Remember that scene from Quentin Tarantino’s Inglourious Basterds, where Lieutenant Aldo Raine gives Standartenführer Hans Landa a souvenir, a little somethin’ he can’t take off?

Bet you do!

Also remember the final words of the entire movie?

“I think this might just be my masterpiece.”

When I think about Honeywell and the corporate spin-offs they performed recently, that’s exactly what I think. I think it might be the masterpiece of Elliott Investment Management.

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In November 2024 Elliott made their single biggest investment ever: $5 billion of Honeywell International. This resulted in them receiving a board seat for one of their partners (Marc Steinberg). Elliott then used their influence to “push” or rather convince management into separating into three different businesses:

1. Materials,

2. Automation,

3. Aerospace.

The goal was to eliminate the conglomerate discount, which I explained in my first article (linked below).

I believe that 18-24 months from now the partners of Elliott will look at the $5 billion bet that they took, and also think that this might have just been THEIR masterpiece, because they have done an excellent job!

I mean the first spin-off of Honeywell’s materials business Solstice Materials has already performed exceptionally well, being up more than 80% over the first ~8 months as a standalone company.

Then they announced an acquisition with a financing that the market didn’t like so much, and now the shares are back down to just $60. But you’d still be up >30% since the spin.

I covered the situation after the Materials spin, and leading up to the Aerospace spin:

And just roughly a month ago, June 29th, Honeywell International separated into two businesses:
Honeywell Technologies (keeping the ticker HON) & Honeywell Aerospace (HONA).

In the article above I was discussing that both businesses are good, but that Aerospace is an absolute powerhouse:
The main reason is that aerospace businesses have very long and sticky backlogs with high margins. On top of that they are very hard to disrupt, and they produce a ton of FCF with limited reinvestment needs.
That’s why Chris Hohn of the TCI Fund, who is also known as the Moat Investor, has a ton of his portfolio allocated to aerospace businesses. If you don’t know Hohn, he’s arguably one of the best investors ever. Just last year he made the largest annual profit ever recorded from a single hedge fund.

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I said that most people will likely focus on Honeywell Aerospace (HONA), and wait for the separation before investing. I, on the other hand, suggested that by investing in the conglomerate pre-spin (Honeywell International), you get cheap access to Honeywell Aerospace before it re-rates after the spin AND I argued that Honeywell Technologies has been set up very very well to do well on its own.

Both businesses and stocks are likely going to do well over the next few years in my opinion. Both industries have strong tailwinds.

As a result, I suggested building a position in the conglomerate, but also to leave room to add to either the RemainCo or the Aerospace business depending on the price development post-spin.

In this article I will look more closely into the RemainCo, Honeywell Technologies. I will share catalysts that are happening over the next couple of months. There are a few, which is why this write-up has the name ‘Catalyst-Ville’. We then look at HON’s valuation and come up with what the better play is now, post-spin: investing more into HON or HONA. Or even do nothing.

Honeywell Aerospace is the better business for the long run, but Honeywell Technologies could be the better investment over the next two years due to the catalysts.

Please enjoy your ride, because you’re about to enter Catalyst-Ville.

The List of Catalysts

1. Massive distribution from HONA to HON

2. Industrial Automation turnaround + 2 business sales

3. Monetization of Quantinuum (QNT) stake

4. Improved FCF due to annual royalty fee

5. Protecting FCF due to lack of pension contributions

6. Changes in the accounting method used for QNT stake

7. Spin-off related costs hide true earnings power

Next, we look more closely at the catalysts, then move on to a valuation and my conclusion.

As a paying subscriber you get access to all my articles, and the group chat, where I share my trades in real-time. Use the link below, and you’ll get a 20% discount on the annual membership. Offer ends Sunday July 27th, midnight NYC time. Only 10 spots available.

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_DISCLAIMER

_{This newsletter is for informational and educational purposes only and does not constitute financial or investment advice. I am not a registered financial advisor. The stock market carries inherent risks, and any investment decisions you make are solely your responsibility. Always do your own research or consult a professional before investing.}

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This image was taken from a YouTuber’s Discord, and it makes me very happy, because it screams OPPORTUNITY!!!!!!

Below are some of the lyrics of Kenny Rogers’ famous song “The Gambler”. Let it run in the background, it’s nice! My girlfriend and my daughter are singing it, because I heard it a few (too many) times over the last couple of days…

“If you’re gonna play the game, boy, you gotta learn to play it right.
You got to know when to hold ‘em,
know when to fold ‘em.
Know when to walk away,
and know when to run. [...]
Every gambler knows that the secret to survivin’
Is knowin’ what to throw away and knowin’ what to keep. [...]
‘Cause every hand’s a winner and every hand’s a loser”

Investing is a very hard and very competitive business. And if you think it’s easy because you’ve done very well recently - buying dips, chasing momentum, following hot stock picks from people on the internet without knowing how to actually value a business - you might be in for a rude awakening one day, because you’re essentially gambling.

And as a gambler you need to know when to hold them and when to fold them.

This write-up is meant to teach you something about spin-offs, forced selling, and people dumping their “free” stock without knowing anything about the business. They don’t know what to hold and what to keep. Because every hand can be a winner or a loser, we have to take a close look at what has been dealt to S&P Global shareholders. In many cases the best business might not be the best investment, and a worse business might be a better investment - It’s all a function of price! But selling “that shit off right away” does not strike me as intelligent behaviour.

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This article is not a deep dive into the business of Mobility Global (MBGL), its competitive position, and its economics. We will of course look at these but not in depth. It’s rather meant to teach you something about spin-offs.

WHY YOU SHOULD LEARN TO STUDY SPIN-OFFS

Joel Greenblatt, Seth Klarman, and Charlie Munger all had one thing in common: They said that as an investor you should “carefully study spin-offs”.

In his book Margin of Safety Seth Klarman said:

“Spinoffs often represent attractive opportunities for value investors. [...] Unlike most other securities, when shares of a spinoff are being dumped on the market, it is not because the sellers know more than the buyers. In fact, it is fairly clear that they know a lot less.” (p. 187-188)

And hedge fund legend Joel Greenblatt pointed out in You Can Be a Stock Market Genius, that the individual investor has a massive structural advantage over Wall Street professionals, and I’ll explain later to you why.

But first, what is a spin-off?

A spin-off occurs when a business (the “RemainCo”) takes a subsidiary or division and separates it into a brand-new, independent company (“NewCo”). This happens ALL the time. There is always a business that wants to set one of its divisions free.

There are several reasons for that, but most commonly it’s to improve focus and unlock shareholder value, because management thinks that a part of their business is misunderstood and therefore drags down the stock of the combined entity.

You might think spin-offs are an obscure transaction that only happens in the micro- and nanocap space. But no, no, no. Two recent examples include:

• Monday, June 29th 2026: Honeywell spun off Honeywell Aerospace.

• Wednesday, July 1st 2026: S&P Global spun off Mobility Global.

This article will be about Mobility Global (MBGL). But before we go ahead and talk about the business itself, I want to take a small detour and talk about the mechanisms and defects of spin-offs in general.

Greenblatt’s genius was recognizing that immediately after a spinoff, the NewCo’s stock price is almost always artificially depressed, which quite often presents a compelling entry price. And there are reasons for that.

INDEX FUNDS - THOSE WHO HAVE TO SELL

S&P Global is a giant of a business. On June 15th the market cap was ~$120 billion before the spin of MBGL. That makes them a constituent of the S&P500, and the MSCI World - They were roughly on positions #56 (of ~500 for the S&P) and #78 (of more than 1,250 in the MSCI World).

That means a large portion of the money that gets invested in index funds, such as the S&P500, and the MSCI World gets “blindly” allocated to S&P Global. So a massive amount of shares outstanding belongs to large index funds. This is important! And you’ll soon know why.

Now S&P Global (SPGI) decided to spin off a part of its business: Mobility Global (MBGL). They decided on a one-for-one (1:1) distribution ratio meaning that you get one share of MBGL for every share of SPGI that you own.

One could assume that because of this 1:1 ratio that SPGI and MBGL would have the same market cap. But that’s totally wrong! In fact, Mobility Global represents just a fraction of S&P Global. At the time of writing, MBGL has a market cap of just $5.5 billion, compared to S&P Global’s market cap of ~$120 billion prior to the spin.

This is where things get really interesting:
Because with a market cap of just $5.5 billion, MBGL is too small to be added to the S&P 500 or the MSCI World, and therefore all the index funds, and pension funds that invest in the S&P 500 or the MSCI World have to sell the MBGL shares that they just received - Regardless of price.

Let me repeat that. Regardless of price!

This does not mean that we go into buying mode straight away. But, if you can be on the other side of any transaction where someone has to sell regardless of price, it represents an opportunity and it’s worth a closer look.

If you ask yourself why they have to sell their MBGL shares, the answer is that their mandate only allows them to hold shares that are part of the index. So they are simply not allowed to hold them. It doesn’t matter if it’s a good business or not. They have to sell. Regardless of price.

This might be new to you, but it’s actually not a huge secret. I mean if you check the official filing that S&P Global & Mobility Global released prior to the spin, you can read it yourself. It’s right there!

“Approximately 29% of S&P Global’s outstanding common stock” is held by index funds!

That means 29% of shares will get dumped on the market after the separation. You’ll see this in the trading volume later. This is one of those situations where the baby gets thrown out with the bath water. No matter the quality of the business. The stock price gets hammered, because there are a ton of sellers, and not enough buyers.

But it gets even worse for the share price…

INSTITUTIONS & RETAIL - THOSE WANTING TO SELL

INSTITUTIONS

Many institutional investors (pension funds, mutual funds, endowments) do the same thing: They dump the shares that they were handed “for free”. Most analysts are super busy, and have more work to do than they can actually handle.

I know at least two of my subscribers work in the investment industry and manage significant amounts of money. This is what their teams look like:

1. Team of 3, ~$750 million AUM, allocated to 7 portfolios.

2. Team of 6, ~$800 million AUM, deployed in 3 different strategies (Large Growth, Dividend Growth, SMID cap thematic)

They are hard working individuals who want the best outcome for their clients. But if they manage $1 billion and own something like 40 stocks, each position would be ~$25 million.

Now hand them shares of MBGL that represent roughly 5% of SPGI ($6b market cap compared to $120b market cap). They suddenly have position #41, and it’s worth only 5% of their usual $25 million position - that’s a $1.25 million position. What do you think they are going to do with that? Many just sell.

This is just ONE example of why institutions might sell. They usually have many more limitations. Some of them seem completely arbitrary to a value investor, like a “minimum price threshold”: Stock trades below $20? That’s an automatic sell!

So the supply-and-demand mismatch of buyers and sellers increases even more. Index funds sell, and institutions sell.

But it gets even worse for the share price…

RETAIL

Now the “know-nothing” investor looks at his portfolio and sees shares of a business in his portfolio that he doesn’t know and didn’t buy. And he sees it’s down significantly - But he doesn’t know why. All he thinks is:

“What the hell is THIS and how did this get in my portfolio?”, when instead he shouldn’t have missed the event in the first place, and have studied the business and the form 10. But most people don’t like to study complicated documents… I mean you just heard that even many professionals don’t bother.

The retail investor might have followed a stock tip from someone on the internet or did 20 minutes of research on the business and concluded it was a buy, because Morningstar rated it a buy.

So after the forced selling from index funds and institutions, the retail crowd follows.

Some of them might be “quality investors”, who invested in S&P Global, because they know rating agencies are one of the finest businesses in the world: Capital-light, low maintenance capex, high margins & recurring revenues - It’s a beautiful business model! So they bought shares in S&P Global a while back, and just wanted to forget about it and let the business do its magic and compound.

But most retail investors are not “quality investors” but people, who have a stressful job and a family. They think investing is fun and they listen to podcasts & watch YouTube videos to look for stock tips. Maybe they don’t even know how to really analyze a balance sheet, let alone a filing of the company that’s being spun off. Maybe they have never even heard the word “spin-off”.

I think in today’s rather speculative market there are many just like this, and they are successful because stocks have only been going up for the last couple of years. But now they find themselves owning shares that they didn’t buy and that they don’t want.

If you think I am making this up, let me prove you wrong. I know of a large YouTube publication that is a big fan of S&P Global. So I checked out his Discord-Community where members share their thoughts about different stocks in different channels. This is what I found in the channel with the name “sp-global-moodys”, where users share their thoughts on - you guessed it - S&P Global & Moody’s:

What did uncle Charlie use to say? “Nothing to add.”

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Thousands of regular investors liquidate their “unwanted gift”, creating further, indiscriminate downward pressure on the stock price.

The worst thing is that the poor retail investors are usually the last sellers! They were not prepared in most cases. And when they get wind of it, the worst selling has already happened, as you’ll see in the next section, where we look at how the actual volume developed. Now they see a position that’s small, that they didn’t want, and they’re down on it. Often more than 10%.

So in summary:

• Index funds are forced sellers, and they usually are the first to sell.

• Institutions sell because they either don’t want to deal with it or have to sell it for several other reasons. They are usually prepared as well.

• Retail investors don’t know what just happened, they don’t want their new shares, they missed to exit before the index funds and the institutions, and now they’re deep in the red.

TRADING VOLUME & SHARE PRICE DEVELOPMENT

Below you see the MBGL chart from its spin on July 1st, 2026 until today, July 15th.

Few things to notice here:

1. stock traded as low as ~$18.70, and as high as ~$22.30

2. stock was in a decline phase, followed by a recovery phase

3. volume was highest on the first 3 days, and has then been decreasing significantly

4. volume on day 1 was remarkably high: ~98 million shares out of 296m shares outstanding means ~33% changed hands.

5. volume on days 2 and 3 were ~27m and ~36m, meaning ~54% of shares outstanding changed hands after 3 days.

Just a few facts to put this trading volume into perspective regarding US stocks with a market cap between $5-10 billion:

• regular trading volume on a typical day is between 0.2-0.6% of shares outstanding, and

• for an active day between 0.7-1.5% of shares outstanding.

• an annual turnover can be between 50-150% of shares outstanding.

So the trading volume for MBGL is remarkably high! 33% in a single day, and more than 50% in 3 days.

I think we can agree that there was a lot of movement. I think this has the potential to be a “throw the baby out with the bath water” situation, so now let’s take a closer look under the hood, and see what MBGL has to offer.

MOBILITY GLOBAL - THE BUSINESS

Mobility Global provides data, analytics, and intelligence across the full vehicle lifecycle to its customers. Those customers are OEMs, suppliers, car dealers, and people who want to buy a car.

MBGL basically knows who manufactures which types of cars in what numbers, with what parts, ordered from who, at what time and date, and a ton about the history of a used car. You get the idea. They have a ton of data points and are connected to basically everyone important in the world of cars. I mean the numbers are impressive!

• On the OEM side:

  • 100% of the Top 40 Global OEMs use MBGL data

  • 90% of Industry Volume is developed using MBGL data

• On the Supplier Network side:

  • 100% of the Top 40 Automotive Suppliers use MBGL data

  • 94% of the Top 100 Automotive Suppliers use MBGL data

Let that sink in. To me that sounds like network effects and a moat.

The business made $1.75 billion in fiscal year 2025, with 81% of it stemming from highly predictable recurring revenue agreements - Management expects to increase this number even further. Organic revenue growth has been VERY healthy for many years, and is projected to remain between 7.5% and 10% annually in the future.

To me that looks pretty stable, doesn’t it?

MBGL is split into two primary segments: CARFAX, which accounts for 65% of total revenue, and B2B Solutions, which makes up the remaining 35%.

The CARFAX segment is the larger and more important one, as it’s generating more revenue and is growing at an 11% compound annual growth rate. It generated $1,142 million in 2025. It is further divided into products like Advantage, Listings, and Financial/Consumer reports - If you’re not from the US (like me) you’ve probably never heard of it, but customers ask for those specific vehicle history reports, when considering buying a car, saying “show me the CARFAX”. Customers ask for these reports and dealers provide them, in many cases even without asking - they even advertise with the Carfox in their own dealership to gain trust, by basically saying “I have nothing to hide, here are the CARFAX.”

The B2B Solutions segment generated $608 million in 2025, offering Strategy & Planning and Marketing & Sales services, with a steady 4.5% compound annual growth rate.

Across both segments, the company caters to a diverse customer base where 62% of revenue comes from dealers, 20% from OEMs and suppliers, and 18% from financial and consumer groups. These products are deeply entrenched in the automotive market as already stated above.

Mobility Global operates rather asset-light, resulting in an exceptionally low capital expenditure that amounted to just 1.4% of revenue in 2025 - It was even on the “higher” side compared to 2023 and 2024. This minimal capex requirement contributes to impressive profitability, including a 40.6% adjusted EBITDA margin and a robust 26.3% free cash flow margin in 2025.

FCF, FCF margin & Capex (as a % of revenue):

Profitability

Management expects this profitability to compound further, targeting 8% to 11% adjusted EBITDA growth and returning over 75% of free cash flow to shareholders annually. Furthermore, the company anticipates an additional 50 basis points of annual margin expansion following its standalone reset.

As already stated, CARFAX is the most important part of the business. I think it’s positioned to remain highly relevant due to rising vehicle costs, with new cars averaging $53,192 and used cars reaching $28,377, making the cost of a report just a small portion of the overall purchase to ensure buyers do not get screwed.

Additionally, vehicles are staying on the road much longer, with the U.S. average vehicle age hitting an all-time high of 12.0 years in 2025, driving a greater need for service records and dealer subscriptions. There is also significant whitespace for international expansion, as currently only 17% of total revenue and 15% of CARFAX revenue comes from outside the United States.

So it all looks quite good to me. But what is the moat?

I believe MBGL has established a massive competitive moat built on proprietary data, pulling billions of unique data points from thousands of sources.

This creates a vast, self-reinforcing network effect, which in my opinion makes it incredibly difficult for potential competitors to replicate. It’s very hard to compete against such a trusted brand. Just imagine what it would take to build all the relationships that they already created with the top OEMs & Automotive Suppliers - 100% of the Top 40 work with them!

BUT, like all other businesses that create reports or ratings built on proprietary data, like FICO just to name one, MBGL is not immune to the “AI will make it much easier for your competitors to recreate what you’ve built”-narrative.

I can’t be certain, but I believe Artificial intelligence represents more of a tailwind for MBGL than an actual risk, allowing them to even better synthesize and monetize their enormous data sets. They are already so low on their Capex spend, that I believe it’s really hard for a competitor to show up and be even more profitable than them. Because the bulk of their value lies in exclusive data rather than easily commoditized algorithms, AI advancements only enhance their analytical capabilities and product offerings.

All in all, MBGL’s combination of high-margin recurring revenue, minimal capital intensity, and an irreplicable proprietary database solidifies its position as a highly profitable enterprise in the automotive data sector with staying-power.

This makes me believe that selling “that shit off right away” was not a smart move. On the contrary, it might have been a buying opportunity instead...

To make an educated decision here, one would have to look at the financials in more depth and that might be an article for another day. This one is for educational purposes.

If you found this analysis helpful, please share it with your own audience as this helps spread the word of the profitability of investing in spin-offs and also helps my publication to grow.

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All the best, and back to compounding,

Gianni <3

DISCLAIMER

This newsletter is for informational and educational purposes only and does not constitute financial or investment advice. I am not a registered financial advisor. The stock market carries inherent risks, and any investment decisions you make are solely your responsibility. Always do your own research or consult a professional before investing.

I currently have a 1% position in MBGL at the time of writing. I may buy more shares or exit my position in the future without notice to readers of this newsletter.

Invest in the Future

“Never, ever invest in the present. It doesn’t matter what a company’s earning, what they have earned. […] You have to visualize the situation 18 months from now, and whatever that is, that’s where the price will be, not where it is today. And too many people tend to look at the present, […] but you have to look to the future.

— Stanley Druckenmiller

Stanley Druckenmiller is one of the all-time greats. I’m sure he doesn’t need an introduction. I watch what he does and what he says very closely. And by very closely I mean I probably listened to every interview he ever gave at least two times.

And there is one thing he always comes back to. That is the quote from above. He said it many times that as an investor you should not focus on the present but you have to look ahead and paint a picture of what the future will look like in the next 18 months.

And when he has a view on the future, he doesn’t stop there but he does what he calls “playing around the concentric circles that develop”. To me this is a beautiful metaphor:

Imagine catapulting a large stone into a lake that is full of floating objects on the surface. You have to anticipate where the stone drops. And when it does, it will create a splash and concentric circles. As time moves on, the circles get wider and touch different objects, with varying intensity. It impacts the way that these objects float. The ones that are close to the impact of the stone move more than those that are further away from the impact.

Druckenmiller uses this metaphor to guide his moves in the stock market. The floating objects are the different businesses that are impacted by certain events. A recent example was the release of ChatGPT and the rise of LLMs.

Druckenmiller did not only buy NVIDIA but he thought ahead of time and tried to figure out which businesses will be impacted by the release of LLMs. As a result he also moved into energy, turbines, different semiconductors and copper. And it has worked rather well.

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You are probably wondering what this has to do with Amazon Robotics, don’t you? We’ll get to that. But before moving to Amazon Robotics, I want to tell you what Druckenmiller has done in Q4 of 2025. How has he positioned his fund? What were his big moves? In a few days we will also know what he has done in Q1 of 2026. But now to Q4 of 2025:

• Amazon: added 69%. Now a 4% position.

• Coupang: added 46%. Another ~4% position.

• Sea Ltd.: added 244%. Now a ~3% position.

I’ll tell you what I think I observed:

Druckenmiller is doubling down on Amazon, Coupang and Sea Ltd.

These businesses are massive closed-loop logistics laboratories. They control the entire chain from the website to the last-mile delivery.
They will use inference and edge compute to orchestrate hundreds of thousands of robots in real-time. Amazon deploys more than 1 million robots. He bets that those logistics players have the best short term profitability gains ahead of them. At least that’s my take on it.

I think because they will be able to improve their relatively low margins on their biggest revenue base: Selling stuff online, packaging it up, and delivering it to your home.

Next, I will explain, why I think that this is the reason for his trades.

We will take a close look at Amazon. Because I think they are best positioned. Before Amazon ran up to $270 per share I doubled my position at ~$220.

Unlocking Profitability through Tech

The basis of this article are Physical AI, inference compute, and edge compute. And if you are like Stan Druckenmiller in his latest Morgan Stanley interview and think “This goes all right over Stan’s head.”, go ahead and read the article that I wrote about automation and inference AI applications in the physical world. I tried to write it in a way that everyone can understand the topic of automation and how Smart Objects (those are physical objects equipped with sensors) communicate with one another in our physical world. It is basically the primer for the article you are reading now.

I don’t want to repeat everything I said in the article linked above but I feel like a small summary is appropriate to explain what Physical AI, inference and edge computing are:

In the world of AI there is the training of the models and inference. Inference happens when you access a pre-trained model to solve a “problem” or task. It is what happens when you use Gemini, Claude, or ChatGPT.

Now Physical AI is basically what happens when a Smart Object sends data to a pre-trained model and the AI comes up with a solution which the Smart Object then executes in the physical world.

In some instances sending that live data to a distant server for processing takes far too long, which is why this crucial inference phase is powered by edge computing, which means locally, right on the device. This eliminates dangerous lag and allows the machines to react to their environment instantly and safely.

To get back to the Druckenmiller quote from above: The title of my last article indicates, I believe AI training was the appetizer and inference and physical AI will be the main course. What do I mean by that?

So far the main beneficiaries of AI have been the picks and shovels companies. Those that sell the hardware which is needed for the training of the models, and energy-related businesses that deliver the electricity that is needed to power the compute.

I believe that we are in a transition phase and that over the next 18 months we will see the first major improvements in profit margins in the businesses that apply Physical AI on the shop floor level.

I believe that the application of physical AI benefits almost all manufacturing companies. But automation and the application of Physical AI is not easy. In fact it is very difficult. And automating tasks always takes longer than initially anticipated.

Therefore I believe the main beneficiaries are not the businesses that find the one best use case for automation and application of Physical AI.

It will be the businesses that have a few dozen use cases which they can explore, solve, and then massively scale through hundreds of different locations.

To me the absolute prime candidate for the application of Physical AI are fulfillment centers and warehouses. Where else do you have more menial, mundane, and repetitive tasks? Those tasks are the best tasks to automate!

Tye Brady, the Chief Technologist at Amazon Robotics, is the figure most associated with this philosophy. He always says, “Our goal is to eliminate every menial, mundane, and repetitive task.” And just to be clear, by “eliminate” he means eliminate it from the list of tasks that humans do. The goal is to give workers more meaningful things to do, not to fire them.

I don’t want to start a huge discussion about this topic. But I just want to highlight that I agree with Tye Brady, because one of the main reasons for automating tasks is to protect the human workforce. Humans are not made for repetitive tasks for 8 to 12 hours a day, 5 days a week. Repetitive task injuries are very common and even occur where you first wouldn’t expect them. People delivering packages with a delivery van, for example. Every time they get out of the van or get back into the van, they tilt their hip sideways. Doesn’t matter if they enter or exit the van. They always lengthen the left side and shorten the right side of their body. Do this 100 times a day for 20 years and you will get a problem.

Amazon

Amazon’s core retail engine is its First-Party Online Sales and Third-Party Seller Services. They represent a massive revenue base of more than 50% that has historically operated on thin margins.

While the divisions AWS and Advertising often dominate the headlines, the true frontier for unlocking operating leverage lies within the massive "Fulfillment" cost line. This expense category captures the immense capital and labor required to move millions of packages through a global network of warehouses and fulfillment centers.

By integrating Physical AI and advanced robotics, Amazon is systematically attacking these physical friction points. These technologies allow for unprecedented efficiency in sorting and package handling, directly reducing the cost per unit.

The main target lies in the sheer scale of the retail segments, because the revenue denominator is so vast, even a modest 1% expansion in operating margin translates into billions of dollars in profits. This money flows directly to the bottom line. It reprices the retail business from a low-margin cost-center to a high-efficiency technological powerhouse.

Physical AI acts as a strategic bridge, turning the heavy physical constraints of traditional commerce into a source of compounding competitive advantage.

I believe the successful deployment of these robotics systems across the fulfillment network could trigger the most significant step-change in profitability in recent years.

I am especially bullish on Amazon’s Automation and Robotics division because fulfillment centers do not only offer great use cases but Amazon has hundreds of fulfillment centers all over the world. And each robotics use case that they explore is afterwards scalable as a plug-and-play solution that can be put into action quickly in all the other locations. And all that doesn’t even mention the idea of re-accelerating AWS growth or the chip business, which is growing triple digits.

Amazon also runs their own inference on AWS of course. While others might have to pay someone for the inference compute, Amazon might have a competitive advantage, because they do it in-house — so there’s no middleman that needs to be paid.

I believe that in a world where inference becomes a commodity utility, the person who owns the utility company (AWS/Silicon) and the warehouse / fulfillment centers wins.

If you’re interested in the technologies that Amazon developed for their own warehouses and fulfillment centers, check out this video. There’s many more available for free on YouTube. But this one includes a lot of them in just one ~10min video, and it also touches on the replacing workers aspect.

Thanks for reading! Thanks for taking the time! Thanks for the support!

And now, back to compounding!!!

Gianni <3

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I am not an investment advisor.
This is not financial advice.
This is for informational purposes only.

I put in the first 100 hours of work, and want to share some of the things I found in terms of financials, debt, hidden assets etc. I want to present the high-level thoughts I have on the conglomerate, after it spun off Solstice Materials in Oct 2025, and share my thoughts on how to play the following spin-off of Honeywell Aerospace (June 29th 2026).

This is NOT a stock deep-dive. I won’t go into detail about the competitive advantages of Honeywell and their respective businesses. I will not provide you with a detailed financial model.

That’s what’s included in the article:

• How breaking up conglomerates unlocks shareholder value

• Aerospace businesses in general, and why they are great (MRO)

• Analysis of Honeywell’s debt structure

• A hidden asset in the RemainCo

• The investment case for:

  • buying Honeywell Aerospace

  • buying the RemainCo / Automation Business

  • buying both / the conglomerate right now.

• Valuation compared to peers

• How I am playing this situation

Okay friends, let’s dig right in, shall we?!

On Conglomerates & Shareholder Value Creation

Conglomerates are businesses that consist of a group of smaller, often completely unrelated businesses. Some examples of industrial conglomerates that pop into my head straight away are Siemens, General Electric, and Honeywell. There’s likely many more examples but I am sharing those because they’re the ones I studied or invested in.

Okay so how did I invest in those conglomerates? I specialize in spin-off investing. That means I study the businesses involved in the spin-off process: There’s always a new company (NewCo) and a remaining company (RemainCo). Usually I invest in the NewCo spin-offs because there are certain mechanisms that take place during a spin-off that I, as a small retail investor, can profit from, that larger investors can’t. If this is all new to you, I wrote a very short article that explains the reasons, and how we as retail investors can profitably exploit these situations.

At this point you might ask why would a conglomerate spin off parts of their business? I’ll explain this, but before let me share how the spin-offs and the RemainCo of the conglomerates I mentioned above have performed in the past.

You might be thinking that I am cherry-picking to sell you on the idea of investing in Honeywell or its spin-offs. But to be honest I couldn’t care less. I am not trying to sell you anything and I cannot promise you that Honeywell Aerospace and Honeywell the RemainCo will perform as the others.

I don’t know how this is going to play out, but later in this post I will try to make an educated guess. I admit Siemens Energy and GE Vernova have performed exceptionally well. I invested in GE Vernova right after the spin. GE Vernova is a 10x for me.

9 months after realizing how strong GE Vernova is and how resilient the demand increase will be over the next several years, I invested in Siemens Energy as well (January 2025). My avg. entry price was 52€. Today the stock trades at ~185€.

I can assure you, the family is happy. And so am I.

Okay but enough with the self-congratulations. Let’s get to the point. Here is the list of why conglomerates perform corporate spin-offs:

• Sharpening Strategic Focus
  Separating a non-core business allows management to focus entirely on their primary strengths. This creates "pure play" companies that are much easier for investors to analyze and value.

• Eliminating the "Conglomerate Discount"
  The stock market often values a massive conglomerate at less than the sum of its individual parts. And that makes total sense because who do you think can evaluate three completely different businesses and come up with a reasonable valuation for all of them and then apply a margin of safety on top of that? By spinning off a subsidiary, the market can price each business independently, which makes it much easier to compare to peers. This usually unlocks value for shareholders, because the conglomerate discount disappears.

• Optimizing Capital Allocation
  Independent companies can access debt and equity markets on their own terms and don’t have to fight for a slice of the parent company’s budget. This will play a bigger part here.

• Improving Management Incentives
  A spin-off creates a dedicated leadership team whose compensation and performance metrics are directly tied to that specific business's success. This removes the "bureaucratic bloat" of a parent company and forces managers to be more accountable and entrepreneurial.

The spin-off of Honeywell Aerospace has been announced in the Q1 earnings on April 23, 2026, and they set June 29th as the date of the spin-off / the first trading day of HONA stock. The main question now is how should you play this situation?

Should you buy Honeywell stock right now or should you buy either the RemainCo or the NewCo after the spin? Let’s go!

Honeywell is spinning off its Crown Jewel

I said in the beginning that Honeywell has already spun off its materials business Solstice in October of 2025 (up ~75% since then). On top of that, Honeywell will now separate into two businesses:

1. They will spin off a pure-play aerospace business, which will have the creative name Honeywell Aerospace with the ticker HONA.

2. The RemainCo will keep the name Honeywell and the ticker HON, and it will be a pure-play automation business.

The first thing I want to share is short: It’s that “spin-offs that outperform are usually focus-improving spin-offs”, as Tim Koller describes in his book Valuation. That’s the case here.

The second thought that should pop into your head is ”aerospace is a much better business than automation”. If you did not think that: Aerospace businesses are some of the best businesses that exist. Mainly because air travel is highly regulated and because they have very long backlogs in a category that is called MRO, which stands for Maintenance, Repair, Overhaul.

I’m not going to spend five pages on the MRO industry, but in short: It’s basically a subscription model. Once a part is cleared by the regulators and built into an aeroplane, it remains on it. You get the maintenance work, the repair work, and the overhaul business that follows. For its entire life.

It’s also a great business because the barriers to entry are huge. You can’t just start a repair shop in your garage or develop a certain part for a certain plane, and then sell it cheaper than competitors like Honeywell, GE, RTX etc.

Right now, MRO demand is through the roof. That’s mostly because the world’s aircraft manufacturers are currently a bit of a mess. Boeing and Airbus are struggling to deliver new planes (to put it politely), which means the existing fleet is getting older by the day. And older planes need more fixing.

The catch is, that all this is NOT a secret! Everyone else has already realized this, and getting a piece of the action is getting pretty expensive.

This is exactly why the Honeywell Aerospace spin-off is so interesting to me. It’s because it is still inside the conglomerate on which the conglomerate discount is applied.

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Let me be clear, I am not going to go into much detail on the competitive dynamics and Honeywell’s position in the market in each of its divisions now. I am not sharing crazy insights into their products and their pipeline. Because I am not an expert in that field. BUT in this case, I don’t think I have to be.

Let me share some high-level thoughts on Honeywell as a conglomerate, the aerospace spin-off, and the RemainCo.

Shareholder Value Creation in Honeywell’s Case

Buying the Aerospace Business

The case for the shareholder value creation for the NewCo is simple. I outlined it above. The thesis here is really simple. We don’t have to overcomplicate it. Pure play aerospace businesses are excellent businesses because they have:

• high cash conversion

• high free cash flow

• high barriers to entry

• high switching costs

• long-term relationships with their partners

• large profitable backlogs

• for a very long time.

By buying the Honeywell Aerospace pure play right after the spin, you can probably make money on that bet. The main reason for that is that there is usually a lot of forced selling in the first couple of days, which I described in the article I linked above.

Sometimes the forced selling takes a few weeks to be completed. In the case of Honeywell Aerospace this is likely not going to happen and it is going to play out over just the first few trading days. The main reason is that Honeywell Aerospace will already be a large corporation right after the spin, so they will likely remain in all the indices like the S&P 500 or the MSCI World etc. Forced selling will not be a huge issue here.

But that doesn’t mean you can’t make money investing in a pure-play aerospace business. The main reason is that Honeywell Aerospace is not only a world-class business but it is mixed together with Honeywell’s automation business, which is of lower quality. Therefore a conglomerate discount is applied to Honeywell Aerospace, which is likely going to disappear after the spin. This is a prime example of unlocking shareholder value.

This unlocking of shareholder value is likely going to take some time, which I will describe in the next part, which will be the case for investing in the conglomerate now.

Before moving on:
The main take away so far is, if you invest in Honeywell Aerospace right after the spin, you are likely going to make money.

Buying the RemainCo

Before we get lost in the numbers, I think we can agree that the RemainCo, which will be an automation business, is of lower quality than the aerospace business.

Next I will outline that it appears that all debt that the conglomerate has put on their balance sheets over the last couple of years is all going to remain in the RemainCo.

This leads to one of the most profitable phenomena in spin-off investing:
The Honeywell RemainCo is seen by the market as the BadCo (bad company). And nobody wants to own the BadCo. But we are sneaky value investors and maybe we want to own the BadCo / RemainCo. So let’s look at the numbers:

Honeywell the conglomerate has roughly $30B in debt and a nice cash position of roughly $13B.

On top of that, on April 20th and April 23rd Honeywell sold their Productivity Solutions and Services (PSS) & Warehouse and Workflow Solutions (WWS) businesses, which belong the automation part of the conglomerate. This was planned already back in July 2025, when they made the decision to streamline the conglomerate by not only spinning off the materials and the aerospace business, but also getting rid of a few businesses that were dragging down the rest. This is going to improve the quality of the RemainCo.

For the PSS business they’ll receive $1.4 billion in cash after the spin.

The numbers for the sale of the WWS business are not made public — they’re assumed to be also in the same ballpark of ~$1.4 billion. But let’s just assume that Honeywell only receives $0.6 billion. This gets us to a number of $2 billion more in cash.

When we add $2 billion in cash to the $13 billion they already have, we get to a net debt position of roughly $15 billion ($30b debt - $15b cash).

$15 billion in net debt that remains in the BadCo sounds bad right?

Those numbers are not 100% correct. I just want to prove a point, and for that those numbers are accurate enough. We are in the right ballpark.

So we got to a point where we know that the RemainCo will have roughly $15 billion in net debt.

The next big question is:
What happens during the spin-off? Who will get what portion of the debt? Will it be split?

The debt will remain entirely with the Honeywell RemainCo. It’s not shared or even transferred to Honeywell Aerospace, which is the better company.

At this point some might stop their research and conclude that Honeywell is not the right investment but Honeywell Aerospace is. This is far from the truth! You have to dig deeper.

Because what happens right after the spin is that Honeywell Aerospace will make a payment to the RemainCo of roughly $15 billion. Surprise!!!!
But why? That would make the RemainCo debt free?! That changes the entire situation, doesn’t it?

The answer is what’s called: Financial Engineering, ladies and gentlemen!

As we have already discussed, the aerospace business is the absolute crown jewel of the entire Honeywell conglomerate. Basically everyone knows that. Especially people who manage hundreds of millions or even billions of dollars.

This leads to the following: Honeywell Aerospace gets way better conditions when they tap the debt markets!

If the conglomerate would tap the debt markets right now, the interest payments they would have to pay (the coupon) would be higher, because the slightly worse business of automation would drag down the overall quality of the aerospace part. But Honeywell Aerospace on its own gets the best conditions possible.

The worst result would probably be, if the Honeywell RemainCo would have to tap the debt markets themselves after having spun off the aerospace crown jewel.

Therefore it simply makes sense that Honeywell Aerospace borrows the money and sends it to the RemainCo right after the spin. But this of course changes the entire premise of the investment case for the Honeywell Aerospace spin-off, doesn’t it?

And finally, investing in the RemainCo does not seem to be as bad of a decision as one might assume. It has zero debt! And it is not a bad business. It’s just slightly worse than the Aerospace Business.

But the question is now: Will Honeywell Aerospace be able to pay off this massive debt load of $15 billion that is transferred to them right after the spin?

So next we will have to look at:

• the free cash flow that Honeywell Aerospace is likely going to generate over the next couple of years, and

• the conditions of their debt structure, and

• the interest payments on that debt.

As a result we can evaluate whether Honeywell Aerospace is able to meet its debt obligations.

But before moving on:
The key take away is that the Honeywell RemainCo is perceived as the BadCo, but it will be debt free right after the spin, which unlocks massive shareholder value.

And just like Steve Jobs used to say, “There is one more thing.”

The Honeywell RemainCo (Automation) has a roughly 54% stake in a company which is called Quantinuum. As you might guess by the name, Quantinuum is a quantum computing business.

And let me tell you, I know everything about quantum computing. It is going to be massive. It is going to be the next big thing. You should sell your house and bet your money on quantum computing!

I am of course joking. I know what quantum computing is and I know what use cases it is very useful for. But this is so far outside of my circle of competence that I have absolutely no ability to tell you who is likely going to win in this field.

But not being able to pick a winner is not always necessary to make money. Bill Miller once said, “Investing is about making money. It is not about buying cheap things.” Although I never lived by these words, I think in this case this offers a nice optionality for the RemainCo. Because Quantinuum is currently valued at roughly $10 billion. And it is going to IPO later this year. I expect this IPO to take off, because retail investors who know absolutely nothing about quantum computing, but have done a 10 minute Google search on it, will likely jump on this name. This is one of those stocks that can go up 600% in a single day — Just like the recent madness of Allbirds (shoes) renaming to NewBird AI, jumping 700%.

This is a nice optionality if you ask me. I wouldn’t bet on it but let’s keep it in mind. Honeywell has a 54% stake in Quantinuum. Quantinuum is one of the main players in quantum computing right now.

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Okay, but now lets look at Honeywell Aerospace and the debt structure again.

Digging deeper into Honeywell Aerospace

Great business, yaddi yaddi, we know.

Let’s move to the debt structure right away. You can access the document yourself if you want to. I’ll provide the link: HONA senior notes pricing

The rest of this article is for paying subscribers only. We’ll dive deeper into the situation, and lead into the playbook, where I share what the next alpha engine in your portfolio is, and how I am going to play the entire situation.

The only way to gain access to my immediate thoughts, my buys & sells is by becoming a paid subscriber, and gaining access to the chat group. I’d be happy to welcome you to our community!

The annual plan is 300€. I think this is a good investment, as this gives you direct access to all my deep-dives, my trades, and my thoughts.

If you invest just 5k through my research, and the stock goes up 15% in a year, that’s already 750 in the bank. And 15% is just my hurdle rate!

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Hi, I’m glad you’re here!!

I’m Gianni, I am an Industrial Engineer who worked at Siemens, BMW, and in Energy Infrastructure Research, before I turned to investing. After studying the greats, and outperforming the market on the side with a 5-year CAGR of ~28%, I am currently in the transition of becoming a full-time investor.

I specialize in spin-off-investing, but I am not a one-trick pony. I use concentrated contrarian compounding in few ideas, that move the needle. Currently I am managing close to €1M for my family.

In March I started to post on Substack to give investors a repeatable process that makes them the engineer of their own wealth-creation. My goal is to share alpha engines with you, and help you reliably find them.

I share my engineering insights with you to shorten the time it takes you to widen your circle of competence, and grow your conviction to take concentrated bets.

My first two long-form articles were about a stock deep-dive (Millrose Properties, a Lennar spin-off), and the application of the spin-off investing framework combined with my engineering insights that led to a 6x in under 2 years with GE Vernova (another spin-off).

This article will be somewhat different, as it’ll be about my insights from world-class shop floors of world-class companies like Siemens and BMW — It will not be about a single stock idea. It will not be about a process. But it will point you in a clear direction. It’ll show you the areas that are most likely to be the main alpha engines over the next couple of years.

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Personally, I think I know what’s likely going to happen next, but I have no idea on how to play it, as an investor. But maybe after reading this, you will, because you have a different expertise, and know how to apply what you learned here.

I increased my position in one of my 8 holdings by 50% over the last couple of weeks, because of this research.

In the past I studied the industrial revolutions from an industrial engineering perspective for my Master’s Thesis, and applied knowledge of Industry 4.0, and its technologies at the BMW motorcycle plant in Berlin.

In this post I’ll explain the technical evolution, focusing on what has happened between 2010-2025.

This will lead you to understand, how things on the shop floor evolved, and what is most likely happening today, and over the next ~24 months.

Those insights will lead you to gain a significant edge over many others, that don’t know how to play the current industrial revolution — the real “Industry 4.0”.
It will be bigger than all others before, because AI is an absolute game-changer for profitability. After reading this, you’ll understand why.

I am not trying to sell you anything. There’s no product or particular stock I have in mind. It’s just me trying to explain, that the technological advancements are the foundation of significant improvements in production & logistics processes, which is my main area of expertise as an industrial engineer. And like I said, I’ll share, what I have done, following my research.

This article will lead you to know where to go on the hunt for the next, or even maybe the first multi-bagger in your portfolio.

I look forward to having a discussion about how to play this in the comment section or via DM. But now, let’s start!

What this article DOES NOT include:

• A deep-dive into a single stock

• A mention of a hot industry like Space or Quantum

• A specific recommendation on “how to play this”

• A detailed economic perspective going deep into unit economics or specific KPIs

• An academic discussion of Industry 5.0 and so forth

What this article is about:

• Widening your circle of competence in ~30min

• The path from manual labor to Autonomous Factories
  (“The history of the 4 industrial revolutions”)

• The anatomy of a stalled revolution (Industry 4.0)

• From Smart Objects to Digital Twins to Digital Shadows

• The Automation Pyramid, and its deconstruction

• Edge & Inference Compute, and Cyber-Physical-Systems as the path to

• Physical AI

• Who is already betting on it?

• What did I buy?

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Part 1: The Manufacturing Evolution —
From Manual Labor To Smart Factories

Evolution in nature and in industrial processes is about survival.

History is often taught as a series of names and dates, but in the world of business and engineering, history is a series of extinction events. We call these “Industrial Revolutions.”

For a company, an industrial revolution is not a choice or a trend you “wait out.” It is a massive, margin-expanding wave. If you catch the wave, your costs drop so significantly that you can underprice every competitor while making more profit. If you miss it, you don’t just “fall behind” — you cease to exist.

For the last 250 years, every time a new technology emerged that allowed a company to produce things faster, cheaper, or better, it wasn’t just a “nice-to-have”. It was an extinction event for anyone who didn’t adopt it:

If competitors used steam and you used horses, you went out of business.

If competitors used electricity and you used steam, you went out of business.

If competitors used an assembly line and you didn’t, you went out of business.

And the same is happening right now. In my humble opinion, we are currently standing at the edge of the most profitable shift in history, but to see where we’re going, we have to look at the three waves that brought us here, and where we’re now.

The First Three Industrial Revolutions

1. The First Industrial Revolution was about power. Before steam and water power, a factory was limited by the strength of a horse or a human arm. When the steam engine arrived, it didn’t just make things faster. It created a new economic reality. If your neighbor had a steam-powered loom and you were still weaving by hand, your business was dead within a year. The “margin gap” between what it cost you to make a shirt by hand, and what you could sell it for became so wide that the old way was no longer viable.
   Change your processes or go out of business.

2. The Second Industrial Revolution was about “product flow”. Electricity allowed us to move power anywhere in a building, leading to the birth of the assembly line. This was the era of mass production. Moving items reduced the amount of workers needed to produce the same amount of goods. We learned how to make thousands of identical items for a fraction of the cost. This wasn’t just an improvement, it was a total reconstruction of the manufacturing landscape.
   Adapt to the assembly line or go out of business.

3. The Third Industrial Revolution was about “information flow”. This is where computers and basic information technology entered the factory floor. We replaced manual levers with “Programmable Logic Controllers”, essentially rugged mini-computers that told machines what to do. By the end of this third wave information and communication technologies (ICT) became the nervous system of the factory. Machines learned to “talk” to a central computer. For the first time, we weren’t just moving physical parts, we were moving data. This connectivity was the essential prerequisite for everything that came next.

The Fourth Industrial Revolution — Industry 4.0

From Mass Production To Mass Customization

This brings us to Industry 4.0. If the previous waves were about making things cheaper through sameness, the fourth wave is about making things cheaper despite complexity.

In the early 1900s Henry Ford said “Any customer can have a car painted any color that he wants so long as it is black”. Those times are over.

The customer is king. If you do not satisfy the customer’s wants and needs, they’ll go somewhere else. Because somewhere else, there will be someone who does.

We no longer want the same BBQ as our neighbor. We want it in a shade of “Midnight Cobalt” with “King Of Ribs” laser-etched on the side, and a specific custom handle in cherry wood that matches the style of our premium-priced BBQ tools. Sound familiar?

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In engineering, we call the production of a single, unique item “Lot Size 1.” Historically, “Lot Size 1” was a nightmare. In a traditional factory, changing a machine to make a different version of a product required manual labor to swap tools and reprogram settings. It killed the “rhythm” of the factory and destroyed profit margins. The line needed to be stopped for reconfiguring, burning seconds of profitability.

Burning seconds, huh? Doesn’t sound like much, does it?

But just imagine an automotive company with an assembly line of 200 workers that need to stop their work for just 30 seconds, because of whatever.
That’s a total of 100 minutes of cumulative wasted time right there — 200 x 0.5 minutes.
It took 100 minutes to assemble an entire Ford Model T. Now you can sell one less. Great Job!

Today, customization is moving from a luxury to a baseline expectation. This doesn’t just apply to high-end motorcycles or luxury cars. It applies to everything, like the BBQ.

Manufacturers who cannot handle this variety efficiently are seeing their margins bleed in the form of “complexity costs”. It’s the hidden tax of trying to do something custom with a system built for something standard.

The vision of Industry 4.0 was to solve this by making the factory “self-aware” and flexible.

Smart Objects Create Digital Shadows And Digital Twins

To handle the chaos of making thousands of different, customized products, companies realized they needed a map of their own operations. They began by gluing sensors to every motor, belt, and robot arm on the shop floor. The intention was to measure everything, that everything does, at all times.

Equipping an object with sensors give you what’s called a “Smart Object”.
A Smart Object is an object that possesses an Identity (it knows what it is), the ability to Communicate (with other Smart Objects), and knowledge about its State (its own condition).

Having a factory full of Smart Objects leads to two critical concepts that every investor should understand:

1. The Digital Shadow: Think of this as a continuous recording of everything that has happened. It is the “footprint” of reality in the digital world. Every temperature spike, every second a machine was idle, and every part that moved through the warehouse is recorded. It tells you what is happening, but it doesn’t necessarily tell you why or what to do next. It is characterized by a one-directional information flow from the Smart Object to the Digital Shadow.
   

2. The Digital Twin: This is the evolution of the shadow. A Digital Twin is a living, breathing virtual model of the factory. It doesn’t just record the past, it simulates the future. If a machine breaks in the physical world, the Digital Twin knows exactly how that failure will ripple through the next three days of production. It is highly practical because data can flow in both directions. This means you can take the digital twin and run simulations.
   You can test things that could possibly happen in the real world and how the factory should react in case those things actually do happen.

Over the last decade, the world’s leading manufacturers and warehouse operators have spent billions creating these digital copies. They have succeeded in the first half of the mission: They have the data. But what next?

A Body Without A Functioning Brain

Walk into a modern Smart Factory or a high-tech warehouse today, and it looks like the future. There are Smart Objects with sensors everywhere. Dashboards glow with real-time data. We generate a lot of data, and it’s useful. But currently we’re just scratching the surface of possible improvements.

We have built a highly sophisticated body, but we haven’t given it a “brain”. We have millions of data points telling us that a shipment is late, or a robot is vibrating strangely, or a customer just changed their order to a different color last-minute.

Currently, that data still flows upward into a centralized system where humans or rigid, old-school software try to make sense of it. The factory is “connected”, but it is NOT “intelligent”. It can see the problem, but it can’t decide how to fix it in real-time.

As we look across the entire supply chain — not just one factory, but the ships, the trucks, and the warehouses — we see a series of “players” that are effectively screaming data at each other, but with no one to orchestrate the information efficiently, and create a symphony in real-time. We need a brain that can turn noise into a highly functional system that is adaptable, and able to squeeze the even more output and efficiency out of the system.

We have the connectivity, and we have the digital copies. What we are missing, and what the next 12 to 48 months will likely provide, is the intelligence to connect the dots. We have the eyes and ears in place, but we are still waiting for the step-change that unlocks even more value for those who have already transformed their factories and warehouses in the past.

Part 2: From Top-Level Control to Distributed Intelligence — The Case for Inference Compute

In Part 1, we established that the world’s factories and warehouses are currently like a massive, muscular body with no brain. We’ve spent millions on sensors and Digital Twins, but we’re still waiting for the magic to happen.

You might be wondering: “If we have the data, why can’t we just plug it into Gemini or Claude and let it run the factory?”

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The answer lies in a structural bottleneck that has existed since the 1980s. To understand this, you first have to understand the “Corporate Hierarchy” of a factory, and something about how the inside of a factory communicates.

The Industrial Bureaucracy

Why Robots Have to Ask Permission

In the world of engineering, there is a concept called the Automation Pyramid. It’s a bit boring to read about, sure — that’s why I chose the word “bureaucracy” — but you have to understand the concept to understand what is happening, and why this strict hierarchy offers potential for improvements.

Level 0 — Field Level
At the lowest level, direct contact with the physical process occurs. Here, you find sensors that measure states such as temperature or pressure, and actuators that execute physical commands, such as opening a valve. This level is characterized by so-called hard real-time requirements, as signals must be processed immediately. Communication usually takes place via simple electrical signals or specialized fieldbuses. Without this level, there would be no data basis and no physical impact on production.

Level 1 — Control Level:
In this layer, the heart of automation beats through the use of Programmable Logic Controllers (PLCs). These controllers read the signals from the field level (Level 0), and process them according to a pre-programmed logic (if x, then y — if a, then b). They decide, for example, when a conveyor belt stops or a motor starts. Level 1 forms the bridge between pure hardware (Level 0) and higher-level monitoring (Level 2). Reaction times here are in the millisecond range to ensure process stability.

Level 2 — Supervisory Level:
This level is about monitoring and operating entire plant sections, usually using SCADA systems (Supervisory Control and Data Acquisition). Staff can visualize the status of production and intervene manually via terminals or monitors (Human-Machine-Interfaces). Data is collected and archived here to recognize trends or manage alarms. This level coordinates several controllers from the layer below. It primarily serves short-term process optimization and control.

Level 3 — Operations Level:
At this stage, the Manufacturing Execution System (MES) is used, which handles direct production control. It closes the gap between commercial planning and actual manufacturing on the shop floor. Tasks here include the fine scheduling of orders, quality management, and real-time material tracking. The Manufacturing Execution System reports back how many units were actually produced and where bottlenecks exist. Here, the efficiency of the entire production is analyzed and controlled.

Level 4 — Enterprise Level:
The top of the pyramid is represented by the ERP system (Enterprise Resource Planning). Here, business decisions are made that plan months or years in advance. The focus is on topics such as order entry, human resources, finance, and global logistics. The ERP specifies the broad production targets, which are then delegated down through the layers. At this level, real-time no longer plays a role. Instead, strategic data and global corporate resources count.

Why did I have to read this, and why is this a problem?!?
In a traditional factory if a robot arm encounters something unexpected, the data has to travel up the ladder to get a decision: “I encountered X, what shall I do? How does this fit into the Master Plan?”.

This hierarchy was fine when we were making 10,000 identical black cars. But for “Lot Size 1”, where every item is different, this bureaucracy is a death sentence for productivity. The system is too slow, too rigid, and too “centralized”. To get to the next level of profit, we have to put the brain directly into the robot’s hand. It needs the embedded intelligence, to know what’s going on in the upper levels, to be able to decide how its action fits into the “Master Plan”.

As a result, Industry 4.0 has stalled. This is in part due to the automation pyramid, the lack of embedded “real intelligence”, and the lack of knowledge about the Master Plan. But it’s also because of what’s called the “Cloud Illusion”.

Why We Need Edge & Inference Compute

Let me just clarify, before we start:

• Edge Computing is the where. It refers to the physical location of the hardware (on the factory floor, in a gateway, or on the machine itself).

• Inference Compute is the what. It refers to the specific act of running a pre-trained AI model to make a decision.

In a smart factory, you typically train the model in the Cloud (where data storage and “Learning Compute” are cheap) and deploy it to the Edge for “Inference Compute” (where speed and reliability are paramount).

We’ve been told for a decade that the Cloud is the answer to everything. But in a high-speed warehouse or a precision manufacturing plant, the Cloud can be a liability.

You have to understand, that a hydraulically controlled robot arm travels at a massive speed, while handling huge amounts of weight. They are really dangerous! That’s why in most factories they’re behind a fence.

Imagine you are a car manufacturer installing a windshield. A robot is holding a massive sheet of glass. A sensor detects that the car frame is misaligned by 2 centimeters. If that robot has to send that data to a server farm a few thousand kilometers away, wait for an AI to process it, and send the correction back... CRACK. That round trip might only take a fraction of a second, but in the world of high-speed automation, that is an eternity. It’s the difference between a perfect car and a pile of glass.

Actually, in high-speed manufacturing, speed is worthless without certainty. The Cloud is “non-deterministic”, which is a polite way of saying it is fundamentally unpredictable. Engineers fear “Jitter”, which is the erratic pulse of data that lags and surges without warning.

Imagine trying to catch a falling glass while your brain is operating on a random delay — that is what the Cloud does to a robot. If one command arrives in 2 milliseconds but the next takes 50, the robot’s rhythm is shattered. This inconsistency makes the Cloud a liability for mission-critical tasks that require ”hard real-time” precision.

Edge Computing fixes this by placing the Brain directly on the factory floor, centimeters away from the action. In the shift to Autonomy, you don’t outsource your survival to a distant server. You put the intelligence where the work is.

Therefore we can’t run a factory on “Cloud AI”. We need what is called Edge Computing, or more specifically, Inference Compute.

By now you’ve probably all heard about the difference between AI training and inference, right? Training an AI is like going to medical school for eight years. It takes massive amounts of time, and resources. Inference is the doctor actually standing in the ER making a split-second decision to save a patient, relying on his years of in-advance-training. It’s where the rubber meets the road.

For the last three years, the stock market has been obsessed with Training.

But I believe the next move is to position yourself in a way to benefit from Inference Compute. I think in the next 12 to 36 months there will be rigorous application of Inference on the shop floor level.

Remember that I mentioned, Smart Objects need a brain that quickly decides on it’s own task? A brain that enables it to connect to every other Smart Object, and put its own task into the entire factories and supply chains context, the Master Plan?

Inference is that Brain being placed directly on the factory floor. It allows the robots to think locally. It doesn’t ask the Cloud or anything else for permission, it senses, calculates, and acts in milliseconds.

Below you find 2 real-world examples that are observed in many factories worldwide, that prove, that most systems, and objects are actually still really really dumb.

Example 1: False Positive Obstacle Detection

In a modern warehouse, you have Automated Guided Vehicles (AGV), basically fancy, driverless trains that transport goods, where they need to be. Until recently, these things were incredibly stupid. For example, if a piece of brown packing tape was stuck to the floor, the AGV’s sensors might see it as a hole or an obstacle. Because it didn’t have a Brain to infer what it was seeing, it would just stop. It would sit there, blinking its lights, waiting for an impatient human to arrive and remove the tape, while he/she happily shouts: “GOD!!! It’s just tape!!!”.

With Inference Compute, that train has a vision model running locally. It really sees the tape, infers that it is harmless based on its training, and keeps moving.
The consequence? No stopped production line, because the part gets where it needs to be, right on time. No wasted cumulative minutes.

Example 2: The Car Door Doctor

Think about a car manufacturer trying to fit a door. In the old Industry 4.0, if the door didn’t fit perfectly, the system would flag an error. In the new era, the robot uses vision to see why it doesn’t fit — maybe a seal is slightly folded — and it uses its local intelligence to adjust its grip, and wiggle the door into place, just like a human would.

This will mark the shift from Automation — doing the same thing over and over — to Autonomy — dealing with the messiness of the real world.

The 48-Month Tailwind: From Cool Tech to Profit

The world’s biggest manufacturers have already spent the money on the “Body” (the sensors and connectivity). They are now staring at their balance sheets realizing that they aren’t getting the return on investment they expected because they are still relying on human intervention for the hard parts.

They are desperate for the Brain.

I believe over the next 12 to 36 months, we are going to see a massive rollout of dedicated inference use-cases. We are moving from the Digital Shadow (which is just a map), and the Digital Twin to what we call Cyber-Physical Systems (CPS).

A CPS is a system where the digital and physical are so tightly linked that the software can orchestrate the entire supply chain. If a truck is delayed by a storm, the warehouse doesn’t just report the delay—it autonomously re-prioritizes which robots should pick which orders to ensure the highest-value customers are still served on time.

It turns the noise of data into a symphony of efficiency.

For an investor, the signal is clear: The Training phase of AI was the appetizer. The Inference phase with the implementation of AI into the physical world is the main course.

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The Complexity Trap: Why Data Alone is a Burden

Back in 2020, the industry believed that “connectivity” was the endgame. We thought that if we just had enough data, the factory would magically become efficient. We were wrong.

As we moved toward Lot Size 1 — our “Midnight Cobalt” BBQ with custom handles — the number of possible permutations exploded. For a human worker, this creates “cognitive overload.” If every item coming down the line is different, the human has to stop, read a screen, verify the part, and then act. For the logistics system, it creates “logarithmic complexity”.

Connectivity alone just created Data Silos. We have all this information, but no way to turn it into a decision in milliseconds. To get the 70% cost savings that early research predicted, we don’t need more data. We need faster & better decisions at the edge.

In Part 2, we looked at the “Industrial Bureaucracy” — the rigid hierarchy that forces every robot and sensor to ask a central server for permission before it moves. We identified that the world’s factories have built the “Body” (Smart Objects and Digital Twins), but they are currently paralyzed by the sheer volume of data they generate.

This is the Complexity Trap. It is the specific reason why the massive profit margins promised by “Industry 4.0” back in 2020 haven’t fully materialized yet. But we are now at a pivot point. The next 12 to 36 months will be defined by the transition from Smart Factories (which see everything) to more Autonomous Factories (which do everything), because of more rigorous application of Edge and Inference Compute.

While reports like the one from Citrini Research point toward a future where human labor is phased out entirely, the reality on the ground is far more nuanced — and far slower. We won’t wake up tomorrow and flip a switch to “Full Autonomy”. Instead, we are looking at an incremental migration where small, highly scalable tasks are automated one by one.

The winners will be the firms capable of pinpointing exactly which tasks are ripe for automation — and more importantly, which are built to scale. The real prizes are not the bespoke projects trapped in a single factory or warehouse. They are the universal plug-and-play solutions that can be deployed across hundreds of locations at once, after they were successfully implemented, and tested in one location.

Another thing to keep in mind is who works on the shop floor. Because on the shop floor, automation is often met with sharp skepticism. This isn’t because workers don’t understand the tech, but because they understand the consequences all too well: more sensors often mean more documentation, more surveillance, and a fundamental shift in how they work. I’ve seen this friction firsthand. Change management isn’t a corporate buzzword here, it’s a prerequisite for survival.

My own father is a prime example — a man with extraordinary physical skills, capable of operating complex machinery or gutting and renovating an entire house with his own two hands. Yet, like many in his peer group, he struggles with the digital overhead of the modern world, like writing a formal email. To a master of the physical craft, the “digital layer” of Industry 4.0 often feels like a burden rather than a tool. If we want to unlock the next level of profit, we have to bridge this gap between high-level engineering and the people who have spent decades mastering the physical world. For them, a factory isn’t just a set of data points, it’s a place of craft that is now being rewritten in code.

The Pivot: Training vs. Inference

This is why the current investment cycle is shifting. For the last three years, the world has been obsessed with Training AI. This happens in the Cloud, using massive clusters of Nvidia H100s to teach a model how the world works.

But in a factory, Inference is what matters.

Inference is the application of that training in real-time. If a robot is assembling your motorcycle or your BBQ, it doesn’t care about the billions of parameters used to train the model. It cares about the 0.5-millimeter adjustment it needs to make right now to fit a bolt.

Part 3: How to play it

First of all I want to tell you, that I am not going to share a specific game plan with you. I am not telling you how to exactly play this. Play this is also not part of my investment process. I pick individual stocks, that I have high conviction in, and not a basket or a sector, that I think will perform well. That’s not my type. I am a concentrated investor with less than 10 stocks in my portfolio. I identify and choose Alpha Engines.

I am not an expert in all the areas, that I am going to share with you, in particular not when it comes to silicon. So I am not confident enough to tell you exactly what to do.

But I believe this guides you in the right direction, and what you’ve read so far, has saved you many hours, and given you a deep understanding of the topic.

I think by now you should have conviction in the idea. And that’s all I wanted to achieve. I’ll share one of my picks, but that’s not to be seen as a recommendation.

What I’ll do is, I share what one of my favourite superinvestors did, that validates my entire thesis.

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Welcome! Glad you’re here!!

I’m Gianni, I am an Industrial Engineer, who worked at Siemens, and in Energy Infrastructure Research for several years, before I became an almost full-time investor.

Now I help retail investors, who want to level up their investing skills, by providing an investing framework & process. I use concentrated contrarian compounding in few ideas, that move the needle.

For me, GE Vernova (GEV) moved the needle. Big time! I made it a 15% position after the spin-off, because I knew, I had an edge.

• Firstly, because it’s a spin-off, so there will be many forced sellers, and few buyers.

• Secondly, because I worked in Energy Infrastructure Research, and at Siemens’ Energy Department in Berlin for several years, and knew that Gas Power will be the near term solution for the spiking energy demand (and not Nuclear Energy).

When you invest 15% of your portfolio in a single position, and it becomes a 10x, it’s a life-changing event. No matter how much money you manage!!!
A 10x does something to you and your mentality. It validates your process! It gives you confidence to act even more decisive in the future.

Investing is super competitive, and if you don’t have an edge, but want to invest in single stocks, good luck. It’s a gamble. This article is about showing you, what an actual edge is, and how to apply it.

Below, I’ll share my process, my thinking, my knowledge, and the results.

To make sure, you know what follows, here’s a list of what this article includes, and what it does not include.

What this article DOES NOT include:

• comments on where GEV and Siemens Energy are currently trading

• current valuation of GEV or Siemens Energy

• price targets for GEV or Siemens Energy

• the next big winners in this area, like CAT et al.

What this article includes:

• why spin-off investing works

• where to source ideas

• where to get the relevant filings you need to study

• which key questions you need to answer when investigating a spin-off

• my engineering insights into the energy sector, research on nuclear energy, and gas power

• why “service” business is a great thing to have

• the thesis for gas power, and GEV

• the application of the spin-off-investing-framework for GEV

• the “back-of-the-envelope” calculations at the time of the spin-off

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Spin-Off Investing - The “how-to”-Guide

If you have already invested in spin-offs, and know why it works, where to source ideas, and where to find the relevant material for your research, you can happily skip this part, and scroll down to the next large heading “Why for now Gas Power rules over Nuclear”.

Why investing in spin-offs works

Many of you are probably here, because you’ve read my article on Millrose Properties (a spin-off, of course). In it, I describe why investing in spin-offs works very well for retail investors. If you haven’t read the Millrose article, I recommend you check it out - I’ll link it at the bottom of this article.

I also wrote a piece about why investing in spin-offs works so well for retail investors, but I’ll quickly summarize it for you in just 1 paragraph:

Institutions & Index Funds HAVE to sell their spin-off shares. This creates a lot of selling pressure, and the stock declines -10% immediately. Most retail investors - “they not like us, they not like us” - look at their portfolio and see shares of a new company (the spin-off), and they are down -10% on that position. They go ahead, and WANT to sell. As a result, the price of the stock declines even more to -15%. We step in, and can buy shares of (in some cases, like GEV, wonderful) businesses at really cheap valuations. If this explanation is new to you, or too short, read this article:

Now that you know, that it works, you need to know, where to source ideas.

Where to source ideas

I am sure my process is a mile away from being perfect, but it’s my way. It’s also not sophisticated, but it works just fine, and it’s therefore easy to copy for you.

I have a bit of an ADHD-brain, and for that reason have almost all push-notifications turned off, on all devices. I don’t have a single email alert for anything. I am oldschool. You maybe could tell by the beard.

It’s not rocket science: I google something like “list of recent corporate spin-off announcements” every 4-6 weeks. I have a reminder in my calendar that says “google spin-offs”. That’s it. Simple. Stupid. Easy. You can probably automate this, and get filings etc. directly to your inbox. Power to you!

You’ll find that there’s a lot of different websites that cover upcoming and recent spin-offs. So you’re asking yourself, which one I use? Drumroll… all of them. Over time I found, that all of them miss one or the other spin-off. Some charge for the info, some don’t. I never paid for any info. I only need a name. I don’t need anyone to provide all the investor materials, and announcements. I just need a trace. Knowing that something is going to happen is enough.

I think my favourite source is “The Zen of Investing”: https://thezenofinvesting.com/recent-spinoffs/.

I think they give you all you need, and you don’t have to specify your search or click on dropdown menus etc. But like I said, you need to check all of the sources that google provides, or you’re certainly going to miss something.

From the list above, personally, I am currently excited about the Honeywell Aerospace spin-off HONA. Actually I already have been for roughly 6 months. Why? Aerospace is a high margin business, it has a huge moat, and usually long and juicy backlogs. The spin-off will take place in a couple of months. Honeywell has been public for a long time. So you see, you don’t need an email alert. Just take a look at what corporate events are happening every 4-6 weeks. It’s more than enough.

Why am I sharing HONA with you, when I think it might give you some sort of outperformance? Because I truly believe, that the area of spin-off investing is so un-competitive, that there’s enough room to put all our retail investor trades in without any significant buying pressure. I also don’t think that it’s a secret, that aereospace businesses are usually great businesses. If you want to learn about it, I highly recommend listening to Sir Chris Hohn on Nicolai Tangen’s podcast “In Good Company”. Nicolai is the head of the Norwegian Sovereign Wealth Fund. I think he is funny, and he has great guests. Can we just quickly appreciate the name of the podcast? “In Good Company?”. Well done, Nicolai, well done!

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Where to find the research material of a spin-off

Now you found out, that Honeywell will spin off their Aerospace division. Where do you get the relevant material that you need to study?

Well, let’s do it for Honeywell Aerospace, shall we?

First, I usually look at the “mother” (Honeywell in this case), and check not only the filings, but the annual report of the “mother”, and investment slide decks, press releases etc.

When you go to the Honeywell Investor Relations Homepage. The first screenshot is what you’ll find there. See that I highlighted in yellow, that they even provide a dedicated area for “About Our Spin-Offs”.

When you click on “About Our Spin-Offs”, you land on the following page, where you can filter for the spin-off you are looking for - Because Honeywell also separated their materials business Solstice. As you can see, I highlighted the “Form 10”. The form 10 is, where you want to go! It contains most of the relevant information you need to start. You can also check out the 218 page document by following this link: https://investor.honeywell.com/static-files/32d6b7cf-7ea9-44d2-9963-602fb1b2df8a

So that’s one way. Also pretty forward if you’d ask me. But if you think “218 pages, what the hell?!”: That’s how it is. Investing is not shooting fish in a barrel. You have to do some work. But further below I’ll let you know, what I focus on, when doing research on a potential spin-off investment.

But first, I want to show you another way to get the information that you need. This can be done by accessing your friend and helper, the US SEC.

Just ask god google: “US SEC filings”, and click the first link, which should be: https://www.sec.gov/search-filings

At the top right, you enter what you’re looking for: “Honeywell Aerospace”, and open it. See the screenshot:

This gets you here:

As you can see, there’s a list of filings that have happened in preparation of the spin-off. I usually open all of them, and just have a quick glance. But again, the most important is the Form 10, which is included in the “10-12B” that you see in the screenshot above.

When you open “Form 10-12B” (https://www.sec.gov/Archives/edgar/data/2089271/000162828026013549/honeywellaerospace-10x12b.htm) you see, that there’s not much inside. But, there’s a bunch of hyperlinks, that you have to go through. That’s where the magic is. In this case, you have to especially click on the link that I highlight below:

This also gets you to the investor info, that Honeywell shared on their homepage. The one I highlighted further above, from March 3rd. In case you think: “why did this guy show me both ways?!”. This is way to go. Because there’s a lot more to find here, like the 10.6 “Long-Term Incentive Plan”. This for example is important, because you want to know, how management is incentivized. EPS growth? FCF growth? Stock Price Increase?

Okay we’re moving on. When you look at the “main filing” you’ll see an important detail. Something you’ll find immediately after reading the first page. There are several white spaces, that will be filled later on, in updated filings:

This is a good indication of where Honeywell stands in the separation process. This filing will be updated over time, and provide more detail on many things - some of which are important. But in the meantime you don’t have to stop, you can dig through this, and the other filings, or use the help of NotebookLM to do so.

What follows next, is a few things, that I focus on, when checking out a spin-off.

What questions you need to answer

Investing can be a full-time job. For me, it almost is, because I manage close to a million dollars for my family. But I am lazy, and want to know, if something is interesting or not, before I spend a 100 hours on it.

I want to know a few things right from the beginning, before I even start putting in the first 20 hours of work:

• IS THIS IN MY CIRCLE OF COMPETENCE, or can I acquire enough knowledge in a short period of time to gain enough expertise? → I passed on Western Digital / SanDisk spin-off for example (was a 15x since Feb 2025)

• Will the spin-off be a company that I can hold for several years (Compounder)? → I am not looking for a quick rerating, because I am lazy, and I want to compound. I have to pay capital gains taxes of >25%, so I lose 1/4 of the profits, if I can’t let it compound for a few years. If it can compound, I let it compound.

• What does the balance sheet look like after the spin → sometimes there’s a lot of debt, sometimes the company is debt-free and even receives cash during the spin-off process

• Do I think that this can become an asymmetric bet?

I will walk you through my investment decision in GEV, and show how I answered these questions for GEV, which led me to bet 15% of my portfolio on the company after the spin-off.

In case you found this helpful, and you learned something new so far, subscribe to never miss a new article. I put a ton of work into every piece, and most of it is free for you to read. Some content is and will be hidden behind a paywall. By becoming a paid subscriber you get a look behind the curtain, and get timely updates, on what I buy and sell. I think you should see a paid subscription as an investment in yourself. If you believe you have what it takes to level up in investing, invest in yourself first. I do not only teach the process I use, but also share my next big idea with paid subscribers, which might change the financial trajectory of your life, like GEV did for me. With me, it’s not a new pick every month, but maybe 2-3 per year, that will help you achieve outperformance! That’s why the annual membership is way cheaper! Let’s learn and compound together!

Why for now Gas Power rules over Nuclear

My Intro to Mycle Schnyder

I mentioned at the top, that I worked in the research department of the Institute for Economic And Infrastructure Policy in Berlin, where colleagues and I advised politicians on the German & European Electricity Grid. I was a young student at the time, and learned a lot. But let me be clear, I personally did not advise anyone on the the grid, but I helped colleagues research and prepare, attended some of the meetings, and LEARNED A TON over the three years I worked there.

There were many notable people I attended meetings with, like Maroš Šefčovič (now EU commissioner for trade & economic security) or Annalena Baerbock (former german foreign minister). But for this GEV investment thesis, one name comes to mind: Mycle Schneider, who spoke at our department several times over the course of a few years. Mycle is a well know figure, when it comes Nuclear Energy. He is the lead author of the annual report on the state of the nuclear energy industry. It’s called:
The World Nuclear Industry Status Report.
Mycle has a very facts-based approach to describing the state of the nuclear industry. Too often, nuclear gets a lot of praise, and there is a lot of false information out there. But don’t get me started… If you are actually interested in the state of the nuclear industry, check out the report, it’s only 600 pages long: https://www.worldnuclearreport.org/IMG/pdf/wnisr2025-v2.pdf

So what did I learn during my time at the Energy Research Department in Berlin, that has helped me decide that Gas Power will win over Nuclear for now?

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Why am I writing about Millrose Properties $MRP?

1. This is an asymmetric bet with very low risk, and a very safe return with the potential to become a multibagger.

2. Millrose owns land worth ~35$ per share, yet shares mostly trade at ~30$ representing an 18% discount to book value.

3. Millrose pays more than 3$ annual dividend representing a ~10% dividend-yield at $30 per share.

4. Millrose is still viewed as a bad and risky business, trading at ~40% discount to peers, although having lower leverage and 2x the growth, leaving significant room for multiple expansion.

5. Management is very capable, has skin in the game, guides conservatively, and plans to issue equity above book value, which will further increase shareholder returns, and turn this stock into a multibagger.

6. Millrose is the emerging toll booth for the residential market, allowing homebuilders to scale with an asset-light model while Millrose extracts a high-margin, recurring monthly "toll" on every finished lot passing through its balance sheet.

   

1. The Intro - Homebuilder NVR

I try to learn from successful investors. One of them is Norbert Lou. He wrote up NVR in 2001 on ValueInvestorsClub.com.

This pitch will be about Millrose Properties, but you’ll understand later, why the NVR story is important. So, what’s the high-level summary of Lou’s pitch for NVR, and what did I learn from his writeup?:

NVR is a leading residential homebuilder and mortgage banker that operates a unique, asset-light business model. Unlike traditional builders who buy and develop raw land, NVR secures finished lots through option contracts, which minimizes capital risk and protects the balance sheet from market volatility. This strategy allows the company to maintain industry-leading inventory turnover and high returns on invested capital. These structural advantages have enabled NVR to consistently outperform its peers and the broader market.

Lou pitched NVR at 143$/share. Today is trades above 7000$/share. That’s almost 50x.

The success of NVR was in part possible due to their asset-light business model, which was the result from option contracts on land. I’m not going to go too deep into land banking and the homebuilding industry, but I think that a few words are appropriate:

1. Homebuilders long favoured “fat”, land-heavy balance sheets. They wanted to participate in land speculation, and capture 100% of the appreciation in rising markets. This would increase their overall margins, if it played out. NVR on the other hand intentionally chose option contracts to get access to land. They forfeited potential land appreciation gains for safety.

2. Most Homebuilders saw option contracts on land as a lottery ticket, which they used for risk mitigation. They bought the option contracts where they thought prices would move up the most, instead of buying the entire land. If that demand didn’t materialize, they were happy to walk away from those option contracts.

3. Historically homebuilders focused on high gross margins rather than capital efficiency. Their margins were very high, because they bought and developed land themselves. They benefitted heavily from land price increases. But the price for this high margin was low capital turnover, because they had to buy and hold the land for several years: buying the land, getting the required permits, developing the land, building homes on the land. A high margin with very low capital turnover is not a great business. So you have to figure out, what could make homebuilding a better business. NVR did.

You have to understand that ROIC = Margin X Capital Turnover:
Traditional Builders: 25% Margin X 0,5x Capital Turnover = 12,5% ROIC,
NVR / Asset-Light: 18% Margin X 3x Capital Turnover = 54% ROIC.

You see that NVR’s strategy to not focus on margin improvement (through land speculation), but instead focus on increasing capital turnover leads to a much superior business, demonstrated by a more than 4x higher ROIC.

Now, if you take one thing away from this intro, let it be this:
If a homebuilder can increase his capital turnover, it’s worth taking lower margins.

This is from Millrose’s Q4 Earnings Presentation:

Why is this important? It shows that many homebuilders still have high margins, and that there should be a large total addressable market for Millrose. Millrose management believes homebuilders are looking for a trusted land bank, that can help them turn capital over more quickly - Sacrificing margins for a higher ROIC.

2. Lennar and the Millrose Properties Spin-Off

Homebuilder Lennar wants to repeat the NVR success story. A year ago - in Q1 2025 - Lennar strategically offloaded their land assets to become an asset-light homebuilder themselves. The resulting spin-off, which holds Lennar’s land assets is called Millrose Properties.

The new partnership between Lennar and Millrose now allows Lennar to finally mirror NVR’s asset-light efficiency: maintaining high capital turnover, and a lean balance sheet without the historical struggle of managing thousands of individual developer contracts. By institutionalizing the land-holding side of the business, Millrose provides the structural foundation for Lennar to capture NVR-style returns while scaling nationally.

I think the separation of the two businesses has been widely misunderstood. When I initially heard about it, I thought that this is a classic spin-off situation that Joel Greenblatt describes as GoodCompany (Lennar) and BadCompany (Millrose):

People think Lennar becomes a superior business with the potential to generate NVR-like returns. Millrose takes on all the risk of buying land for Lennar, then optioning out that land explicitly for Lennar, and developing the land for them, while only getting paid with a below-market deal.
Millrose is viewed as taking on ALL the risks that come with traditional land banking, while being paid UNFAIRLY. In his book You can be a Stock Market Genius Greenblatt writes something like:

The "BadCo" is frequently the true prize, discarded as toxic waste. By digging into the mess everyone else is running from, you capture the alpha of a business finally free to be valued on its own merits.

To understand that it’s not all bad, we’ll have to take a closer look at the exact business model of Millrose, the terms of the Lennar Partnership, and their initial balance sheet of course.

But before that: If you’re completely unfamiliar with spin-offs, and want to understand why spin-off-investing works well for individual investors, check out this article:

In the article I explain why institutional investors & index funds have to sell their Millrose shares. The result is a collapsing stock price of the spin-off. This leads to individual investors wanting to sell the Millrose shares that they involuntarily received after the spin, because the stock is down, and they don’t want to lose more money. All this selling-pressure gives you a significant advantage:
You enter, when everyone is willing to dump their shares for a dime. You wait for the stock to re-rate and collect the upside. But in the case of Millrose, it’s actually not a bad business.

Back in early 2025 I did some research to see, who might be studying Millrose, and there was only one person on Substack - That’s actually how I discovered Substack. He completely misses the point, and illustrates everything, that has been misunderstood about the separation. He is probably a good guy. I am not trying to publicly shame him. I am just sharing this with you, because it shows the sentiment towards Millrose in this whole spin-off situation. Check out his article. It hasn’t aged well…

3. Millrose Properties - The Deep-Dive

The High-Level Business Model

So far you know that Millrose is a land bank. Land banking has existed for a long time, but there has never been a publicly traded land bank. And Millrose is exactly that: A publicly traded land bank, that’s also a REIT!

I think Millrose’s business model is genius, because they:

• reduced the inherent risks of land banking through multiple practices,

• earn high spreads on incremental capital,

• have multiple competitive advantages due to their size, their structure as a publicly traded company, and their REIT-status.

Below I will explain why I think that Millrose is actually not a BadCo, but a good investment at the right price.

Millrose is a publicly traded land banking REIT. As a land bank they use their own capital to buy land for a homebuilder. Before purchasing the land, both parties agree on a future sale price, the so-called takedown price. Millrose then collects a deposit before purchasing the land. This deposit gives the customer/homebuilder the right to purchase the land at the agreed upon price, when they need it. Until then, Millrose collects a monthly interest payment, which is the source of the high dividend yield. This is paid as long as the customer doesn’t pay for the land. Millrose can use debt to acquire land at ~6,3% interest, and then collect an 8,5-11,5% interest for holding the land. This is the spread they get. Of course they have to deduct some costs. But just to not overcomplicate it here: Millrose lives from having a lower cost of capital, than the monthly recurring interest they receive. But of course that’s not the only way that Millrose makes money.

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When they purchase land, oversee the development of it, and sell it back to the homebuilder, they collect the takedown price. This price is of course significantly higher than the acquisition price of the raw land. They invest $1 billion for a customer, and later collect $1,5 billion. The $1,5 billion are then re-used to buy new land, and repeat the cycle. Millrose’s asset base grows over time. The graphic below is from Millrose’s Investor Presentation. It illustrates the recycling of capital:

The beautiful thing about this business model is, that Millrose itself is land-heavy, but asset-light. They don’t have any machinery. They don’t develop the land themselves. The homebuilders actually do everything! Millrose holds the land, and pays the homebuilders an agreed upon price for the development of it, but only until an agreed upon number has been reached. The homebuilder, who develops their own land is responsible for any cost-overruns! This is fundamentally different from how land banking was done in the past. This is one of the factors that de-risks Millrose.

Just take a second and re-read this part. What does Millrose actually do, and what do the homebuilders do? Homebuilders source their own land, and they develop it. It’s just off of their balance sheet. Millrose is really just holding it and collecting a toll.

Most people in the investing space that hear “land banking” wrinkle their nose. Because in the past, land banking has rather been “land speculation”, and it was a lot riskier! It was the wild west of real estate. The market therefore still sees Millrose as a risky land bank. So how was it in the past, and how does Millrose compare?

A homebuilder wanted a land bank to buy land for them in a specific region. They mostly did this in regions, where they thought land prices would increase the most. They paid a small deposit for a single-asset option, and when their bet didn’t work, and land prices didn’t shoot up, they walked away from this single deal, and only lost their initial deposit. The land bank had their capital tied to this land for several years, and now that there was no demand in this cold market, they’d have to find someone else. Their capital was tied, there were no more interest payments for holding the land, and the market was cold. The land bank was screwed.

But Millrose actively defends against this. They rewrite the entire story! One advantage that they have over smaller private land banks is their already enormous size. They do much larger deals, and only work with homebuilders that agree to cross-collateralize land in different regions. It’s called “cross-termination pooling”. So they create land bundles: a few properties is Texas, Florida, California, Georgia, here, there… Those form a “pool”. And if a homebuilder wants to walk away from one deal in Texas, they can’t. They would loose the right to repurchase the land of the entire pool.

This makes land banking much safer for Millrose, because the homebuilder develops the land themselves, they pay for cost-overruns, they actually even have to finish the land development if they wanted to walk away from a deal, AAAAAAND they have to pay a monthly interest on the land as long as Millrose holds it for them.

So far I always said Millrose does this for a “customer” or a "homebuilder”, but the truth is: Directly after the spin Millrose only had one business partner - Lennar. There were no customers! It was 100% unclear! Nobody knew if there would be any demand at all from any homebuilder in the US for what Millrose does. There was only Lennar. And Millrose was intended to be acting as Lennar’s land bank to help them become asset-light. So why did Lennar create a new publicly traded company, instead of transferring their assets to a private entity?

Firstly, Lennar did this to have a partner that options out the land that they have already acquired. They needed someone to transfer their assets to. Someone who they could trust. So they created Millrose. And they created it in a way that specifically serves them the way they want. They don’t want to be screwed over by an opaque private land bank. They want a trusted partner, to whom they could transfer their land, and they wanted to write their own contracts, under which the partnership takes place. The main document to study for this is called the Lennar Master Agreement.

Secondly, because there is no publicly traded land bank that also functions as a REIT, and they thought it would make a great business, because this structure has several advantages:

• As a publicly traded company Millrose has easier access to capital, because they have to report to the SEC about their business. Private land banks don’t. This makes Millrose more trusted than the traditional private land banks, which are opaque, and operate more in a black box. Therefore Millrose can get cheaper debt than competitors, which lowers their cost of capital for borrowing money. This in turn makes them able to offer better conditions than their private competitors. So by being a publicly traded company, Millrose creates more trust, can therefore get cheaper funding, and give some of their savings back to their customers. This is a true competitive advantage. And just another thought: The bigger Millrose gets, the more trusted it becomes, which gives lenders even more confidence, which would further decrease MRP’s cost of capital for lending money. A lower cost of capital means that MRP can also decrease the monthly interest payments they receive from their customers, compared to their private peers.

• Being a REIT makes Millrose a very tax-efficient business that has to pay almost zero taxes. This is another competitive advantage over their private peers, who have to pay taxes. Therefore private competitors need higher monthly interest payments from their partners. This in turn makes Millrose even more competitive, because they don’t have to charge high monthly payments. Millrose pays out 100% of their earnings to shareholders in form of a dividend. So you as a shareholder then have to pay the taxes.

Lennar management must have thought that this could be a great business by itself. And I think it can be: Imagine borrowing $1 billion at a cost of 6%. Then use that money to acquire land for different homebuilders, who agree to develop the land themselves, and pay you a 10% deposit (that’s $0,1 billion). When they want to acquire the land back from you, they agree to pay a total of $1,4 billion for the land that they have developed (minus the deposit). While waiting, Millrose collects 11% interest from the homebuilders along the way, for as long as they don’t purchase the land back from you. Over 2,5 years, that’s another ~$0,25 billion.

The Key Takeaways So Far

What I want you to take away from this is:

• Millrose is less risky than private land banks because of their cross-pooling. It’s in fact a new generation, and a one-of-it’s-kind new business. They are not sourcing and developing land, they are holding it for customers with real intent to purchase the land.

• Millrose has a lower cost of capital, and a tax-advantage compared to traditional land banks due to it’s status as a publicly traded REIT.

• Millrose can offer homebuilders lower monthly interest payments than private land banks, because they have lower borrowing costs.

• Millrose is building a high-margin toll booth for land development for homebuilders, and I think the market is not seeing it. They are not in the speculation business. They are not trying to hit the “home run” that private speculators chase. They will be THE partner for homebuilders who want to follow NVR and Lennar to become asset-light. Businesses that want to focus on building and selling homes. Because that’s what homebuilding is about.

The main thesis for creating Millrose was the following:
There is demand for a trusted land bank, that helps homebuilders become asset-light. A land bank that does not take part in land speculation, but acts as a true long-term business partner that has scale, and is publicly traded. Someone who is trustworthy, and can therefore borrow cheaper capital compared to private land banks, and gives some of it back to their customers by offering lower monthly payments compared to private land banks.

Business Developments From Spin Until Today - Digging Deeper Into The Business Model

The Questions Millrose Had To Answer After The Spin - And Why I Got Interested In The Stock

Right from the start, there was a lot of questions, when it came to Millrose:

1. Will this company just exist to be the punching bag of Lennar?

2. Is there any demand from other homebuilders?

3. What yield would these homebuilders pay Millrose for their option contracts?

4. Does Millrose actually get access to cheap capital?

5. Will customers keep their deals or terminate their option contracts?

6. Will Millrose get accepted as a REIT after its first year?

7. What will happen with Lennar’s 20% ownership in Millrose? Will they just dump it at one point and collapse Millrose’s stock? (I haven’t told you this so far, because I think it’s complicated enough already)

I think there have been more questions, but those were the main fears. I’ll address all of them.

But first: As a large part of the upside in the stock still remains, the rest of this post is for paid subscribers only.

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Join me in searching for mispriced bargains in spin-offs.

In his book You Can Be a Stock Market Genius, hedge fund legend Joel Greenblatt revealed an unconventional truth: The individual investor has a massive structural advantage over Wall Street professionals.

Greenblatt didn’t point to sophisticated algorithms or insider access. Instead, he highlighted a recurring corporate event that practically builds bargains into the stock market: The corporate spin-off.

A spin-off occurs when a parent corporation (ParentCo) takes a subsidiary or division and separates it into a brand-new, independent company (NewCo). This actually happens quite often. Those are some recent companies that performed spin-offs that just pop into my head: General Electric, Western Digital, 3M, Lennar, Unilever, Sony.

Greenblatt’s genius was recognizing that immediately after a spinoff, the NewCo’s stock price is almost always artificially depressed.

This is usually the case because the new NewCo shareholders sell their shares in the first 2-3 weeks.

Let me explain, why they sell their shares, and why you as a small investor can still harvest this area. I’ll start with why big institutions have to sell, and then explain why regular shareholders usually want to sell.

Institutional Investors & Index Funds have to sell

The biggest selling pressure comes from professional money managers who don’t necessarily want to sell the spinoff but are forced to by their own rules. Greenblatt identifies several regulatory and mandate-driven reasons why institutions dump
spin-off shares blindly:

• Index Constraints: If the ParentCo is part of a major index like the S&P 500, but the NewCo is too small to qualify, index funds must sell their NewCo shares immediately to maintain proper index tracking. They cannot legally own the non-indexed NewCo entity.

• Mandate Mismatches: Many funds have strict investment prospectuses. A
  “Large-Cap Growth Fund” that owns ParentCo cannot legally hold the “Small-Cap” spin-off. A “Regional Banking Fund” cannot hold a utility company that gets spun out. The manager is obligated to sell.

The result: Large institutions and index funds dump millions of shares into the market with no regard for the actual price or underlying value of the business.
Let me repeat that:

Large institutions have to sell their shares regardless of price. “Regardless of price” are the most wonderful words in investing, if you can be on the other side.

In my last post I teased that I will be pitching the Lennar spin-off Millrose Properties (NewCo). This is what I found in the Lennar documents before the spin:

Immediately after the Distribution, all the holders of Millrose’s Common Stock will be existing stockholders of Lennar. However, public trading in Lennar Common Stock and in Millrose’s Common Stock following the effectiveness of the Spin-Off is expected to create immediate and significant differences between Millrose’s stockholder base and Lennar’s stockholder base. In particular, we understand approximately 30% of Lennar’s stockholders are index funds that are required to hold portfolios that track specified stock indices and institutional stockholders that may have policies and guidelines that may not permit them to retain the Millrose Common Stock they receive. Because Millrose initially will not be included in stock indices or otherwise be excepted from any institutional stockholders’ policies, those funds and institutional holders may likely have to dispose of the Millrose Common Stock they receive promptly following the Distribution. Therefore, it is likely there will be a high volume of trading in our Class A Common Stock in the days following the Spin-Off that will significantly change the profile of our stockholder base from Lennar’s. See “Risk Factors—Risks Related to our Common Stock” for more information. (emphasis added)

If you want to see it with your own eyes, go to page 22 of the S-11 filing:
https://www.sec.gov/Archives/edgar/data/2017206/000119312524280883/d811267ds11.htm

It’s right there. They have to sell. They use different words, but it’s the same outcome.

And now let’s ask the question that matters most for the next part of this post: What do you think happens if 30% of the NewCo stock gets sold rather quickly, and there are not enough buyers? Well, the price drops significantly. It can be seen with almost every spin-off. This is the example of Millrose Properties:

Want to see another one?

Another one? That’s GE Vernova, now trading above 800$/share:

Shares are almost always trading down following the spin-off, because of the inherent mechanic that I just described. Now let’s see how regular investors fit into this picture, because they usually also sell, but mostly after the large players already exited.

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Regular Shareholders want to sell

The second wave of selling comes from individual shareholders of the ParentCo, who suddenly find themselves holding shares of NewCo. Greenblatt explains that their selling is driven by psychology, apathy, and a desire for simplicity rather than financial analysis.

• The “Unwanted Gift”: Shareholders didn’t choose to buy NewCo. They bought ParentCo because they liked its core business or the dividend. Now suddenly the know-nothing-investor checks his/her portfolio and sees a new holding that they didn’t want, and it’s down ~10%.

• The Work/Reward Imbalance: Understanding a newly public company requires reading a dense SEC filing (like form S-11 above). Most regular investors are not going to spend hours doing homework on a small holding they didn’t intend to own. They are down 18% and fear that the stock is going down even further. Selling is the path of least resistance.

The result: Thousands of regular investors liquidate their “unwanted gift” simultaneously, creating further, indiscriminate downward pressure on the stock price.

I don’t have a massive audience. I don’t flood your inbox. I share high-conviction insights, and key learnings of mine. This isn’t my living. But if this research educated you, I’d be thrilled to receive a donation.

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The Conclusion: Where the Small Investor Wins

For the small investor, this combined “indiscriminate selling” creates the ultimate special situation.

While institutions are dumping the stock because they have to, and regular shareholders are dumping it because they want to, you are free to buy. You are not restricted by index mandates, size constraints, or the bureaucratic need to research quickly. You have the time and the flexibility to analyze the NewCo before the spin-off happens. You can prepare, then wait for the selling pressure, and then buy.

Greenblatt’s message is clear: By understanding the rules that force Wall Street’s hand, and the psychology that annoys the regular investor, you can locate the “secret hiding place” where the stock market’s biggest bargains are waiting to be picked up.