Equities grew again in the 3rd quarter, despite an awful quarter for bonds:

The Cost of Money

Money is now a lot more expensive. 10 year interest rates jumped from 4.5% to 5.3%. This little jump drove $1+ trillion of markdowns to bond principal. A combination of growing geopolitical instability, somewhat loose monetary policy, and persistent federal deficits are driving long term interest rates higher.

Meanwhile, some of the most historically money dependent companies - OpenAI and Anthropic - continue hunting for more cash. Anthropic’s public offering has slid into November, while OpenAI punted theirs to 2027. Any time the cost of borrowing rises like this, families, like companies, begin hunting for ways to reduce their liabilities.

Your Family CFO

We’re 3 years into building a modern private wealth company. We’ve consolidated our planning and investment insights into this weekly release. Recent highlights:

• You Have Three Months Left to Get a 2026 DAF Tax Break

• Our 2Q26 Letter Named 5 Software Stocks, Up an Average 35% Since

• Why Wealth Creators Have Wealth Managers

Subscribe now

So, Who Can You Trust?

The US Federal Government, the most reliable borrower in the history of the world, is currently paying 5.28% annualized on 7-year treasuries. That’s the highest rate seen in 19 years. If, for example, you invest $100,000 in 7-year treasury in your retirement account, set the dividends to automatically reinvest, you’d see $143,358 in seven years. How many of your current investments can guarantee that type of outcome?

We are in a moment during which investors are allocating enormous capital to AI development. But the hurdle rate for justifying those investments is higher than ever.

Social Impact

Expanding access to education is the best tool we’re aware of to fight against the perpetual widening of economic inequality. This quarter, we again supported Khan Academy.

Robert

Want to discuss your portfolio?

Let’s start with a 20-minute chat to see if there’s an opportunity to improve your long-term outcomes.

Upholdings is a registered investment adviser in applicable jurisdictions. Registration does not imply any specific level of skill or training. This newsletter is provided for informational and educational purposes only and does not constitute investment, tax, legal, or accounting advice. It is not an offer or solicitation to buy or sell any securities or investment strategies. Past performance is not indicative of future results. Investing involves risk, including the potential loss of principal.

• Capital expenditures still growing, but more slowly. This quarter, there was not a unilateral commitment to increase capex. Microsoft flatlined commitments, and Amazon grew theirs just 10%. The market rewarded this prioritization of revenue growth.

• Anthropic (Claude) and OpenAI (ChatGPT) are going public. S-1 disclosures for Anthropic are expected in September, revealing unit economics for a foundation model company. OpenAI has filed confidentially but is pushing its listing into 2027.

• Long term interest rates up 0.3%. Inflation is headed back up due to high oil prices. Bonds underperformed in the period from this change.

Largest Holdings

• Mid Cap Equities: Up 8% relative to the S&P’s 5% over the last 90 days. Energy and industrial companies are benefiting from elevated capex spending by larger companies.

• Google: Capital expenditures exceeded operating cashflow driving negative free cashflow for the first time since going public in 2004.

• S&P 500: Microsoft was the top contributor, after being the biggest laggard for several quarters.

• Apple: The stock remains at a historically high earnings multiple. Demand in China and Asia remains strong, but is decelerating quarter-over-quarter.

• Constellation: The company’s rate of acquisitions has recovered, but slow performance in its healthcare segment slowed organic growth from 6% to 3%.

• Adyen: Growth in payment volumes has accelerated for four straight quarters since dropping CashApp as a client one year ago.

Valuation Table

Footnotes

• Earnings Yield is 1-year forward earnings per share divided by stock price

• Revenue Growth based on 2027 analyst consensus estimates, S&P from Factset

• 1 Year Return is the total return including dividends

We remain focused on funds and businesses with durable economics and disciplined capital allocation.

Upholdings

Planning and investment decisions from a modern wealth manager.

Market performance in the 2nd quarter was the strongest in years. Results:

Component shortages in memory and processing drove the most extreme market movements: SanDisk (+191%), Micron (+184%), and Intel (+165%). On any given day, market prices have been swinging in support of, or against, the current AI infrastructure buildout. Dispersion in share prices is higher than normal and we have been trimming the most richly valued securities from client accounts where possible.

Give It Away

When the market’s doing well - high multiples and stable earnings - we recommend investing in your own quality of life. Refurbish a bathroom, take a vacation, or most tax efficient of all, give a highly appreciated stock away to your favorite charity.

If you have yet to choose a charity, donor-advised funds let you donate today, capture the deduction, diversify the position tax-free, and select recipients years later. There are tax efficiencies to setting aside years of charitable giving in a single lump sum.

A Software Story

Siebel Systems dominated customer-relationship-management (CRM) software in the 1990s. Installing Siebel in 1997 meant CD-ROMs and onsite workers to configure Windows-powered machines. Salesforce’s browser-first model displaced that distribution entirely. Today, when one thinks of CRM, Salesforce is the name that comes to mind.

Since ChatGPT launched in November 2022, artificial intelligence has written meaningful amounts of code. Google and Microsoft report more than 25% of new code is written by AI. Investors, fearing every software vendor is the next Siebel, have heavily discounted the category. Below are the changes in EBITDA multiples since ChatGPT’s launch date:

A once beloved category now trades below the S&P 500’s own 14.6x EBITDA multiple. Adyen - a deeply integrated modern payments stack - and Constellation - a conglomerate of multi-decade vertical market solutions - are our two holdings. While we see unbridled risk taking in many AI investments, discounted software offers a comparatively attractive risk-reward.

Social Impact

Expanding access to education is the best tool we’re aware of to fight against the perpetual widening of economic inequality. This quarter, we again supported Khan Academy.

Roman & Robert

Disclaimer: this letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal. Results above include assets under Upholdings’ discretion net of fees across our private wealth offering. Multiples are calculated against forward estimates and sourced via Koyfin.

Share prices have recently been rising faster than earnings. Google, in particular, is one stock we are re-evaluating. The combination of a peak valuation multiple, along with orders from customers with unprofitable business models, is driving our caution.

Market Updates

• The capex number got bigger again. Google led another upward revision in datacenter capex: total 2026 spending estimates for market leaders now stand at $725B, up from $640B last quarter. Google also committed to spending even more in 2027.

• Claude’s chatbot is winning the enterprise. Launches of Claude Code, Claude Cowork, and Claude for Small Business solidified this position. ChatGPT still owns consumer usage.

• Memory chip shortage. The shift from inference chatbots to agentic chatbots drove new demands for memory, and along with it, extreme share price jumps for Micron and Samsung. Historically, spikes like this have rarely held.

• Private capital. Blackstone, KKR, and Apollo all faced higher redemptions in their private credit vehicles. In their earnings calls, they failed to provide evidence that private credit conditions are in fact stable, helping justify our exit from this sector.

Largest Individual Holdings

• Google: Backlog orders for Google’s cloud computing jumped to $460 billion, up from $155 billion six months ago. Private AI companies are making aggressive commitments for Google’s services. Those companies will have to continue to raise funding to deliver on those commitments.

• S&P 500: Since the start of 2026, Google has been the biggest contributor to the index while Microsoft has been the biggest laggard.

• Apple: Continued resurgence in Chinese demand is driving strong results for the iPhone.

• Adyen: Made their first large acquisition: $750M for Talon.One, a loyalty company that will enable upsell opportunities at the point-of-sale.

• Constellation: Robust financial performance continues. Acquisitions are accelerating, and the new CEO is taking a more transparent approach to investor relations.

Valuation Table

Footnotes

• Earnings Yield is estimated 1-year forward earnings per share divided by current stock price

• Revenue Growth based on 2026 analyst consensus estimates

• 1 Year Return is the change in stock price over the last 12 months

We remain focused on businesses with durable economics and disciplined capital allocation. Our aim is to adjust exposure when valuations dislocate from fundamentals.

Upholdings

In the 1st quarter, the S&P 500 returned -4.3%, the Aggregate Bond Index returned 0.0%, and assets under Upholdings’ discretion returned -6.2%. Our clients lean into growth companies that underperformed in the quarter primarily from software valuation multiple contraction.

War is Money

Wars are economic machines: they drive jobs, manufacturing, and innovation. Since the early 1800s, following the start of nearly every war, world GDP growth has been strongly positive in the ensuing 10 years. The two exceptions: the Taiping Rebellion in 1850 and the Dungan Revolt in 1862. Thanks AI.

Both events depopulated China to an extent that decades of repopulation were needed to recover. Modern conflicts have experienced significantly less loss of life, consistently measuring <2% of the global population. Crude oil prices are up 95% year-to-date and the uncertainties of war are destabilizing, but economic engines hum along so long as life persists.

Get Your Taxes Right

This is the time of year to not only ship documents to your accountant, but also to make smart decisions that can compound over time. Adjusting withholdings, exercising in-the-money options, and strategically deferring income are powerful tools.

For a recently married couple, we adjusted salary and equity withholdings to reduce IRS penalties. For a family who recently exited their ‘life’s work’, we utilized safe harbor rules to defer the primary tax payment until April 2027.

Proactive tax work helps you keep more of what you earn.

Adyen, Again

We first introduced Adyen (ticker: ADYEY) in our quarterly letter in July 2024 at $12 per share, and revisited it in October 2025 at $16 per share. Today, the shares trade at <$10 per share.

Since July 2024, payments processed are +20%, revenue is +39%, and free cash flow is +66%. The business is performing, but the stock is not. Our conviction in the company has grown due to the diversification of their customer base beyond digital-only into omni-channel (digital + physical stores). Omni-channel has expanded from 25% to 34% of payments in recent years, creating the potential for more stable growth.

The confusion over AI’s impact on the software industry is creating a rare opportunity to acquire shares of high quality software companies.

Social Impact

Expanding access to education is the best tool we’re aware of to fight against the perpetual widening of economic inequality. This quarter, we again supported Khan Academy.

Roman & Robert

p.s. As you now know, we re-platformed our quarterly letter onto Substack. Please report back any issues.

Disclaimer: this letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Upholdings: 2026 Planning

We recently completed year-end planning conversations with every client focused on projecting cash inflows and outflows for 2026. If you’d like to map out the year ahead or stress-test your assumptions, email roman@upholdings.com for a quick consult.

Bots Galore

Last quarter we detailed ChatGPT’s remarkable accomplishments. But in just the last 3 months, we estimate that Google wrestled away 12% of ChatGPT’s share of searches with an improved Gemini chatbot. Google has an incredible advantage of integrating Gemini into their ecosystem of search bars, Chrome browsers, YouTube, and Android powered devices. This level of competition is great for customers, but awful for investors. We have been actively repositioning assets away from the AI due to these industry issues:

• Cost of Delivery: The average chatbot search currently costs roughly 30x more to process than a traditional Google search.

• Saturation: The list of firms training and delivering LLMs is now immeasurable, leading to a "race to the bottom" on pricing.

Introducing Constellation Software

Constellation has outperformed the S&P 500 in 18 of the 20 years it’s been a public company. But in 2025, its share price has underperformed the S&P 500 by 44%. Like Berkshire Hathaway, Constellation is a holding company that pursues long term acquisitions. Historically their focus has been vertical market software. The stock has been punished by two fears: that AI will automate away their software’s utility, and that the company will lose its way after founder Mark Leonard stepped down for health reasons.

To date, there is zero evidence of niche software-as-a-service (SaaS) losing customers to AI. In fact, most of these companies are using AI to make their own developers more efficient. Regarding the loss of their founder, the company has long operated as a collection of divisions, now with eight key leaders: Barry Symons (Jonas), Daniel Zinman + Bonnie Wilhelm (Perseus), Damian McKay (Vela), Michael Dufton (Volaris), Jean Soucy (Harris), David Nyland (Lumine), and Robin Van Poelje (Topicus). The retention and success of these diverse groups will determine the success of the company. We have jumped at the opportunity to become shareholders in a company we have long admired.

Social Impact

Expanding access to education is the best tool we’re aware of to fight against the perpetual widening of economic inequality. This quarter, we again supported Khan Academy.

Roman & Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Upholdings: New Offering

Historically, our priority was to architect portfolios for long-term growth with minimal fees and taxes. As we’ve grown, clients have called in for more. This quarter, we rolled out RightCapital to offer more advanced planning tools. Many are celebrating the transparency they now have into their futures. You can email roman@upholdings.com for a preview.

AI is Driving the Market

We’re just fifty days away from ChatGPT’s 3-year anniversary. A few of their accomplishments:

• Usage is tracking up 5x over last year driven by more users and more queries

• The chatbot will reach its billionth user later this year

• In 2025, OpenAI will collect $16 billion in revenue, while spending $25 billion

This record-setting rate of adoption has moved countless companies to chase their piece of AI. Annual capital expenditures from Amazon, Microsoft, Google, and Meta now exceed 1% of US GDP, up from 0.1% just ten years ago. This concentration of growth in datacenter construction may result in more volatile economic results in the years to come.

Adyen Attractive Again

Adyen’s stock price is up 25% since we last discussed the company in our 2nd quarter 2024 letter. But in recent months, it’s down 15%. US tariffs, Russia’s encroachment into Eastern Europe, and customer churn have made some investors wary of the company’s results.

In the US, their competitor Stripe receives bountiful press coverage and has leveraged relationships with US investors into a $100 billion valuation. Despite processing a similar volume of payments and running at higher profit margins, Adyen trades publicly at a $50 billion valuation. This is due, in part, to the perception of Adyen as a European company.

Adyen reports 42% of its revenue from European-domiciled companies. However, many of their customers like Spotify and LVMH generate most of their revenue outside of Europe. Thus, while Adyen trades on a European stock exchange and has European-domiciled customers, they process payments globally. In just ten years, they’ve gone from <1% of all credit card transactions to 7% today. We’re excited to see how far they can get in the next ten.

Social Impact

Expanding access to education is the best tool we’re aware of to fight against the perpetual widening of economic inequality. This quarter, we again supported Khan Academy.

Roman & Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

All the Wealth in the World

According to the World Bank, global net worth now stands at $500 trillion – up from $200 trillion just 25 years ago. Two-thirds is in real estate, with the remaining third in public equities, private companies, gold, art and other collectibles.

Of the $300 trillion created in the last 25 years, about half has come from inflation and half from actual economic growth. Within the next 25 years, we expect to be staring down $1 quadrillion of global net worth. We expect half of that expansion to again come from inflation.

Sovereign Debt Collapse

Warren Buffett was firmly convincing over the years that gold is an unproductive asset and not worthy of anyone’s attention. Yet, if Berkshire held gold instead of US treasuries over the last 25 years, its balance sheet would be 50% bigger than it is today.

This is the result of persistent deterioration in US sovereign debt. The United States used to easily grow more than 5% a year, and the federal government maintained debt at less than 60% of GDP. Modern America now struggles to grow 4%. Coupled with a 120% federal debt-to-GDP ratio, the FICO score of the United States is in a permanent freefall.

Gold → Bitcoin

Bitcoin has historically been favored by individuals and feared by institutions. That’s changed. Global asset managers, pensions, and governments are beginning to accumulate Bitcoin as a reserve-grade digital asset.

Today, gold sits at $23 trillion in value, Bitcoin at $2 trillion. In a world racing toward $1 quadrillion of net worth, wealth is expanding more quickly than governments can back it. We believe a credible, decentralized asset is becoming essential to preserve long-term purchasing power.

Social Impact

Furthering wealth inequality is one of the unintended effects of managing successful investment programs. Expansion of education is one of the strongest forces to improve economic inequality. This quarter, we again supported Khan Academy.

Roman & Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Guessing Game

Lately, the S&P 500 has fallen in part because investors believe it will continue to fall. Stock prices move because of one of two things: a change in underlying earnings, or a change in the multiple used to value those earnings. Frequent changes to both is why prices are so volatile. Earnings usually grow, but frequent changes in sentiment make prices impossible to predict:

*Changes are annual year over year except for 2025 year-to-date

Changes in US tariff policies have dominated headlines. The US imports $4 trillion of goods and services annually and exports $3 trillion. Both are large numbers, but still just a fraction of $107 trillion annual output of the world’s economy. Businesses, especially smaller and more nimble ones, are adapting and growing in spite of these macroeconomic changes. While we think the most expensive companies in the S&P 500 should be avoided, we continue to find smaller US companies that are ripe for equity investment.

Actual Intelligence

A company is like a brain: many small actions and data points flowing between nodes, making decisions in real time. Before the internet, companies housed these systems in local, dusty server rooms. Then in 2006, Amazon launched Amazon Web Services (AWS), thus making storage and computing untethered to a company’s physical location.

Today, cloud systems are primarily offered by Amazon, Microsoft, and Google. Spending on these services exceeded $240 billion in 2024 with annual growth of more than 20%. But it takes more than storage and computing to run these systems: companies need real-time observability, anomaly detection, and visibility across multiple digital environments.

This is where Datadog comes in: the intersection of cloud adoption and operational intelligence. As companies move more infrastructure to the cloud, they need to monitor performance, detect failures, and optimize user experiences. Datadog’s tools are all built around these needs. And the company is regarded as the best in their field by both customers and competitors.

DataDog’s stock price was down 29% in the 1^st quarter. The overarching fear is that companies are done investing in cloud systems and are shifting their budgets to new implementations of artificial intelligence. Based on our research, the concern that cloud spending is being permanently reallocated to AI is wrong. AI applications require even more complex infrastructure—making observability more essential, not less. Conversations with current Datadog users suggest AI will amplify, not replace, the need for their tools. Datadog’s stock:

*Changes are annual year over year except for 2025 year-to-date

While the market’s sentiment of DataDog may swing year to year, we expect their underlying earnings growth to continue at an abnormally rapid pace.

Social Impact

Donating to existing higher education institutions has the unintended effect of shrinking access to education. This quarter, we again supported Khan Academy.

Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Goodbye Compound Kings

On Monday, we closed the fund and are in the process of returning proceeds to investors. Managing the fund was a wonderful outlet for my curiosities and competitive spirits. But it’s been a limiting activity for building a real business.

Labor Intensity

On most measures, the US economy looks good. But it doesn’t feel good. That’s because our labor supply isn’t growing. Historically, labor supply growth has hit 0% only during periods of financial panic. Even if the US economy keeps growing, living will keep feeling tight.

One of our requirements for equity investment is businesses must generate at least $400,000 in annual gross profit per full-time employee. A tight labor market will require us to keep revising this requirement higher.

Boring ‘ole Bonds

In the nearly six hundred months since 1976, the aggregate bond index (“AGG”) has outperformed the S&P 500 41% of the time. In last two years, the AGG has outperformed just 31% of the time.

Most bonds today promise a 4-5% return, across any time ranging from 0 to 40 years. The hardest part about bond investing isn’t picking the rate. It’s in choosing how long you’re willing to lend the money for.

Most of the time, short term loans earn a lower rate than long term loans. Sensibly, more time means more risk. Lately, this hasn’t been the case. Right now, you can lend to the US government at the same rate for 2 years as you can for 20:

Promising a rate of 4.3%, 2-year treasuries are the best risk-reward investment we see across the entire universe of securities at present. If we lend for longer, we’d like to earn more premium for doing so.

Social Impact

Donating to existing higher education institutions is one of the worst ways to expand access to education. This quarter, we again supported Khan Academy.

Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Why We Write

Our letters reveal investment performance and provide context to the results. As our client base grows, so does our experience with new types of transactions. Lately, we’ve been helping clients reduce their stakes in private equity funds. If you’ve got an asset that you’re not sure how to exit, try us at wealth@upholdings.com.

Dollar Distortion

The volume of money has changed drastically within the last 5 years, creating many price distortions. Just a couple of years ago, used cars seemed absurdly expensive. But in recent months, they’ve looked like a bargain again.

In reality, used cars were never expensive, nor are they cheap now. Instead, as one of the more liquid assets, used cars are a reflection of the amount of money slushing around the economy.

Valuing stocks during periods of price distortions is doubly challenging because every unit of measure in corporate accounting statements is linked to dollars.

Valuing a Monopoly

In August, the Department of Justice found Google guilty of antitrust regarding its search engine dominance. This ruling reminded many of the June 2000 order for Microsoft to be broken up into two separate companies. While the Microsoft ruling was overturned a short year later, the company’s stock price would go on to perform at or worse than the S&P 500 for the ensuing ten years.

One way to understand the strength of Google’s competitive position is in their prices:

Thus far in 2024, Google has grown its cost per impression in spite of money supply remaining tight. The ability to extract further value, no matter the economy, is a surefire sign of a strong competitive position. At present, Google trades at a 15% cheaper multiple to the average S&P company, despite growing twice as quickly. We added to our Google position in the quarter.

Social Impact

Expansion of education is one of the strongest forces to improve economic inequality. However, donating to existing educational institutions only furthers inequality if those institutions do not expand the number of educated. More than 145 million learners, many college aged, now use Khan Academy for at least one or more courses. This quarter, we supported Khan Academy.

Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.

Size Matters

If you are one of the biggest companies in the world, your stock price went up. And if you are not, not much has happened this year.

One odd feature of these these seven large companies is that they have become more capital intensive as they have grown. Capital intensity is a drag on investors’ eventual return, and we are closely monitoring the sustainability of these spending levels.

Always Investing

Of the many small companies with slow share prices this year, our favorite is Adyen. Payments is a complicated, regulated industry. Adyen is an all-in-one provider for end-to-end payments, enabling merchants to accept payments anywhere in the world. Their technology has consolidated many positions in the market:

A running list of remarkable achievements for a business founded less than 20 years ago:

• They processed more than $1 trillion last year

• They serve huge companies: McDonald’s, Nike, Facebook, Microsoft

• 80% of their growth comes from existing clients and they churn less than 1% every year

• 15 cents of every new $1 getting charged on credit cards is being processed by Adyen

• They might be the largest company to never acquire another company on its journey

• They are protective of their capital stock: they average <1% per year of dilution

• They convert 50 cents of every revenue dollar into free cash flow for shareholders

Adyen will soon process more than $3 trillion and you still may never hear about them.

Social Impact

Furthering wealth inequality is one of the unintended effects of managing a successful investment program. This quarter, we supported Jump$tart, an organization dedicated to improving the availability of financial literacy in school programs.

Robert

Disclaimer

This letter is for educational purposes only. It is not a recommendation to invest in any particular security or strategy, since anything mentioned herein may be unsuitable for some investors. Speak with your financial adviser before investing. Upholdings cannot guarantee investment results. All investing involves risk, including the complete loss of invested principal.