%.

• ON Semi at ~339x trailing earnings, while its top line is contracting ~15% year-over-year.

The hard part is that the underlying story is very much real…

AI may be the biggest tailwind the chip industry has ever seen. Demand for compute is exploding, hyperscaler capex is still going vertical, and every CEO wants some attachment to the AI story. A lot of that is true. Honestly, most of it probably is.

The problem is that a great story still has to clear the price you pay for it. And right now, for a lot of these names, the price already assumes the story plays out almost perfectly. There’s no real margin of safety left. The thesis has to land almost exactly as drawn up just to earn a decent return from here.

That doesn’t make these names wrong to own. I just personally wouldn’t own them here.

I keep hearing that AI has changed the semiconductor cycle, and maybe it has. But I’m not willing to pay up for a historically cyclical group on the assumption that “this time is different.”

At these prices, I don’t think you’re being paid to be wrong. And that’s the difference between owning a great company and owning a great company at a good price…

Understand What You Own

This is the exercise I keep running on myself.

If I had to defend every position I’m holding to a smart friend who didn’t already agree with me, could I do it?

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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.

This post is free for everyone. If you want to support the work and get access to all my research, ongoing coverage of every name I follow, and full portfolio visibility, consider going paid.

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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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4 months 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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