Fellow investors,
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.