Just a few things quickly: performed better than we expected. The hedge against semis is apparently industrials and some SaaS. And lastly, these are uncertain times — we are writing this after the semiconductor trade went down 20% in a week and is now suddenly up again after earnings.

Before we start, a short disclaimer: we used Claude for linguistic improvement, and we are not only bullish, we already hold a position at an average price of €21.27.

We got a excel DCF file, if you are intrested to get it just text us and we will send it to you.

Published 29 July 2026.

• Price: ¥4,501

• Market cap: ¥743.7bn

• Shares out: 165.2m

• Full-year results, 5 August 2026

Summary & Thesis

Mercari has spent two years being repriced from a broken growth story into an operating-leverage story, and the numbers now justify the repricing. In the nine months to March 2026 the group grew revenue +16.1% to ¥167.3bn while lifting core operating profit +74.5% to ¥34.9bn — a core OP margin of 20.8%, up 6.9pp year on year. The mechanism is not really glamorous and therefore durable gross margin improved +2.1pp to 73.8%, while SG&A grew only +6.4% against a 16% revenue line. Japan, which is the cash engine and where they are from, ran a ~40% core OP margin in Q3 alone. The US segment, a decade-long capital sink, posted its first meaningful nine-month segment profit at ¥1.19bn against a ¥50m loss a year earlier. Management raised full-year guidance for the second time in one fiscal year, to revenue ≥¥220bn (+14.2%) and core OP ≥¥40bn (+45.1%).

The market has noticed. The stock is up roughly 52% year to date and ~66% on a twelve-month total return basis — yeah, we are kind of late to this one — and it now trades above the sell-side consensus target (¥4,038 per Minkabu in June; ¥4,415 on a more recent Investing.com composite, range ¥3,400–5,500), though we believe it does not get much coverage since everything nowadays revolves around the AI craze, and as usual consensus is more often wrong than right. Our own work — a base-case DCF at an 8.5% WACC and a sum-of-the-parts cross-check — puts fair value in a ¥4,000–4,400 band. On the numbers actually in evidence, Mercari is fairly valued to modestly full. We are not going to pretend otherwise in order to keep a clean bullish narrative.

Where we think consensus is wrong is on direction, not level. Management guided Q4 to a deliberate profit collapse — the ≥¥40bn full-year core OP figure implies roughly ¥5bn in Q4 versus ¥14.6bn in Q3, a ~33% year-on-year decline, because the entire second-half investment budget was concentrated into one quarter for cross-border product, the global app rollout, and a US marketing proof-of-concept. The sell-side has largely treated this as a margin ceiling and left numbers anchored near the company’s minimum. We read it as pre-funding. Mercari is spending Q4 to buy FY6/2027 GMV acceleration, and it has told the market the mid-term policy remains double-digit revenue CAGR with ≥25% core OP CAGR. If the 5 August print carries FY6/2027 core OP guidance at or above ¥50bn, consensus has to move numbers up 15–25% and the stock’s premium becomes retrospectively cheap. If guidance lands at ¥44–46bn, the Q4 spend was defensive rather than compounding, and a 33x trailing multiple has nothing to hold onto.

So let us break it down simply. This is not a valuation gap, it is a guidance event with asymmetric information content, one week away. We size accordingly — and by that we mean our existing position will either be sold, or we add if the implied move on the day is not too hefty - aside the EC this is pretty symmetric.

You see similar dynamics with . Commerce is a pretty dynamic field, which brings us to our next topic — macro and setup. This is crucial and, as we just said, a pretty dynamic field to work through.

The rate cycle is a headwind to the multiple and a tailwind to the model

The Bank of Japan raised its policy rate to 1.00% on 16 June 2026, the highest since 1995, after the December 2025 hike. The 10-year JGB yield sits around 2.76%, territory last seen in 1997, driven as much by fiscal concern under the Takaichi administration’s expansionary programme as by BoJ policy. The BoJ has simultaneously cut its FY2026 growth forecast to 0.5% and raised its core inflation forecast to 2.8%, partly on Middle East–driven energy pass-through.

For a long-duration equity this is straightforwardly negative, our risk-free rate input has risen roughly 200bp in two years, and Mercari has re-rated into that headwind, which is unusual and worth respecting. But two effects run the other way, and they are specific to this business:

• Inflation without real wage growth is the single best demand driver a C2C resale platform can have. Japanese households are monetising unused goods and substituting secondhand for new. Tokyo Shoko Research attributes the reuse sector’s expansion directly to cost-consciousness under weak real wage growth. The domestic reuse market has passed ¥3tn, with online C2C the fastest-growing slice. So basically if imported goods get expensive and you still want them, you start selling things you do not need in order to finance that. Simple equation.

• Cultural influence out of Japan is gaining meaningful traction — trading cards, idols, games, or any niche product. A Tatsuro Yamashita vinyl is hard to come by in the Western world, or comes with an unprecedented mark-up. Mercari closes this gap, connecting the interested buyer with a seller.

The ever repeated argument from us: the yen is a two-sided variable, and it currently cuts Mercari’s way

We had the same thesis with NEC and Sony, which we wrote reports about. With USD/JPY holding in the mid-150s to low-160s through H1 2026, the yen sits near multi-decade lows against both the dollar and the euro. This is a direct subsidy to Mercari’s cross-border business, as we briefly mentioned above, Japanese secondhand inventory — trading cards, anime and character goods, vintage streetwear, cameras — is priced in a currency that has been devalued for foreign buyers by roughly a third since 2021. It also flatters US segment GMV on translation. A meaningful yen recovery toward 140 would reverse both effects. For euro-based investors the mirror image applies. The yen recovery would deliver an FX gain on the position while pressuring the operating thesis. These are not independent bets and we would not model them as such, but it is a hedge nonetheless — a two-sided coin where either side is a win.

Kind of the eBay of Japan, but not really — a look into the sector

Mercari holds over 40% of Japan’s online C2C market (over 70% of the flea-market-app sub-segment specifically) with 23.84m MAU (monthly active users). Critically, it charges sellers a 10% take rate against 5% at Yahoo! Flea Market and comparable discounting at Rakuten’s Rakuma. That premium is the clearest single test of moat strength, and also the thing that can erode fastest, though it has survived years of undercutting because liquidity and turnover speed are worth more to sellers than 500bp of fee. A fee war is the sector’s main structural risk, and the LY Corp / PayPay ecosystem is the most credible aggressor because it can subsidise from adjacent P&Ls. Short personal note — if you are in Japan there is genuinely no escape from PayPay.

The second structural trend matters more to the bull case is Japan’s entertainment and hobby export franchise. Mercari sizes the global entertainment/hobby market at roughly ¥17tn with no dominant global player, and roughly 70% of its cross-border GMV already sits in that category. Its September 2025 Global App launch (Taiwan and Hong Kong first, US spring 2026, targeting 50+ markets in three years and 100+ long term) with Stripe payments, Sagawa logistics, full-item inspection and partner authentication is an attempt to convert a proxy-buyer workaround into an owned channel. Buyee and similar proxy services currently capture much of that economics, and disintermediating them is the highest-value strategic move on the table — we are especially looking at and judging you, Buyee.

Three quite different businesses sit inside one ticker, and they should not be valued on one multiple:

One thing to watch in that table so you do not get fooled by the US line are the ¥16.8bn of that US revenue is shipping, booked gross. Strip it out and the US business earns roughly 14.7% on GMV, not the 33% the headline suggests. Anyone comparing this to eBay or Etsy without adjusting is out by a factor of two.

There is no actual moat, just liquidity

The marketplace moat is the standard two-sided network effect, and the evidence that it is real is the sustained 10% take rate against 5% competitors.

The most underweighted fact in this story is the shape of the domestic GMV line through the year, which is not a level but an acceleration. +5% in Q1, +11.1% in Q2, +16% in Q3. Each print beat the prior one, and the Q2 figure was already well ahead of consensus at the time. This is the single strongest piece of evidence that the domestic marketplace was under-optimised rather than structurally ex-growth — and to be fair, as the yen continues to weaken this may play into it — which is the distinction the entire bull case rests on. Management’s promotional machinery has become more surgical in the process, campaigns such as Cho Mercari Ichi combine shipping discounts, fee rebates and time-concentrated incentives rather than generic marketing spend, improving behaviour on both sides of the network simultaneously. The Temu tactics have reached Japanese domestic apps — just a sidenote, but interesting to observe regarding consumer behaviour. That is a meaningfully higher-quality way to buy GMV than coupon-bombing buyers, which is what the Chinese competitors are doing in an even more aggresive way as we just pointed out.

The evidence that the franchise is nonetheless maturing is equally clear and we will not soften it. MAU grew only +4% to 23.84m in Q3 while GMV grew +16% and revenue grew +20%. Growth has shifted decisively from user acquisition to ARPU (average revenue per user) and monetisation. The engine of that ARPU lift is the entertainment/hobby category at +32% YoY — trading cards, character goods, idol merchandise. SMBC Nikko’s early-July target raise, which triggered the move to a four-and-a-half-year high on 3 July, cited exactly this.

This is a genuinely double-edged fact. It converts Mercari from a household-liquidation utility into a high-turnover collectibles exchange with far better unit economics and far worse cash-flow stability. Trading card markets are cyclical assets with speculative flow. We treat the current category growth rate as a cyclical overlay on a mid-single-digit structural base, but with the note that the rising popularity of anime (see our Sony thesis, which includes Crunchyroll) could provide a more sustainable stream of demand.

The second moat is underappreciated and, in our view, is the real reason to own this at a premium multiple. At 31 March 2026 Mercari held ¥256.8bn of customer balances — unwithdrawn sale proceeds and Merpay balances — against a ¥337.8bn receivable book. Interest paid across the full nine months was ¥337m. Put simply, Mercari lends out money that its own users have parked in the app and have not withdrawn yet, and it pays them nothing for it. It runs a consumer credit business at a near-zero cost of funds while the BoJ raises the cost of funds for every standalone consumer finance competitor in Japan. The caveat is regulatory. Under the Payment Services Act a portion of that float must be preserved, and Mercari spent the period switching its preservation method — ¥45.5bn of statutory deposits returned, ¥53.5bn moved into money trust — so the float is ring-fenced, not free working capital. It nonetheless anchors the funding structure.

On credit risk, management’s answer this year was financial engineering rather than balance-sheet accumulation. Q3 saw over ¥10bn of new investors added to the non-recourse securitisation of instalment receivables. In normal words, they bundle up the consumer loans and sell the default risk on to outside investors while keeping a slice of the income. Collection rate held at 99.4% while the book grew 45%. That is, so far, a clean answer to the obvious bear objection.

Capital allocation — not bad, but a bit weird

Mercari pays no dividend, holds 568 treasury shares — effectively zero — and has never run a buyback. One hundred percent of capital is reinvested. For a company earning a forecast ROE of 24.3% against a cost of equity we estimate near 8.5%, reinvestment is the arithmetically correct policy, and buying back stock at 6.2x book would destroy value on our numbers.

The register, however, is unlikely to see it that way indefinitely. Founder-CEO Shintaro Yamada holds roughly 28%; Oasis Management, the Hong Kong activist run by Seth Fischer, holds roughly 9.3% as second-largest shareholder, with Nomura Asset Management third at ~7.8%. Oasis has run capital-return and governance campaigns at Kyocera, Nidec, HORIBA, Kadokawa and Nintendo, and a 9.3% position in a company with zero dividend, zero buyback and ¥100bn of surplus capital is not a passive holding. We would treat an announced shareholder-return policy as a share-price catalyst that we would nonetheless disagree with on fundamentals — a distinction worth holding in mind rather than resolving. Yamada’s 28% means no campaign succeeds without him, which caps both the risk and the upside from this channel.

The discipline evidence cuts both ways. Mercari Hallo, the spot-work business launched in March 2024, was shut down in October 2025 on the explicit reasoning that competitive intensity and new regulation required investment the board ranked below other priorities. Killing a flagship adjacency inside eighteen months is a materially better governance signal than most Japanese growth companies produce. Against that sits the Kashima Antlers football club, which now sits in the “Other” segment generating ¥5.6bn of nine-month revenue at ¥53m of segment profit. It is financially immaterial and strategically unexplained, and it is the cleanest available exhibit for the bear argument that this management team prefers building an ecosystem to harvesting a cash machine. We think the governance discount should be smaller than it was; we do not think it should be zero.

One accounting flag we will not let pass. Buried in the Q3 additional-information note, Mercari changed how it books software development costs this fiscal year. In plain English it means that the costs that used to hit the profit line immediately now sit on the balance sheet and get spread out over several years instead. The same money leaves the building, the profit number just looks nicer. Intangible assets rose from ¥1.27bn to ¥3.48bn, and intangible capex ran ¥2.86bn versus ¥708m in the comparable period — roughly ¥2bn of cost shifted, or around 13% of the ¥14.9bn year-on-year core OP increase. The margin expansion is overwhelmingly real, but it is not 100% real, and anyone modelling a clean 20.8% core margin should haircut it.

A word on ROIC versus WACC, since that is the standard test everyone runs — what a company earns on the money it ties up, versus what that money costs it. Here it tells you nothing useful. Mercari barely ties up any money. Property ¥2.2bn, intangibles ¥3.5bn, leases ¥7.4bn, about ¥13bn all in, against ¥34.9bn of core operating profit in nine months. Divide one by the other and the number is faintly ridiculous. That is simply what an app with no factories looks like. The binding constraint on this company is not whether returns beat the cost of capital — they obviously do — but whether the money spent on marketing and product actually turns into GMV that sticks around. Which is precisely what Q4 is going to test.

Financials, and why it is not cheap but still worth it

Reported operating cash flow was −¥19.3bn for the nine months against +¥8.1bn a year earlier. Before anyone panics the drivers are an ¥82.3bn increase in receivables (the credit book growing 45%), a ¥53.5bn money-trust placement (the regulatory preservation switch), partly offset by a ¥38.1bn increase in customer balances and ¥45.5bn of returned statutory deposits. In other words the cash went out to lend, not because the business stopped working. Strip the financial-business movements and the underlying operation is strongly cash-generative. Capex is trivially small at ¥3.9bn, or 2.3% of revenue.

The net financial position needs the same treatment. The bridge at 31 March 2026:

Because Mercari owns almost no operating assets, this bridge converges on book equity of ¥120.5bn, which is a useful sanity check. We haircut it to ¥100bn of surplus capital in the valuation to reflect credit risk in the receivable book and the ring-fencing of float. And here is the practical takeaway that the debt on Mercari’s balance sheet is not the kind that sinks a company. It is borrowed in order to be lent out again, and the loans on the other side are bigger than the borrowings. If you screen this company on net debt, or on the 17.8% equity ratio, you will get a scary number and the wrong conclusion.

On an adjusted basis — core OP taxed at a normalised rate, plus depreciation, less capex, less the equity absorbed by growing the credit book — we estimate FY6/2026 free cash flow near ¥22bn, an FCF yield of ~3.0%. That is the single least attractive number in this report and the honest reason we cannot call the stock cheap.

Headline earnings will look worse than the business

A trap for the 5 August print is that the FY6/2025 net income of ¥26.1bn was inflated by a large fourth-quarter tax benefit (nine-month FY25 net income was only ¥11.7bn). Our FY6/2026 estimate is ~¥22bn, which means reported net income can fall year on year while core operating profit rises 45%. The effective tax rate ran 44.0% in the nine months. Expect the headlines to get this wrong in both directions, and do not trade off the first number that flashes.

Three scenarios and chanche of a fourth

How we built this, briefly, so you can disagree with the right things. We forecast five years out from FY6/2027 and then put a terminal value on the end. Cash flow is core operating profit after tax, plus depreciation, minus capex, minus the equity that gets swallowed as the Merpay credit book grows — that last item matters a lot here and most models skip it entirely. We discount using the 2.76% 10-year JGB as the risk-free rate, a beta of about 1.05 and a 5.5% equity risk premium. Share count is the diluted 169.5m, not the 165.2m you see on the screen.

Base case assumes the mid-term policy is met but not exceeded. Japan Marketplace grows low-double-digit as the hobby cycle normalises toward the mid-single-digit structural rate — which we do not think will happen unless we get a hardcore recession — Fintech compounds at 20%+ on a decelerating credit book, the US holds low-single-digit margins, and group margin expands toward 23–24% as corporate overhead is absorbed.

Bull case requires the cross-border franchise to work and that the Global App converts proxy-service volume into owned GMV across 50+ markets, entertainment/hobby export becomes a second growth engine independent of Japanese domestic demand, and Fintech reaches a ¥600bn+ book with collection rates intact. It also requires ~27% terminal core margins on a revenue base nearly double today’s, and the implied share price still sits ~10% below the ¥7,390 all-time high of November 2021. This is not a modest ask.

Bear case is the mirror of the ARPU observation. The trading-card cycle turns, MAU growth of +4% is revealed as the true underlying rate, the Q4 investment fails to produce FY27 acceleration, the US returns to loss on marketing spend, and credit costs rise as real wages stay negative under 2.8% inflation. On ~¥23bn of normalised net income at 15x, ~¥2,000 is arithmetically unremarkable — it is simply what a de-rated Japanese platform stock looks like. Honestly, we do not think this is the realistic scenario, although it is a possible one.

Sum-of-the-parts cross-check

Valuing Japan Marketplace at 14–16x EV/EBIT, Fintech at ~¥100bn on capitalised earnings, the US at ~1x revenue, capitalising ~¥9bn of annual unallocated corporate cost, and adding ¥100bn of surplus capital produces ¥3,975–4,450 per share — corroborating the DCF base case and, notably, corroborating the ¥4,038 sell-side consensus we might otherwise be tempted to dismiss.

Cross-check: the published bull case has already been paid for

A useful discipline is to test our conclusion against the most articulate public bull case rather than against the sell-side average. The best-argued long thesis in circulation was posted to Value Investors Club on 19 March 2026 at a ¥3,500 share price, framing Mercari as a normalisation story — “great asset, messy structure” becoming “great asset, improving structure” — and explicitly declining the more ambitious sum-of-the-parts in favour of a conservative multiple. Its base case domestic GMV growing mid-single-digit, fintech durably profitable, the US contained near breakeven, and the stock re-rating from a high-teens forward multiple to 20–22x earnings. Consensus EPS at the time was ¥161 for FY6/2026 and ¥190 for FY6/2027.

The thesis has been vindicated on the facts. Its four stated success conditions were that domestic GMV keep growing, fintech stay profitable without credit surprises, the US stay boring, and management resist spending away the progress. Q3 delivered the first three unambiguously — GMV +16%, fintech core OP ¥7.3bn at a 99.4% collection rate, US segment profit ¥1.19bn.

It has also been paid for. At ¥4,501 the stock trades at 23.7x that ¥190 FY6/2027 consensus EPS — above the 20–22x the bull case itself was targeting, which brackets ¥3,800–4,180. The multiple has expanded roughly 30% in four months while the earnings base has moved less than that. An investor buying today is no longer buying the normalisation trade, since that trade is closed. They are buying the fourth condition — capital discipline — which is the one Q4 was explicitly designed to test, and which was also listed as that thesis’s own number-two risk.

One technical note for anyone reading screen data be aware that the header statistics on that post show net debt of ~$400m, which is a data-provider artefact of subtracting cash from gross borrowings without netting the matched receivable book or customer float. On the bridge above, Mercari is in a net surplus position. Any Mercari screen that reports net debt is describing a fintech balance sheet with a retailer’s template.

Reverse DCF, or: what does the guy buying at ¥4,501 actually have to believe?

Quick explainer first, because this sounds fancier than it is. A normal DCF works like this: you feed in your assumptions about growth and margins, you turn the crank, and out comes a fair value. A reverse DCF just runs the same machine backwards. You feed in the price the market is charging you today, turn the crank, and out comes the assumption you would have to believe in order to justify paying it.

We like this because it takes the argument away from us. Nobody has to trust our growth rates. The question becomes a much simpler one in what is already in the price, and is that a reasonable thing to expect?

For Mercari the maths is unusually clean. Holding everything else in our base case fixed, every extra ¥1bn of core operating profit in FY6/2027 is worth about ¥80 per share. It is a straight line, because if the company earns a better margin next year we assume it keeps that margin afterwards, rather than treating it as a one-off.

Run that backwards from ¥4,501 and the result is not basically summing up what we just typed in into a report for 0€ ROI, the market is currently paying for roughly ¥51bn of core operating profit in FY6/2027. That is +28% on the ¥40bn the company is guiding for this year.

Now hold that up against what management themselves have promised. Their mid-term policy is core OP growth of 25% or more per year, which off the same base gets you to ¥50bn.

So there it is, one number instead of ten pages which is that at today’s price you are not betting that Mercari hits its own target, you are betting that it beats it. Not by much, but you are on the wrong side of the line rather than the comfortable side, and that is a different bet from the one most people think they are making when they buy a “structural growth story”.

What this means for next week is refreshingly concrete. Guidance under ¥50bn and the market is holding something management is not offering. ¥55bn or better and our base case moves to roughly ¥4,900 with the bull case still very much alive. Anywhere in between and you are back to arguing about multiples, which is where everybody starts guessing anyway. This is not hype piece of a stock nor assymtrical but a fair one.

We would rather know what we are betting on before the print than find out from the price reaction afterwards.

Margin of safety

There is none at ¥4,501. Probability-weighting the three scenarios at 20% bear / 50% base / 30% bull gives an expected value near ¥4,540, roughly 1% above spot — comfortably inside the error bars of the model, which is a statistician’s way of saying the market has priced this correctly. A genuine margin of safety on our base case requires entry below ~¥3,700, which the market last offered in April.

Key Risks & Thesis Invalidation

Beyond the standing risks — a fee war initiated from the PayPay ecosystem, FSA regulation of BNPL credit, resale and secondhand-dealer regulation touching ticket and trading-card categories, crypto regulation affecting Mercoin (revenue flat at ¥1.36bn and not a driver either way), and the multiple compression risk from a 10-year JGB near 2.8% — these are the three concrete markers that would kill our thesis:

1. Japan Marketplace GMV growth below +8% YoY for two consecutive quarters, or entertainment/hobby category growth below +10%. Q3 ran +16% GMV against +4% MAU. If the category overlay reverts while MAU stays at +4%, the structural growth rate of the domestic business is mid-single-digit, and no plausible margin path supports a 33x multiple.

2. Fintech collection rate below 98.5%, or a visible widening of securitisation spreads. The ¥328bn book grew 45% while collection held at 99.4%; both facts must remain true together. Rising policy rates raise the clearing price for receivable investors, and the non-recourse structure only transfers risk as long as investors keep showing up at acceptable spreads. Deterioration flips Fintech from the group’s best growth engine to its largest single exposure.

3. FY6/2027 core OP guidance below ~¥46bn on 5 August, or the US segment returning to operating loss. This is the direct test of whether Q4’s concentrated spend was investment or maintenance. Sub-15% guided growth against a stated ≥25% CAGR mid-term policy would confirm the least charitable reading — that record Q3 margins were a timing artefact of deferred marketing rather than structural operating leverage.

Hazelnuts Verdict

Mercari is a materially better business than it was two years ago, and the improvement is structural rather than cosmetic. A 10% take rate defended against 5% competitors, a Japan Marketplace running 40% incremental margins, a credit book funded at near-zero cost by its own float, a US segment finally past breakeven, and a management team that demonstrably kills its own failed adjacencies. Governance and capital discipline are above the Japanese mid-cap average, and the reinvestment-only policy is correct at a 24% ROE.

What we cannot claim is that the market has failed to notice. At ¥4,501 the stock trades above consensus targets, above our base-case DCF, above our SOTP, above the target multiple of the best-argued public bull case, and on a 3.0% free cash flow yield. The 52% year-to-date move has consumed the entire operational surprise. The normalisation thesis that made money between January and July was correct and is now complete; what remains is a second, more demanding thesis about cross-border expansion and float-funded credit that requires numbers nobody has yet guided to. The risk-reward is roughly symmetric on our numbers — +47% to the bull case against −57% to the bear — with the base case sitting a fraction below the current price, and the reverse DCF showing that today’s quote already requires management to beat its own mid-term policy. That is a fair coin, not an investment case, and the bear leg is not a tail scenario but it requires only that the trading-card cycle normalises while MAU stays at +4%.

Our position: constructive on the business, disciplined on the entry. We hold Mercari as a multi-year position on the cross-border and float-funded-credit theses, both of which are real and neither of which is fully in FY6/2027 numbers. What we would not do is add ahead of a guidance print that is, by management’s own design, the year’s most uncertain quarter. The structure that makes sense here is what we already have — a partial position with capacity to add, either on a guidance disappointment that resets the multiple toward ¥3,700, or on FY6/2027 core OP guidance meaningfully above the ~¥51bn already embedded in the price, which is the one outcome that would make today’s premium look cheap in hindsight.

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⚠️ Disclaimer

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Many thanks to Blue Owl Capital and the Magnificent 7—you really have changed the world for the better. Next up, maybe we can translate German civil servant jargon into actual German - AGI might not be so far as we might think!

We recently added also Nintendo and Mercari - we do reports on those later but as of now let us focus on NEC - the utilsation of Nintendo and Mercari may take longer anyway but with that we are pretty much set with our Japanese discoverage.

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Overview

So what is the actual case with NEC ( 6701:TYO) ? Well it is one of Japan’s oldest and largest technology conglomerates, building everything from biometric identity systems and submarine cables to satellite components and enterprise AI platforms. For most of its 126-year history, NEC was a sprawling industrial-era giant that struggled to convert scale into margins. That story has been changing — and the market has been pricing that change, aggressively, for about five years.

Then it stopped.

Over the last year, NEC has significantly underperformed. The stock peaked at ¥6,194 in its 52-week range and is now trading around ¥4,065 — a drawdown of roughly 34% from those levels. This happened despite the company posting its best financial results in its history, with FY2026 (ended March 2026) delivering record operating margins, record free cash flow, and a dividend increase. The disconnect between fundamentals and price is where this thesis starts.

The consensus still sees ~48% upside from current levels, with 12 analysts all rating the stock a Buy and an average 12-month target of ¥6,008. That alone makes for a reasonable setup. But we think the consensus is still too conservative, because it hasn’t yet fully priced in the most structurally important development: NEC is quietly becoming Japan’s AI infrastructure backbone, and the monetisation of that position is still years away from showing up in reported earnings.

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The Market is sassy recently

The market’s concern is legitimate on the surface. NEC’s FY2027 revenue guidance came in at ¥3,500 billion — a 2.3% decline year-over-year. The culprit is the peak-out of public sector IT projects in Japan. The wave of large government digitisation mandates — municipal system standardisation, fire and disaster prevention infrastructure — is cresting. Order volumes in this segment will flatten.

On earnings day (April 28, 2026), despite posting a 27.6% increase in Non-GAAP operating profit to ¥397.2 billion and achieving double-digit margins for the first time in its history, the stock fell nearly 4% and has been falling ever since.

The market sold the revenue guidance and ignored everything else, this has been the story about any tech stock recently - like we saw with or - their revenues just lag behind but they will spike eventually - capex is not slowing down.

NEC at ¥4,065 is a company trading on near-term revenue optics while undergoing what may prove to be the most significant margin and platform transformation in its history. The consensus already sees ~48% upside and every analyst covering it is a buyer. We think that consensus is still conservative, because it hasn’t modelled what NEC looks like in 2029-2030 if BluStellar’s AI ambitions are even half-delivered.

The AI investment cycle so far has rewarded the hardware layer — chip designers, high-bandwidth memory suppliers, data centre buildout or even grid and energy — with remarkable speed and consistency. The application and services layer, where AI-generated value is ultimately consumed by enterprises and governments, has been far slower to monetise and therefore far slower to be priced.

NEC sits almost entirely at the application layer. It builds the AI solutions that Japanese banks, manufacturers, hospitals, and local governments actually use. That is not the part of the AI stack that gets re-rated on every Nvidia earnings beat. That role isn’t valued by the market today, because the revenue from it hasn’t arrived yet. It will.

The next chapter belongs to the companies that take all that compute and actually connect it to the institutions that need it. NEC is one of the best-positioned companies in Asia to play that role — and the stock is still priced as if none of it is happening.

At ¥4,065, NEC trades at roughly:

• 17.5x forward earnings (FY2027 EPS estimate)

• 11.1x EV/EBITDA

• ~16x EV/FCF — against free cash flow that just grew 121% in one year

• PEG of 0.89 — below 1, implying growth is underpriced relative to earnings trajectory

The consensus 12-month price target of ¥6,008 implies ~48% upside, which is already substantial. But that target is built on near-term earnings forecasts that largely reflect a revenue plateau narrative. It does not model a scenario where BluStellar’s AI monetisation accelerates meaningfully. Our view is that the base case is already more than ample. The upside case — driven by AI monetisation timing — is not in the consensus at all.

The reasons this isn’t priced yet are structural, not accidental. Enterprise AI adoption in Japan is slow by global standards — a combination of regulatory caution, talent shortages, and institutional conservatism. Surveys consistently show Japanese organisations lag global peers in AI deployment confidence. That slowness, frustrating in the near term, is actually a feature of NEC’s moat: the company has the trusted relationships with Japanese government and enterprise that no foreign AI provider can replicate. When those institutions do move, they will move through NEC.

The revenue from this transformation will not show up cleanly in the next two quarters. That is precisely the lag — and precisely why the stock is not yet pricing it. The market discounts what it can measure. It tends to underweight platform transformations whose payoff is 3-5 years out, especially when the near-term financial narrative (public sector revenue peak) gives bears a simple story to tell.

The FY2030 BluStellar target of ¥1.3 trillion in revenue at 25% margins implies an operating profit contribution of ~¥325 billion from this segment alone — from a base where NEC’s total company OP is ¥420 billion today. That kind of earnings power uplift is not in the consensus price targets.

What the revenue decline narrative misses is that NEC is deliberately shedding low-margin work — it is exiting hardware resale, terminating unprofitable business PC sales, and winding down several legacy hardware contracts. On an adjusted, like-for-like basis, FY2026 revenue grew 9% year-over-year. The top-line “decline” in FY2027 is partially a deliberate quality upgrade of the revenue mix, not a demand problem.

Meanwhile, Non-GAAP operating profit is guided to grow another 5.7% to ¥420 billion in FY2027, implying a margin of ~12%. One year ago the company was operating at high single-digit margins. It’s now targeting 15.3% in domestic IT services alone by end of FY2027. The earnings power of the business is expanding even as total revenue consolidates. That dynamic tends to be systematically mispriced in the short run.

You either live with the Yen or die by it - no in-between

One of the most underrated aspects of NEC as a Japanese equity position is its domestic revenue concentration. Unlike Sony or Nintendo — where yen weakness is a structural tailwind and yen strength a material headwind — NEC derives the large majority of its revenue from Japan. Its business is rooted in domestic IT services, social infrastructure, and government contracts. Foreign exchange moves don’t carry the same directional risk.

In fact, a strengthening yen is constructively neutral-to-positive for NEC. It reduces the yen cost of imported components, supports the real purchasing power of NEC’s domestic corporate and government clients, and improves the JPY-translated value of international segment profits (primarily Avaloq in European wealth management and Netcracker in telecom software). As Japan’s central bank slowly normalises rates — with the yen recovering from multi-decade lows — NEC is one of the few large Japanese technology companies that doesn’t have to worry about a currency tailwind fading.

For investors who are cautious about Japanese equity exposure precisely because of FX risk, NEC offers a structurally different profile from the household names in the export-oriented space. It is pretty much our hedge to is simple math.

Tail we win and head? We win again. The mahndi way or something like that - the book was not that memorable for us to look it up now. lol.

The blue crown jewel

The single most important thing that happened at NEC in FY2026 was breaking through the 10% operating margin threshold. It sounds like a technicality, but for a company of NEC’s history and complexity, it represents a genuine inflection point in how the business operates.

This margin expansion is driven by BluStellar, NEC’s AI-native value creation platform launched as the centrepiece of its transformation strategy. BluStellar shifts NEC’s revenue mix from commoditised system integration and hardware toward high-value advisory, AI-driven automation, and outcome-based contracts. The fourth quarter of FY2026 showed what this can look like at scale: Q4 adjusted operating margins hit 15.6%, up 320 basis points year-over-year.

The long-term target for BluStellar is ambitious: ¥1.3 trillion in revenue by FY2030, with a 25% operating margin. For context, NEC’s total Non-GAAP operating profit guidance for FY2027 is ¥420 billion. If BluStellar executes even partially against that 2030 roadmap, the operating profit contribution from this segment alone could redefine what the company’s earnings look like.

Worth being honest about: the ¥1.3 trillion, 25% margin target is management aspiration, not formal guidance. We'd discount it significantly in any base case — say 50-60% execution — and the thesis still holds up. One underappreciated piece of the margin story that tends to get buried: the CSG Systems acquisition ($2.9 billion, completed early 2026) brings Netcracker's recurring telecom software revenue into the international segment. That is a structurally higher-margin business than legacy system integration, and the market hasn't fully digested what it adds to the earnings mix.

Free cash flow tells the same story. FCF grew 121.5% in FY2026 to ¥472.1 billion. That is an enormous cash generation machine being built underneath the “revenue is declining” headline. The company has also been returning capital aggressively — increasing its annual dividend to ¥38/share and running buyback programmes alongside it. The run up is justified but we think there might be room for more.

SpaceX but chill

NEC Space Technologies has manufactured over 9,500 satellite components for more than 400 spacecraft globally. Its work spans payload systems, power control units, attitude control hardware, data handling, and thermal management — the deep plumbing of space infrastructure.

Most recently (well it is actually not that recent), in January 2025, NEC (as prime contractor for JAXA’s LUCAS system) achieved the world’s fastest optical communication between a low-orbit Earth observation satellite and a geostationary relay satellite — 1.8 Gbps over roughly 40,000 km of space. In March 2026, NEC completed the payload design for a small technology demonstration satellite aimed at building Japan’s first optical communication satellite constellation, with an in-orbit launch scheduled for FY2027.

This matters for a few reasons. First, Japan is significantly ramping its defence and national security budget — targeting 2% of GDP by FY2028, roughly doubling from recent levels. NEC’s Aerospace and National Security (ANS) segment was one of the strongest contributors in FY2026 earnings, and the structural direction of Japanese defence spending is a durable tailwind. Second, satellite-based communications infrastructure is becoming increasingly strategic globally, and NEC is an established tier-one supplier in this ecosystem — not a newcomer trying to break in.

The space and defence exposure rarely gets a line in NEC’s equity narratives. It probably should because the whole Space-theme seems to stay rather than going away. From a political standpoint we think that East Asia will rather ramp production up than be happily watching from their chair as the West enters a new Space race - it’d be rather naive to assume that a nation like japan will stagnate for another 20 years, if change happens then now it is the time.

To put it into a Nutshell

NEC at ¥4,065 is a company trading on near-term revenue optics while undergoing what may prove to be the most significant margin and platform transformation in its history. The consensus already sees ~48% upside and every analyst covering it is a buyer. We think that consensus is still conservative, because it hasn’t modelled what NEC looks like in 2029-2030 if BluStellar’s AI ambitions are even half-delivered.

The AI investment cycle so far has rewarded the hardware layer — chip designers, high-bandwidth memory suppliers, data centre buildout or even grid and energy — with remarkable speed and consistency. The application and services layer, where AI-generated value is ultimately consumed by enterprises and governments, has been far slower to monetise and therefore far slower to be priced.

NEC sits almost entirely at the application layer. It builds the AI solutions that Japanese banks, manufacturers, hospitals, and local governments actually use. That is not the part of the AI stack that gets re-rated on every Nvidia earnings beat. That role isn’t valued by the market today, because the revenue from it hasn’t arrived yet. It will.

The next chapter belongs to the companies that take all that compute and actually connect it to the institutions that need it. NEC is one of the best-positioned companies in Asia to play that role — and the stock is still priced as if none of it is happening.

To be clear about what this is though: a 3-year hold, not a 12-month re-rating story. The AI opportunity is real but it will not show up in reported revenue this year or next. For the market to re-rate NEC on AI, it needs to actually see BluStellar revenue inflect in quarterly results — that is probably FY2028 at the earliest. The stock may drift from here before the catalysts arrive, and patience has a cost. Also worth monitoring: Fujitsu is fishing in exactly the same pond. It has nearly identical enterprise and government relationships, its own AI platform, and a Microsoft partnership. NEC’s Anthropic tie-up is a genuine differentiator, but the competitive dynamic is underexplored and deserves a closer look as the enterprise AI market develops but again, sources are scarce.

At ¥4,065, NEC trades at roughly:

• 17.5x forward earnings (FY2027 EPS estimate)

• 11.1x EV/EBITDA

• ~16x EV/FCF — against free cash flow that just grew 121% in one year

• PEG of 0.89 — below 1, implying growth is underpriced relative to earnings trajectory

NEC’s current market cap sits at ¥5.4 trillion (~$37 billion) with 1.33 billion shares outstanding — mid-cap by global standards, which partly explains the coverage gap.

The consensus 12-month price target of ¥6,008 implies ~48% upside, which is already substantial. But that target is built on near-term earnings forecasts that largely reflect a revenue plateau narrative. It does not model a scenario where BluStellar’s AI monetisation accelerates meaningfully. Our view is that the base case is already more than ample. The upside case — driven by AI monetisation timing — is not in the consensus at all.

On a three-year view, the math runs like this. FY2027E EPS is ~¥233 at today’s 17.5x forward. Running margins from 12% today to ~15% by FY2029 on modest revenue growth gets to roughly ¥315 EPS. At 20x — a conservative re-rating as the margin story becomes consensus — that is a base case of ~¥6,300 (+55%). If AI revenue starts showing in quarterly results and the multiple re-rates to 24x, the bull case is closer to ¥9,000 (+120%). The bear — margins plateau early, no re-rating — still lands around ¥4,700 (+15%), which is not exciting but is not a disaster. For USD investors, yen strengthening from ¥145 to ¥130 stacks another ~12% on top of any equity return.

The consensus 12-month price target of ¥6,008 implies ~48% upside, which is already substantial. But that target is built on near-term earnings forecasts that largely reflect a revenue plateau narrative. It does not model a scenario where BluStellar’s AI monetisation accelerates meaningfully. Our view is that the base case is already more than ample. The upside case — driven by AI monetisation timing — is not in the consensus at all.NEC’s current market cap sits at ¥5.4 trillion (~$37 billion) with 1.33 billion shares outstanding — mid-cap by global standards, which partly explains the coverage gapNEC’s current market cap sits at ¥5.4 trillion (~$37 billion) with 1.33 billion shares outstanding — mid-cap by global standards, which partly explains the coverage gap

The reasons this isn’t priced yet are structural, not accidental. Enterprise AI adoption in Japan is slow by global standards — a combination of regulatory caution, talent shortages, and institutional conservatism. Surveys consistently show Japanese organisations lag global peers in AI deployment confidence. That slowness, frustrating in the near term, is actually a feature of NEC’s moat: the company has the trusted relationships with Japanese government and enterprise that no foreign AI provider can replicate. When those institutions do move, they will move through NEC.

The revenue from this transformation will not show up cleanly in the next two quarters. That is precisely the lag — and precisely why the stock is not yet pricing it. The market discounts what it can measure. It tends to underweight platform transformations whose payoff is 3-5 years out, especially when the near-term financial narrative (public sector revenue peak) gives bears a simple story to tell.

The FY2030 BluStellar target of ¥1.3 trillion in revenue at 25% margins implies an operating profit contribution of ~¥325 billion from this segment alone — from a base where NEC’s total company OP is ¥420 billion today. That kind of earnings power uplift is not in the consensus price targets.

The Risks — Briefly

Public sector plateau - The peak-out in government IT is real. If volumes contract faster than BluStellar fills the gap, the revenue shortfall could be worse than the guided -2.3%, and the market will react accordingly.

Fujitsu - They share NEC’s enterprise relationships, are building their own AI capabilities, and are bidding for the same domestic contracts. NEC’s Anthropic partnership is a differentiator, but not an impenetrable moat.

BluStellar execution - The FY2030 targets are aspirational. Partial delivery is the base case. If margins plateau in the mid-teens before reaching 25%, the re-rating stops there — still meaningful upside, but not the full thesis.

Patience has a cost - No visible near-term catalyst means the stock can drift sideways for 12-18 months. Know what you own.

Thanks for reading!

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🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

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⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

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Before diving into the bull case, it’s worth being honest about why the chart looks like a flatline. Two things are weighing on Sony’s hardware businesses. First, the global shortage of memory and semiconductors hasn’t gone away — the PlayStation isn’t competing with data centers for the same GPUs, but it is caught in the same supply-chain squeeze, and with chip costs elevated it’s increasingly difficult and expensive to source the components they need. More recently, Sony was forced (as if lol) to raise PlayStation 5 prices by $100 in the U.S. citing rising costs (lol again), a move that signals ongoing margin drag on the hardware side even as the software business continues to grow. Second, Sony remains categorised by the market as a bloated hardware conglomerate — they’ve been trimming, exiting TV manufacturing and scaling back consumer electronics, but the perception hasn’t caught up, and in our eyes Sony is increasingly a software-subscription player being valued like a CD player manufacturer, which you do not get in the digital PS5 btw (last lol). There is a gap between what we see and the market.

Well, let us get into business.

Strip away the noise and Sony’s real business is entertainment. The Games, Pictures, and Music divisions collectively represent roughly 60% of group revenue, and Sony has been aggressively pushing both of its key consumer platforms — PlayStation and Crunchyroll — toward a software-first, recurring-revenue model. The PlayStation transition is the more mature of the two stories. The console is no longer just a piece of hardware but more of a distribution channel and that is because it has been on the second half of it cycle. If you’ve ever used a PlayStation you know exactly what we mean by toll road, and there’s a reason they’ve been pushing the digital edition which comes without a disc reader. Think of it as Sony’s App Store, a toll road on every digital game purchase charging a 30% cut on transactions that have steadily shifted from physical retail to digital downloads — this is pretty much the Apple play, just limited to PlayStation. That digital penetration rate has grown from around 19% in 2016 to over 70% today, and the rise of live-service games, titles designed for years or even decades of continuous play and monetisation, has made this revenue stickier than it has ever been. And then there are the subscriptions: to play online you have to pay monthly or upfront for the year — thank you Xbox 360 for introducing this particular hellhole of capitalism — with monthly active users across PlayStation platforms hitting a record 129 million accounts and total play time growing 2% year over year. There is also a significant near-term catalyst on the horizon: Rockstar Games officially set November 19 as the new release date for GTA VI, after several delays, with gaming industry insiders believing the date is likely to stick. GTA V has sold over 200 million copies since 2013, and the sequel will be a console-generation-defining release with PlayStation positioned as the primary beneficiary.

The Crunchyroll story is arguably even more interesting. Let us give you a quick story on that as a Anime watcher for a decade now: Crunchyroll started life as, essentially, a pirating website for anime — Sony acquired it, flipped the monetisation switch, and the users were happy enough to pay, or at least opted to - since they were kind of forced if they wanted to continue watching anime in HQ, since Netflix carries mainstream anime and Crunchyroll holds the deep catalogue you genuinely cannot find anywhere else, along with simulcasts of new episodes within hours of their Japanese airing. By March 2025, Crunchyroll had grown its paid subscriber base to over 17 million, up from about 13 million in 2023, with a total of over 120 million registered users globally and more than 25,000 hours of content available in over 200 countries — to put that in context, measured by total users Crunchyroll is already roughly half the size of Netflix and ranks among the top three video streaming services globally, while having only about 14% of its users actually paying, which is where the revenue story lives. A fair criticism is that the moat is being tested — popular titles like Jujutsu Kaisen now appear on both platforms and Netflix has invested in original anime content — but Crunchyroll’s simulcast model and community infrastructure are genuinely difficult to replicate, and about 30% of PlayStation Network customers already watch anime while only around 5% have Crunchyroll accounts, making internal cross-promotion one of the most obvious low-hanging-fruit plays in Sony’s entire business. There is also a notable irony worth pointing out: Crunchyroll, the world’s leading anime streaming platform, does not operate in Japan itself. Sony and Aniplex have also launched Hayate Inc., a joint venture production studio based in Tokyo dedicated to creating original anime exclusively for Crunchyroll’s global audience, signalling a serious push into original content, and Sony is pretty much in the business of making anime mainstream — turning what was once a niche hobby into a global cultural export.

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So let’s look at the actual numbers rather than just telling you it’s a good business. For the full fiscal year ending March 2025, Sony reported operating income of ¥1.41 trillion, up 16.4% year on year, with net income attributable to shareholders of ¥1.14 trillion, up 17.6%, and basic EPS coming in at ¥188.71 — the operating margin reached 10.9% for the full year. In the most recent quarter, Q3 FY2025 ending December 2025, Sony reported a 22% surge in operating income to ¥515 billion with the operating margin expanding to 13.9% from 11.5% the prior year, net income for the quarter rose 11% to ¥377.3 billion ($2.5 billion), and Sony raised its full-year FY2025 operating profit guidance by 8%, now targeting ¥1.54 trillion. Two years ago operating margins in the Games segment were sitting around 7%, weighed down by post-COVID supply chain costs and excessive hiring — that normalisation is underway, and the direction of travel on margins is clear.

Of course those numbers look good, but there is a factor you may have overlooked — if you do not care about macros, do not travel to Japan from time to time, or simply do not care. That factor is that the yen is weak. Sony reports in yen but generates a substantial portion of its revenue in dollars and euros — subscription fees, PlayStation Store purchases, Crunchyroll subscriptions, music streaming royalties — and when the yen is weak, those foreign revenues translate into more yen when repatriated. Sony’s CEO Hiroki Totoki explicitly noted that the yen’s weakness has helped boost revenues, with consolidated sales increasing year on year in yen terms in part due to favorable exchange rates. Through 2024, the yen depreciated significantly against the dollar, averaging around ¥151 per dollar for the year and peaking at ¥161 in July. Even as the yen has partially recovered in 2025, it remains structurally weaker than during the pre-2022 period, providing a quiet but persistent tailwind to Sony’s reported yen-denominated earnings — and for a company whose software and streaming revenues are increasingly denominated in hard currency, this matters more than it used to when the business was primarily hardware sold domestically.

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The bull case is straightforward. The market is still pricing Sony like a cyclical hardware manufacturer while the business is increasingly a platform business with growing recurring revenues from subscriptions, live-service games, and anime streaming. The stock is trading near 52-week lows, with the 52-week high sitting at $30.34 — some 43% above current levels — and the average analyst price target sits around $28.54 against a current price of roughly $20, with analysts maintaining a Strong Buy consensus. With GTA VI launching later this year as a generational console seller, Crunchyroll still in its early monetisation innings, the financial services spinoff now behind them, and operating margins structurally improving quarter over quarter, the ingredients for a re-rating are in place. The market just hasn’t shown up yet.

We fed Claude our numbers and valuation model and let it illustrate, this is what came around - well not perfect but still good.

Last thing to add: Maybe the market sees Sony already as SaaS - maybe that is why they going straight down since a month. Welcome to Adobe’s World :P

Thank you for reading!

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As we’ve mentioned in previous notes, we still have JD, UBER, SONY and SEA in the pipeline. Naturally, we can’t include performance data for companies we haven’t officially reported on yet—which is lucky, as the latter three are currently down significantly in our personal portfolio (anywhere from 20% to 30%).

We’ll stick to our established format: a quick summary of how each position has held up since our report and a brief update on our current thesis. If our outlook remains unchanged, we’ll just provide the percentage. Yes, we really are THAT lazy.

Here is the last time we did this update.

So let´s go - this will hopefully not take long as last time.

Starting with the bull cases:

• Entegris ( ) | Published June 25th

  $75.00 → $156.00 | +108.0%

  If you read our last investor letter, you know how much of a headache this was for us, but it also shows how fast things can change. We sold at a 20% profit to invest somewhere else; right now, it is not a buy for us. Outperformer.

• Napco Security Technologies ( ) | Published June 28th

  $29.82 → $36.00 | +20.7%

  We sold this one. We bought at a couple of dips and made a total profit of 50%, but let’s just go with the official figure for the report. No current outlook since we stopped following it closely after the exit.

• UFP Industries ( ) | Published July 2nd

  $100.00 → $95.00 | -5.0%

  A big-time underperformer, which is a bummer. Same outlook.

• Novo Nordisk ( ) | Published July 5th

  $69.17 → $41.00 | -40.6%

  If $UFPI was a bummer, we have no idea what to call this. Revenge of the Danish? What did we ever even do to them? We are still DCA-ing, but damn. Underperformer.

• Oscar Health ( ) | Published July 9th

  $16.50 → $16.50 | 0.0%

  Pretty much the same price. Still the same outlook and still an underperformer relative to the broader market.

• UnitedHealth Group ( ) | Published July 13th

  $303.10 → $350.00 | +15.5%

  Same outlook and we still think there is room for more, but it just shows how strong the S&P has been—we are essentially even with the benchmark here.

• ASML Holding ( ) | Published July 16th

  €706.00 → €1,412.00 | +100.0%

  It didn’t take a genius for this one. We will be trimming our position, but this is our first major Outperformer.

• PayPal ( ) | Published July 23rd

  $76.00 → $48.60 | -36.0%

  We’re starting to think this maybe wasn’t a good idea. Regardless, our thesis actually got stronger, and we’ve been discussing with our favorite person on this platform, . We are DCA-ing this one. Underperformer.

• Photronics ( ) | Published August 1st

  $19.79 → $52.30 | +164.3%

  A solid winner. We are waiting for the next earnings report; it might be a candidate to hold or sell, but at these prices, it is definitely not a buy. Outperformer.

• Nu Holdings ( ) | Published August 15th

  $12.04 → $13.24 | +10.0%

  $NU had its highs and we actually sold with a profit of around 20%. No major reason other than trimming the portfolio and seeing overall weakness in the FinTech sector.

• MTR Corp ( $0066.HK ) | Published August 23rd

  HK$27.40 → HK$34.60 | +26.3%

  A solid dividend stock for us and an even more solid gain. If you don’t pay horrendous spreads, it might still be interesting. We’re letting it sit and compound—basically a money safe haven. Outperformer.

• Clinuvel Pharmaceuticals ( $CUV.AX ) | Published August 31st

  A$10.43 → A$9.39 | -10.0%

  We sold at the beginning of the year while trimming the portfolio. We simply didn’t know enough to stay invested in Biotech. Rookie mistake.

• Adobe ( Published September 20th

  $366.00 → $256.00 | -30.0%

  Definitely an underperformer, but we still believe in it. The future is clouded, but downside is theoretically protected—if there wasn’t a total slaughter on SaaS names.

• 2G Energy ( $2G.DE ) | Published September 26th

  €23.35 → €46.70 | +100.0%

  Energy was a no-brainer given everything going on. Still room for more in our opinion, but could also be a sell candidate. Outperformer.

• ACM Research ( ) | Published December 14th

  $39.00 → $56.00 | +43.6%

  Insane upside for such a short window. We sold 50% of our stake; we actually held this prior to the report and sold half for a smooth 150% profit. Outperformer, but we wouldn’t buy above $30.

The Bear Cases

• Apple ( ): Just read our previous post—it is literally the same price and situation. Hit.

• Berkshire Hathaway ( $BRK.B ): Published July 29th. Down around 2%; we still don’t believe in the valuation. Hit.

• Palantir ( ): Down 8% since our report. Same negative outlook remains. Hit.

The Performance Metrics

1. The Bull Case Hit Rate

• Positive Returns: 10 out of 15

• Success Rate: 66.7%

2. Average Performance

• Average Bull Case Return: +31.1% – Overall, we’ve beaten the market when considering the specific timing of each post.

• Average Bear Case Return: +3.3% (Profit from the predicted decline) – These names underperformed exactly as we predicted (though not if you only invested in , clearly).

That was our quick heads-up. To be honest, we aren’t entirely satisfied with these outcomes yet, but we’re committed to improving as we continue this journey with you. Let’s see what the rest of 2026 has in store for us.

We will try to post in future more about our buys and sells but you can also always send us a DM - we will always try our best to respond the best way possible.

Until then - take care!

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🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities

Back to the core question, why the shift? In times of uncertainty, the market isn’t just volatile—it can stay in the red for a long time - or as it being said “markets can be longer irrational than you solvent”. We are a mere 2% up YTD and believe that shifting into quality businesses that pay dividends generates enough cash flow not only to beat the market but to refinance our ambition. This cash flow allows us to invest in companies with attractive valuations when almost everything else takes a dive during a crisis.

Let’s get back to BMW. As per usual, we’ll keep as it as usual short so even our most attention-span-deprived readers can keep up.

A company overview isn’t necessary—everyone has seen a BMW on the road—but what you probably haven’t seen yet is the “Neue Klasse” (translated into New Class). This is BMW reinventing its entire lineup and pushing hard into the EV market. It’s an exceptional move. Why? Because the world is changing, and BMW isn’t making the mistake of abandoning combustion engines while pushing EVs. Hardcore petrol heads may resist, but the subtle shift to electric will happen gradually as the technology matures. Simultaneously, BMW can’t ignore a market like China or the alike, where EVs are not only subsidized but are fast becoming the only acceptable form of transport due to regulatory pressure. BMW is serving both markets, which is necessary to currently flourish at home and in the US. Speaking of China and subsidies: as of 2026, the heavy tax exemptions for EVs have been cut. This gives premium manufacturers like BMW more pricing power while lower-cost competitors suddenly become more expensive for the consumer. It is essentially an anti-involution move.

To keep it brief: cheaper cars are now effectively 5% more expensive while BMW’s relative value proposition stays the same. Good for them.

Valuation matters. The recent discourse on this platform suggested that P/E and fundamentals don’t matter—they do. We don’t even have to explain it; just look at your portfolio or at some of the financial advisors on here. These stocks are likely being priced not just for perfection, but for perfect execution and beyond.

BMW has a sub 7 P/E and is priced at roughly 0.5x book value while paying a 6% dividend. You see where we’re heading. Now say it with us: the hurdles from here are not too high! Yeah, we know, we said the same with , and but let’s see where we are two years from now. At the very least, we can use these dividends to finance our average-down on those—haha!

Okay enough, let us get into the core thesis: BMW confirmed that Automotive Net Financial Assets sit at over €44 billion. To put that in perspective: with the current market cap hovering around €46 billion (including both share classes), this cash pile now represents ~95% of the entire company. Getting flashbacks here.

BMW essentially runs a massive bank on the side that most people ignore.

The reason you don’t see this screaming at you from the front page of the balance sheet is that BMW acts as its own lender. Instead of keeping that cash sitting in the cuck chair, the holding company manages the liquidity through the "Other Entities" segment. This section is a maze of bookkeeping where the group raises external debt—which shows up as liabilities in the "Other Entities" column—and then lends that capital to the Financial Services division at market rates. Because the cash is tied up in these intercompany loans to support the matched-funding of their bank, it doesn't appear as a simple cash line item. But make no mistake: this is structural liquidity. If BMW chose to fund its bank externally, this €44 billion would suddenly sit as pure, distributable cash. For us, this provides a massive safety net, you are essentially getting the factories, the IP, and the global brand for free.

Valuation - the part you all are waiting for:

We’re looking for a rerating of a cheap stock. Over the next two years, we project the Book Value Per Share (BVPS) to compound toward €185. When you add the roughly €10 in cumulative dividends (based on the stable 36.6% payout ratio confirmed in the 2025 report), you’re looking at an annual return of about 9.3% just for the company existing at its current valuation.

The Math is pretty simple from here - our €200 target is based on an updated 2027 Sum-of-the-Parts (SOTP):

• Automotive Business: €54 Billion. (We are using a conservative 5.5x EBIT, based on the projected 8% margin target on a €135B revenue base).

• Financial Services: €21 Billion. (Valued at 1x its projected book value, down from the 1.5x seen at major EU banks).

• Excess Cash: €43 Billion. (Adjusted for the €4.5B+ Free Cash Flow projected for 2026).

Makes a totel of 118B€.

The catalyst is the FCF Inflection. Capex and R&D peaked in 2024 at €9.1B and are now trending down (€7.2B in 2025). As the "Neue Klasse" rolls out at the end of this year, the spending drops and the cash flow explodes. Investors who ignored the cash because they thought they’d “never see it” will face a company returning more capital than almost any other large-cap in Europe.

The “Neue Klasse” has to perform well and energy prices, which will get signifcantly higher now due to the war in Iran will make a dent, on the mid or long term we still see the thesis playing out - even in a bear case we’re happy to get paid 6% to wait for the rest of the market to do the math.

Quick sidenote: The Quandt family already owns half the company, and BMW is using its massive cash flow to buy back shares—including the new €2 billion repurchase program ending in 2027.

The easy money in the share-class arbitrage is nearly gone. With the separate meeting on May 13, 2026, where preferred shareholders will vote to merge with the common stock 1:1, the gap is closing. We predicted this exact dynamic in our Sixt report—the market eventually rewards simplicity. By merging the classes, BMW becomes a cleaner target for big index funds, which will likely trigger a fresh wave of institutional buying. In this case, it means it no longer matters which class you buy you’re buying a mountain of cash either way - so no recomendations what class to buy here. With SIXT since they did not do it yet, we will see if they´ll follow that pathway.

Conclusion:

To answer the question in the title: even if the market decides this is a “value trap” and refuses to re-rate the stock for years, you’re still sitting in a very comfortable seat. When you’re collecting a 6% dividend and the company is growing its book value by nearly 10% a year, you aren’t “trapped”—you’re just getting paid to wait for the rest of the world to do the math.

We always prepare for the worst, but when the worst-case scenario involves a mountain of cash and a shrinking share count, the downside starts to look a lot like most people’s upside.

Thanks for reading and until next time!

⸻

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

long time no see!!

Since we try to be conservative and safe with our hard earned money we had a hard time paying a premium for stocks that do not deserve so.

The recent drawdown presents a lot of attractive opportunities.

If you checked the chart already of the stock we are about to present, you’d some ugly last 12 months but actually some positive price action these last months. Why we didn’t cover it? Didn’t know about it and when we did, waited for the whole framework to fit in as well.

Just fyi, we have some names in our pipeline that are for us now considering to be attractive and be posting about it soon. Just having some time constraints.

This is not going to be a long review again since we believe not many read the long ones anyways and we’re a free newsletter after all.

So let’s go!

Business Overview

ONEOK Inc. ($OKE) operates a 60,000-mile pipeline network that serves as a critical infrastructure backbone for the North American energy market. The company specializes in the gathering, processing, storage, and transportation of natural gas, natural gas liquids (NGLs), refined products, and crude oil. Its strategic footprint connects prolific basins like the Permian and Williston to key demand centers and Gulf Coast export terminals. Approximately 90% of earnings are fee-based, providing insulation from commodity price swings. Following the transformative acquisitions of Magellan, EnLink, and Medallion. A significant and growing upside resides in the domestic industrial boom; AI data centers and semiconductor plants being built in the U.S. require massive, 24/7 “always-on” power that intermittent renewables cannot currently provide otherwise there is always a chance of the gpus getting fried for a second. This has turned natural gas into the indispensable bridge fuel for the tech sector, with ONEOK’s infrastructure perfectly positioned to feed the surge in domestic power generation. Furthermore, the March 2, 2026, shutdown of Qatar’s Ras Laffan LNG production due to Middle Eastern conflict has structurally elevated the strategic value of U.S. export-linked midstream assets. Btw, the Compound Annual Growth Rate (CAGR) for natural gas demand in North America is currently projected at 6.15% through 2030, significantly outpacing the historical averages of the last decade.

Financials & Current Situation

As of early March 2026, ONEOK’s financial profile reflects record-setting operations, despite a flat1-year stock performance. For the trailing twelve months (TTM), the company generated $33,630 million in revenue and an EPS of $5.42. The 2026 financial guidance targets an adjusted EBITDA of approximately $8,1B, underpinned by the full-year integration of recent acquisitions and $250 million in realized synergies from the Magellan deal alone. The current dividend yield of 4.93% is 1.7x covered by free cash flow. While the company is in a de-leveraging phase with $31,344 million in long-term debt, it remains on track to reach its 3.5x net debt-to-EBITDA target by 2027.

No pitch without AI, the domestic “AI load” (big pause) is already impacting the bottom line. Management has signaled new commercial opportunities for dedicated energy solutions for data centers, which are increasingly seeking “behind-the-meter” gas generation to bypass grid connection bottlenecks.

Valuation

ONEOK is currently trading at a P/E of approximately 15.50x, which represents a discount to its historical quality-average of ~20x. We maintain a fair value estimate of $130.00 per share. Market has to realize it is a diversified logistics leader essential to both the AI revolution and global energy security. The Qatar supply shock acts as a floor for long-term utilization rates, while the U.S. semiconductor and AI build-out provides a structural “demand pull” that is not yet fully priced in. Key catalysts for re-rating include the acceleration of debt reduction and the announcement of large-scale, long-term supply contracts with hyperscalers or semiconductor fabs. The downside is protected by the essential nature of the physical assets and a fee-based cash flow profile that thrives on volume growth rather than price volatility.

⸻

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

The format is intentionally structured to go back-and-forth between the two viewpoints. Each section alternates between both desks, with inline commentary boxes where we challenge each other’s arguments in real time. There are no consensus statements forced for the sake of a clean narrative. Where we agree, we say so. Where we disagree, we explain why. You, as the reader, get both sides, unfiltered.

“Here is what happened on the latest episode of PainPal”: PayPal reported Q4 2025 results that missed on both revenue and adjusted EPS. Branded checkout TPV growth decelerated sharply to just 1% YoY in Q4, down from 5% YoY in Q3. The board fired CEO Alex Chriss and replaced him with Enrique Lores, PayPal’s board chairman and HP’s CEO. The stock fell approximately 20% on the day.

The Question we will aim to answer today is fairly simple:

Is this a generational buying opportunity in a misunderstood cash machine, or is the market correctly pricing a business in structural decline?

For each side of the conversation, we present the strongest arguments we have in mind, supported by data from the earnings call, public filings, and on-the-ground observations. Some of those observations are based on a small sample of conversations we had with some stakeholders of PayPal. Some are uncomfortable. We include them anyway.

A note on how to read this post: paragraphs marked with the

logo are written by . Paragraphs marked with the

are written by . The callout boxes contain each desk’s direct response to the other’s argument.

Quick Reference: Q4 FY2025 Snapshot:

Reasons For Hope

Let’s start with some optimism and take a look at key facts and observations that can be used to formulate a “bull” thesis behind PayPal, even after the earnings release.

Accounts Are Still Growing – And Engagement Is Improving (Ex-PSP)

Let’s start with the argument that every remaining PayPal bull will cling to: the user base is not shrinking. Active accounts hit 439 million in Q4, up 1.2% YoY with a sequential addition of 1.2 million. For now, it is not a company that is in decline or on the verge of going out of business, and that is true.

More importantly, the engagement metrics improve dramatically once you strip out the PSP (Payment Service Provider) transactions. On a total basis, transactions per active account fell 5% to 57.7 on TTM basis. But ex-PSP, transactions per active grew 5%, and Q4 ex-PSP transactions rose 6% YoY to 4.3 billion. This is the metric that actually matters because it isolates the branded core where margins are meaningfully higher.

Now, does this mean the business is entering a golden era? No. This is a company firmly in the Maturity Stage of its lifecycle. Account growth of 1.2% is not the profile of a business about to re-accelerate. And personally, we believe the board thinks the same. Alex Chriss was the CEO you hire for the Growth Stage, someone ambitious who can sell you on the future (which he did, to the last round of bulls). Enrique Lores is instead the CEO you bring in to tighten operations, optimise margins, and squeeze every dollar of cash flow from the existing machine.

The fact that the core engagement metrics are not yet declining suggests that PayPal has at least 2–3 years of runway to either engineer a pivot back into growth, or shift to a high-yield shareholder return model, before the Decline Stage becomes a real concern.

BNPL - The New Old

While the main business is growing slowly, the BNPL sector is performing remarkably well, growing >20% YoY and crossing the $40 billion mark making it the new growth engine instead of the branded button. Although consumer spending is slowing down, we expect a tailwind in this sector for several reasons.

First, probable rate cuts make these loans cheaper for PayPal to provide, which directly helps the bottom line. Second, recession fears actually benefit BNPL because it serves as a survival tool for people who need to stretch their cash or those who spend impulsively. Finally, with the new 10% flat interest rate cap for credit cards, banks may slow down issuance, eventually driving those consumers toward PayPal’s flexible financing options.

Though PayPal is a mature business, it is—as Sensus Research has noted—far from dead. Think of it like a tree that is deeply rooted in the ground: it may not be getting much taller, but its branches continue to expand. At these current price levels, PayPal is like a massive, old tree standing in the middle of a desert. It might look isolated in a tough environment, but its roots are too deep to be easily knocked over, and its existing structure still provides massive value - yes this is cope mixed with genuine analysis.

Venmo Is Growing Healthy and Getting Monetised Well

Venmo revenue grew approximately 20% YoY to $1.7bln in FY2025 (excluding interest income on customer balances), and active accounts surpassed 100 million. Within that, Venmo debit card TPV and monthly active accounts each grew approximately 50% in Q4, and “Pay with Venmo” TPV rose substantially as well.

Venmo is still a relatively small segment in the context of PayPal’s $33.2 billion revenue base – roughly 5% of the total. However, if the 20%+ growth rate persists, it can provide a meaningful buffer against the erosion in branded checkout. The monetisation trajectory is the encouraging part here: PayPal is successfully converting a consumer social payments app into a revenue-generating engine without killing user engagement in the process.

Braintree - slow but steady

Now we are taking the Tree analogy you wouldn’t have thought of, but here we are. Braintree is focused on being the payment system the merchants use, and while Stripe is eating the market up with no mercy, Braintree is putting up a fight with 12% growth. This is a major positive after years of underperforming and not generating any profit. While this is the same story every bull has been saying even when the stock was $300, we are finally seeing a change; the current execution suggests they can sustain growth, even if it’s no more than a moderate 12%. It is not certain how much they are projected to grow p.a., but a constant 10% would be great news for the company. This is actually a conservative view since PayPal doesn’t yet utilize the massive user info they have. For context, PayPal holds the data and transaction history of every second online shopper in the West. If they ever actually weaponize that data to drive merchant conversions, Braintree stops being just a hope and starts being the smartest checkout on the web.

Just to clarify, the bull case isn’t that they should sell user data or pivot into a shady ad business. Instead, they should function like a bank by utilizing the data they already have to know exactly how valuable each customer is.

Go straight to negative Point Nr.1 to see how Stripe is eating the lunch away and what a challenge it will actually be for Braintree to fight for market share.

Valuation, Buybacks, and the “Annuity” Floor

The board has approved another $6bln in share repurchases for FY2026. The buyback guidance is paired with at least $6bln in adjusted free cash flow for FY2026, meaning the program is fully self-funded.

At the current market capitalisation of approximately $38bln (post-earnings selloff), the buyback represents roughly 15% of the total outstanding equity. In FY2025, PayPal retired 86 million shares and the share count has declined from roughly 1.098 billion in 2023 to around 920 million today, a reduction of approximately 16% in just two years.

However, we must account for stock-based compensation. SBC has been declining, from $1.475bln in 2023 to approximately $1.23bln in 2024, but it is still there. So the net share reduction will be less than the headline 15% figure for FY2026. Realistically, we expect a net reduction of 11.5% after accounting for dilution from equity awards.

If Enrique Lores can implement meaningful cost cuts, which there is significant room for, given the operating structure inherited from the Chriss era, it is expected that the margin profile and free cash flow will improve further.

It could be so easy

This is not Western Union, nor is it a broken company—it just needs new life. PayPal’s balance sheet, with roughly $14.8B in cash comfortably covering its $11.6B in debt, proves there is nothing life-threatening here. On the contrary, the business generates over $6B in Free Cash Flow annually. The biggest lever now is pure cost control: avoiding unprofitable M&A, reining in Stock-Based Compensation, and cutting headcount to become an agile financial fortress rather than a bloated tech firm. You might think we are joking about the inefficiency, but the numbers don’t lie: Stripe is generating $19B with only 8,500 employees, while PayPal takes 23,800 people to do $33.2B. While these businesses are different, a 64% gap in revenue productivity per person proves that one of them is bloated for no apparent reason.

Ironically, PayPal’s biggest weakness is also its greatest strength: it is conservative. It sits in a weird limbo—neither a high-flying tech stock nor a traditional bank—and it hasn’t quite decided what it wants to be. But the math at these levels is simple. If they can execute on even moderate growth, the market will eventually have to re-rate them from a “dying fintech” multiple (~9x) to a standard Tier-1 Bank multiple (12x–14x). The bar from here is incredibly low; the stock is currently priced for failure. The next few quarters will tell if the new CEO provides experienced guidance or if he is just another suit benefiting himself. At this price, you aren’t paying for a miracle. If they can simply stay consistent, avoid stupid mistakes, and cut unnecessary costs while continuing the massive buybacks, the EPS could genuinely fly to the moon—even if the top line stays stagnant.

Red Flags and Concerns

Stripe Is Eating PayPal’s Lunch (And It’s Not Even Close)

PayPal has increasingly positioned itself as a merchant-centric platform. The problem? The merchants, particularly the SMBs and high-growth companies that define the future of commerce, have already made their choice. And that choice is Stripe.

The TPV comparison paints a sad picture for PayPal:

Read those numbers again. Stripe is TPV at 5x PayPal’s rate and will almost certainly surpass PayPal’s total payment volume within the next 18–24 months if these trajectories persist. And the private market is valuing Stripe at roughly 2.5x PayPal’s market cap – for a company processing less volume. That is the market telling you where the future is.

After the earnings release, I personally went on a long walk around the city and walked into five randomly picked small business stores: two hairdresser salons, one bookstore, and two small clothing stores. Three out of five had a Stripe payments terminal. When asked why, the top reason was ecosystem. With Stripe, they are able to handle online and in-store payments within one platform that then seamlessly integrates CRM capabilities and third-party tools. The setup was quick, smooth, and did not require significant time or technical effort.

This anecdotal evidence aligns with the data. Stripe serves approximately 1.35 million live websites globally, and around 80% of IT companies have integrated Stripe into their systems. Half the Fortune 100 and over 60% of the Fortune 500 use Stripe. More critically, roughly 78% of the Forbes AI 50 run on Stripe, meaning the highest-growth companies of the next decade are building with Stripe, not PayPal.

One important nuance: Apple Pay and Google Pay are not a major threat to Stripe because Stripe owns the checkout process and infrastructure, while Apple/Google are merely payment methods that ride on top of processors like Stripe. PayPal, by contrast, is caught in the middle. Its consumer brand is its differentiator, but that brand is becoming less relevant in a world where the payment method is invisible behind biometric authentication and wallet defaults.

No, Ads are not the solution

Retail investors, especially on X, are screaming for an advertisement business, and even the former CEO Alex Chriss occasionally flirted with the idea—but ads are not the solution. After the US, Germany is PayPal’s most critical market, largely because of low credit card penetration and the massive eBay legacy from the 2000s. Because of this, PayPal carries the image of a serious, high-trust fintech company that isn’t just trying to squeeze every cent out of its users. Living in Germany, you see it firsthand, PayPal functions like Cash App and a Visa card combined—it’s more of a bank account than anything else for a lot of customers. While American consumers might be numb to their data being sold, an ad-pivot would be inherently toxic in Germany and the rest of Europe; it would look desperate. Not to praise PayPal to the sky but for many it is the Safe Haven that they simply don’t see in competitors like Klarna and living here you´ll see that. Besides, knowing PayPal’s history, they likely couldn’t profit from selling data in that way anyway, and the new CEO has zero track record of doing anything like it. He’s here to build a leaner fortress, not a data-scraping ad engine.

The Branded Checkout Obsession Is a Losing Battle

PayPal’s branded checkout TPV grew just 1% on a CN basis in Q4, down sharply from 5% in Q3. This is the metric the board explicitly cited as the reason for firing Alex Chriss. The 2026 guidance? “Slightly positive to low single-digit” growth. In other words: more of the same.

The earnings call was almost entirely focused on branded checkout recovery initiatives: biometric authentication (36% of consumers now “checkout ready”, targeting 50% by year-end 2026), upstream BNPL presentment (a 10%+ lift when deployed, but currently visible to less than 15% of traffic), and merchant “playbook” deployment. These are all solid moves in their own right, but they miss the point.

PayPal is facing a structural problem:

• It cannot compete with Apple Pay and Google Pay on the consumer wallet front due to fundamentally different delivery mechanisms. Apple Pay is embedded in the hardware, while PayPal requires a separate app or redirect. In a world moving toward one-tap biometric checkout, PayPal’s branded button adds friction, which kills conversion.

• Braintree cannot truly compete with Stripe on the merchant infrastructure front due to a narrower ecosystem offering and weaker adoption among the up-and-coming SMB cohort. Stripe’s developer tools, documentation, and API-first approach have made it the default for any company building payments into their product.

• The investment thesis is backwards. Why continue to pour resources into defending a segment that is structurally challenged, instead of aggressively attacking newer growth verticals? PayPal has one asset that none of the competitors mentioned above possess: users. Neither Apple Pay, Google Pay, nor Stripe have visibility into user behaviour and intent at the scale PayPal does (439 million accounts, decades of transaction history). Others cannot build ad products, CRM tools, or data-driven commerce offerings because they do not have the see-through into consumer behaviour. PayPal has it. Even though they are starting to grow their ad business, the earnings call nearly ignored it entirely in favour of branded checkout recovery talking points.

Lost the best out of two worlds

Lost the big fish to Stripe and the upcoming ones to Shopify, but where do we go from here?

While the enterprise battle against Stripe is a brutal uphill climb, there is no reason for PayPal not to aggressively hunt the market where they are currently invisible, which is the new world of TikTok, Instagram, and social commerce. Management is pushing AI shopping partners as the future, but that technology is years from being a daily habit. You aren’t looking for a new lawn chair or makeup while writing a university paper with an AI assistant, you’re doing it when you’re scrolling Instagram and an impulse buy hits you.

PayPal has the printing-press cash flow from its core business to buy its way back into this niche, but the execution remains the biggest question mark. The recent exit of Alex Chriss—who was the real catalyst for the long-term thesis—leaves us with a leadership team that feels more like a defensive board of suits than a high-growth engine. At these levels, the math still works, but we are betting on a management team that seems to be choosing “safe” AI buzzwords over the raw execution needed to capture the impulse-buy economy.

The New CEO: The Right Person for a Wind-Down, Not a Turnaround

We are highly sceptical of Enrique Lores as the transformational leader PayPal needs. Let’s examine what we know.

The profile:

• Not a payments or fintech person. Lores spent his career at HP, a hardware and printing company. His “transformation” at HP involved expanding into services and subscriptions from a PC/printer base. That is a valid operational achievement, but it’s a fundamentally different challenge from navigating a hyper-competitive, software-driven, real-time payments ecosystem at the helm of a player that is fighting so many battles at the same time, and is dominating in none of the markets. HP’s competition was Dell and Lenovo. PayPal’s is Stripe, Apple, Google, and a dozen well-funded fintechs.

• Not known for growth-driven shareholder returns. Despite the interim CFO Jamie Miller praising his “track record of relentless disciplined execution” on the earnings call, Lores’ hallmark at HP was just cost cutting and squeezing the last cent from the dollar. He did not achieve any major breakthroughs in terms of product innovation or business growth. This is the profile of someone you hire to optimise and get the company ready for a sale.

• He has been on the board for five years, and chairman for 1.5 years. This is perhaps the most concerning point, that makes us question what the board is doing. It is not as if Lores will bring fresh perspectives that were never heard in the boardroom. He was the chairman who oversaw Chriss’s entire tenure. He was involved in “shaping strategy, capital allocation priorities, and the 2026 guidance” (per the earnings call). If the strategy was failing under his watch as chairman, why would execution improve with him as CEO?

Look at his compensation package: a $1.45 million base salary, a 200% bonus target, and a massive equity package including $25 million in one-time PSUs with a maximum payout of 250% based on stock price performance. The PSU structure suggests the board is betting on a stock price recovery. But the question is whether this recovery comes from genuine business transformation or from financial engineering.

And for closing, we also highly recommend giving David Marcus’s X post a read.

It is NOT a US centric problem

While we’ve noted that Germany is a cornerstone for PayPal, it might be in even bigger trouble than the market realizes. For years, PayPal has lived off the fact that German banks were too slow to build anything digital, making it the Safe Haven for a country that historically hates credit cards. But that era is ending. Wero (EPI) is finally rolling out across Germany right now in early 2026, backed by every major player from Sparkassen to Deutsche Bank. This is the fintech app they never had—while Revolut was always more of a UK thing, Wero is the native response. When the German user, who trusts their local bank way more than a US tech firm, can get instant digital cash with bank-level protection directly in their own app, PayPal’s #2 market is in serious trouble. If the business in Europe shakes, the entire bull thesis starts to rattle again.

The real problem is now crystallizing: PayPal is living in a house where it is only a guest. They don’t own the hardware, and while they are slow to enter new streams, others are already dominating the landscape. It isn’t the 2000s anymore; the world has changed. If we want to see actual growth instead of just watching a literal cash cow being milked, the company needs to be more agile. The bottleneck isn’t the technology or the cash—it’s simply the higher management. It could be so easy to execute, but right now, the leadership, culture and being THIS bloated feels like the biggest barrier to the very change they need not to survive but to thrive.

Where We Agree

Despite arriving at different final views, we all agree on several similar conclusions:

PayPal is not dying. The 439mm active accounts, $6bln+ in annual free cash flow, and $14.8bln cash position confirm this is not a distressed business. The Western Union comparisons are premature. But “not dying” is a low bar, and clearing it does not make this a good investment on its own.

The management is the bottleneck, not the technology or the balance sheet. PayPal has the data, the user base, the cash flow and the brand recognition to compete. What it lacks is a leadership team capable of translating those assets into a clear product strategy and actually delivering on it. The CEO transition confirms that even the board agrees the growth playbook has failed.

The branded checkout obsession is a potential dead-end. Defending the branded button against Apple Pay, Google Pay, and the broader shift toward invisible, biometric-first payments is a losing battle. PayPal’s unique asset is its user data, transaction history and user trust. We agree that the current leadership is not doing enough to monetise that advantage.

Stripe is the clear winner on the merchant side. Whether you measure by TPV growth, developer adoption, Fortune 500 penetration, efficiency, or valuation, Stripe is winning the war on the infrastructure front.

The math sets the current price as close to the floor. Pure free cash flow generation margins and balance sheet arguably set the floor for the price relatively close to the current price. However, what is cheap can always get cheaper.

Where We Disagree

Sensus Capital Research:

We remain on the sidelines. The core thesis is not that PayPal is a bad business. It is that we cannot identify the single lever that management can pull to reverse the structural erosion in branded checkout. The Stripe threat is accelerating. The new CEO is a cost-cutter from a hardware company, not a payments visionary.

We would need to see either: (a) a credible product strategy that leverages the 439M user data moat into a new revenue stream, or (b) a share price below $30 that creates sufficient margin of safety for a pure cash-return thesis. Neither condition is met today.

Hazelnuts Research:

You could argue that we cope, which is not too far fetched probably but we are not bag holders. Our core thesis is still not invalid, these concerns were present YoY but PayPal was just overpriced - at $300 the stock was not optimistically priced but simply stupidly. At these prices PayPal does not have to be completely a mess to turn this ship around - everything which is even a little positive could greatly benefit the company from here on but besides that - the math makes this stock way too cheap to be not rerated.

Our catalysts are fairly simple:

1. cutting down cost, headcount, no stupid M&A’s & cooling down with the SBC

2. continuing buybacks and therefore pushing EPS up but more importantly cutting down outstanding share count

3. getting away from being simply a wallet and transforming into a shopping destination.

Our Rating

Final Word

We will revisit this analysis after Q1 2026 earnings. If Lores delivers a credible cost restructuring plan and branded checkout stabilises, the math will tilt towards optimism. If not, the cash flow machine thesis starts approaching a business in decline faster than most bulls expect.

Sensus Capital Research: Thank you for reading. If you found this format valuable, two research publications debating in real time rather than delivering a pre-packaged single narrative, let us know. We are considering making collaborative coverage a potential recurring series.

Hazelnuts Research: Thanks from us as well to Sensus Capital for initiating this Dialog & Concept while hopefully providing value to our dear readers!

Now that we are finished, what do you think? Vote in the Poll below!

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⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

BTW -very important- if you have a SIXT share you can get up to 15-20% off when renting. Just Google to see if it applies for your region too.

WE MADE THE REPORT ABOUT THE COMMON STOCK BUT PREFER THE $SIX3 STOCK. Why? Because the Sixt family already holds ~58% of the voting rights, so your “vote” ( Literally lol) doesn’t really move the needle. With the $SIX3 (Preference Shares), you get the same business but with higher dividends and a cheaper entry price.

Anyways here we go: This is our attempt of a 5 minute pitch.

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Company: SIXT.SE

Ticker Symbol: SIX2

Current Price: ~68.90€

P/E (KGV): ~11.3x

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1: The Summary – The Asymmetric Dislocation

Sixt SE ( $SIX2 ) is valued as a generic, commoditized rental company like its struggling US peers, Hertz and Avis.

While the broader industry struggles with post-pandemic normalization and “EV-related” fleet losses, Sixt stands alone as a quality Compounder.

As of early 2026, the data is clear: Sixt has successfully navigated the high-interest-rate environment and used-car price volatility. With record revenues ( 4.25B) and a return to its target 10% profit margins, the current share price represents a significant discount to its intrinsic value. We believe Sixt offers a realistic, risk-adjusted path to double its market value within the next 3 to 4 years.

Here a quick overview how and where get their money as of right now:

• Europe (Excl. Germany): ~40% of Revenue. Massive expansion in Spain, France, and Italy.

• Germany: ~30% of Revenue. This is a Heimspiel, high-margin corporate revenue and a stable foundation. easy money.

• North America: ~30% of Revenue. Starting from 0% in 2011, this segment is now a massive third of the company and steadily growing.

• Rest of World: While Sixt is present in places like Dubai, Singapore, and Australia, these are primarily franchise models. They provide high-margin royalty fees but represent a smaller portion of the total Group revenue compared to the three pillars above. Still nice though since it’s low risk but profitable.

The EV strategy is simple, don’t buy since they’re not only expensive to buy but also expensive to maintain. They agreed to buy 100K cars from BYD, yeah the Chinese manufacturer. By using BYD, Sixt gets better price stability and “buyback” agreements that protect them from used-car market crashes. Pretty smart if you ask us.

2: The Pitch – Focus on luxury

Why does Sixt win where others fail? Well they didn’t reinvent the wheel but take a different approach :

• The Advantage: In Europe, roughly 80% of Sixt’s fleet is covered by “buyback agreements.” which we just mentioned above. This means manufacturers like BMW, BYD and Mercedes are contractually obligated to buy the cars back at a set price. If used car prices crash, the manufacturers bleed—not Sixt.

• The US Growth Engine: The US is the most profitable car rental market on earth. Sixt is becoming a major US challenger. By focusing on the top 50 airports and offering a premium experience (BMW/Audi for the price of a Ford), Sixt is aggressively taking market share from incumbents who are plagued by old fleets and poor service. They also upgrade you easily which leaves room for speculation ( gamble like behavior almost) from customer side. They aiming for 20% CAGR which is very optimistic but not totally out of reach.

• Variable Cost Mastery: Unlike airlines or hotels, Sixt’s costs are 70% variable. If a recession hits, they simply buy fewer cars. This flexibility allows them to remain profitable when others are fighting for survival.

They also tried recently a couple new programs like SIXT+. They are aggressively pushing SIXT+, a car subscription service that sits between a rental and a lease. Unlike a one-off rental, SIXT+ creates “sticky” customers who pay a monthly fee. It offers the convenience of a lease (new cars, maintenance included) but with the ability to cancel monthly. This could be a massive hit within “Asset-Light” mobility.

3: The Catalysts – What Will Drive the Re-Rating?

For an investment you need specific events to change the market’s mind. For Sixt, these are the three primary triggers we are watching:

1.

The market has been skeptical about Sixt’s 10% EBT (Earnings Before Tax) margin target. As upcoming 2025/2026 quarterly results confirm that these margins are stable and repeatable, the “discount for uncertainty” will vanish though we believe a lot of fear concerning tariffs (regarding German cars, since that’s what they focus on) and economic uncertainty is priced in.

2.

Currently, the US expansion is seen by some as a “cash burn” phase. When Sixt explicitly breaks out the profitability of its mature US hubs (like Miami and LAX), it will prove that the US isn’t just a growth story but a strategic play.

3; The Valuation

Sixt currently trades at roughly 11x earnings. Historically, when the market recognizes Sixt as a high-quality compounder, it trades closer to 15x.

The Calculation to €135:

• The Growth: If revenue grows by 9% annually and margins hold at 10.5%.

• The Multiple: If the P/E ratio moves from 11x back to its 15x average.

• The Result: A share price of approximately €135 by 2028, plus a consistent 4% annual dividend yield while you wait.

Our verdict: We will be accumulating $SIX2 (Preference Shares). The market is pricing in a “commodity” future for a company that is delivering “premium” results.

Biggest risk? Moat.

We are not talking about ASML here, in the rental car business customers usually choose the cheapest car, there is no brand loyalty or anything even resembling that. Basically what we’re saying is that if they can’t keep up with competitive pricing they get pushed away faster then they entered the market.

Thanks for reading!

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🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

Since the ACMR pitch, our views and interactions have been down, and we’ve heard your complaints that our reports are too long. So, let’s make this a five-minute pitch. We (The & us) got you covered.

Subscribe now

The US has effectively dragged Maduro to NYC and is telling everybody that they now have access to the vast natural resources of Venezuela. But it goes deeper than that—being profitable is just scratching the surface. If you’ve lived under a rock these past months, Trump is prioritizing not only “Made in America” rare earths but also energy dominance. If we think about it, it is not only dominance but also being less reliant on foreign powers. Right now, he is getting an inconveniently high percentage of imports from Canada and Mexico, and he wants to change that dynamic. In reality, it feels like he just wants to deny that oil to others—especially China—showing them the red line of the Western Hemisphere and cutting the “black fleet” off which provided China with cheap oil.

Since the nationalization and privatization shifts, only Chevron ( ) has held a special license to operate in Venezuela. The others left assets behind and have been locked in legal battles, with Conoco ( ) seeking $12B and Exxon ( ) $10B. These are the “Big Three” US players in Venezuela. There is also Valero( ) , of course, but they are the biggest refiners at the Gulf and focus primarily on that, so that is a whole different story.

Valero has it easy in contrast to the extracting companies. Their business is the Spread, and as the name implies, they make money on the spread. Yes, that was funny (pun intended).

While producers struggle to get the oil out, refiners like Valero buy cheap, dirty heavy oil and process it into expensive diesel. The dynamic is straightforward. Light sweet oil from US shale is expensive, while heavy sour oil from Venezuela or Canada is cheap. Complex refineries buy the discounted stuff and sell the finished fuel at full market price. Valero sits at the processing plant, capturing the spread between the cheap crude intake and the premium fuel output.

So where is the oil located?

It is in the Orinoco Belt. Looking at pictures from the ground you see a lot of green, it actually looks too idyllic to drill anything there.

Below you see the map:

( Source BBC )

Below is a ranking of where the US gets their oil from:

The Oil in venezuela is Extra heavy sour - read that right literally EXTRA (8°–10° API), that means they can not process it directly if they do not make heavy investments into their refineries since they can not process it. To be clear, this isn’t liquid oil; it’s practically road tar or bitumen. To extract it, you have to inject high-pressure steam underground to melt it, then mix it with expensive diluents like naphtha just to make it flow through a pipe. It is an energy-intensive, equipment-heavy nightmare. The location doesn’t make it any easier, though at least they are closer to the Gulf than Canada is. The problem is that the infrastructure is literal trash.

So, the investment needed is estimated between $150–200 billion in the upcoming 15 years, and the US majors are already not really engaged to get into the Venezuelan market again without massive guarantees (again).

Currently, they are producing mas o menos one million barrels per day, which is not bad but also not good considering the vast amount of oil they have. Below you can see the historic chart of their oil production. At their peak, they produced as much as Canada exports today only to America. The gap to unlock their full potential is huge, while underinvestment, sanctions, and bad maintenance took their toll on the outdated equipment. Pipelines are notoriously leaky, and in some cases, sections have been stolen by corrupt employees and sold for scrap metal. Once you get to the Jose Terminal, filling a supertanker will take days—if even possible due to broken pumps. Have they tried turning it off and on again? Ha Ha - okay enough with the jokes lol.

(Source Statista )

Considering all that, margins are still thin. The breakeven price for many Orinoco heavy oil projects is estimated at around $80 per barrel. With global oil price forecasts for 2026 hovering around $60 due to oversupply, the economic incentive for private International Oil Companies (IOCs) is weak without significant fiscal incentives or guarantees. The biggest losers if this pulls through are Canada, Mexico, and new wells in America that are still trying to break even due to the high cost per barrel. Possible oversupply will kill not only margins but literally the profitability of their biggest market.

So what does that tell us? Waiting.

We do not think that investing now into Oil will get you the crazy returns you’ll be hoping for. Oil companies had a nice bounce since 2020 and pretty much doubled their dividends since then, like ConocoPhillips. There is probably more Alpha in other sectors like Nuclear. Look at Uranium producers like Energy Fuel ( ), which are already operating but “simply” have to scale up. The Uranium price eventually has to catch up to demand, offering a clearer path to upside than the low-margin grind of Venezuelan heavy oil. For reports look here, one day we eventually do one about too .

This is so far nothing for us, we are holding our horses.

If anything at all, it´ll be Valero for us.

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities

Now, before you start throwing rotten tomatoes at us, we’d like you to listen to a couple of points we will be going through. If you disagree, let us know. The stock market and the tech scene have been in a frenzy recently. We are witnessing not a Dotcom bubble, but something potentially bigger. The Dotcom bubble was characterized by unproven, unprofitable companies popping up around an existing, revolutionary technology (the Internet). We are stepping into new fields which are neither proven nor existing a decade ago. What we are witnessing now is the 2022 AI hype on steroids.

Actually, no, let us rephrase that.

What we are witnessing right now is the AI hype on pure white Colombian top-shelf cocaine.

To clarify, the hardware demand is tangible. The actual bubble lies in the speculative expectations of what AI applications can currently achieve.

The narrative has shifted from “AI is a useful tool” to “AI is THE engine that will solve physics, labor, and capital overnight.” At the center of this storm stands Elon Musk, a figure who has transcended the role of a CEO to become the leader of a specific techno-futurist cult. He is not only the most vocal proponent of this new industrial revolution but also stands at the forefront of the technology, whether through the orbital ambitions of SpaceX or the terrestrial automation of Tesla.

In this report, we are stripping away the marketing veneer to look at the cold, hard engineering realities. We will be going through all three major pillars mentioned in the title: Space Data Centers, Humanoids, and Robotaxis. We are specifically focusing on Elon Musk because his companies act as the bellwether for the entire sector’s rationality—or lack thereof.

Short disclaimer: We are not professional investors or the world’s best engineers. These are points made from simple observation, rigorous application of the laws of physics, and a lot of deep research.

So let us go through the content table:

1. Space Data Centers, what is the vision?

   1.1 Orbital Computing Units

   1.2 Thermal Management

   1.3 Power Generation & Constraints

2. Humanoids, for what?

   2.1 Outlook and Market: The General Purpose Fallacy

   2.2 The Promises We Have Been Giving: The Wizard of Oz

3. Safety first - Robotaxis

   3.1 If you buy cheap, you buy two times

Now that we have the table content out of the way let us get into the nitty-gritty.

1. Space Data Centers, that is Vision?

The AI bubble is so big, it reached Space. Only the vast universe can fit the AI Race now; we are re-living a Cold War era type of Science Race but with China this time.

Since Data Centers on Earth need a lot of infrastructure and vast resources, why not put them into space? We have enough space, no energy problem since the Sun is literally right there shining at us, and we could not only revolutionize Data Centers but maybe in the future save some money. Most importantly, it gets us out of Memphis, avoiding the complaints from residents who happen to live near the noisy xAI Datacenter.

Well that is a great idea, but what is actually the vision here? We have to say this not only applies to Musk but also Bezos who, with Blue Origin, is tailgating Musk with every step he is doing—basically the Temu version of the visionary kind.

Anyways let us get back to the technicals. Musk said on X “Simply scaling up Starlink V3 satellites, which have high speed laser links would work”. Well there you go, it is that easy. The idea behind this is that V3 satellites, which boast 1 Terabit per second (Tbps) downlink speeds, can provide an opportunity to offload the workload of xAI or othe AI agents.

However, we must differentiate between aggregate capacity and link capacity. While a V3 satellite might handle 1 Tbps of aggregate traffic across thousands of users, the backhaul links (laser and RF) are limited. A modern H100 GPU cluster requires petabits of inter-node bandwidth for training. A 1-4 Tbps pipe is effectively a straw for a hyperscale cluster, turning your orbital supercomputer into a high-latency brick.

If we look from an economical standpoint it could definitely work out. Since the numbers are not public regarding what a V3 Starlink costs, we can only estimate. It is probably in the lower single-digit millions. Let us say for the sake of the argument it is priced at $1.5 Million per unit—which is reasonable and well under industry standards given SpaceX’s vertical integration.

To sum the vision up: We essentially will be beaming data back and forth for a fraction of the cost we have right now—in about 5 to 15 years. With SpaceX having the capacity to do this due to cheap launches (Starship targets <$200/kg) and mass production of satellites, it might even be not so unreasonable for him or Bezos to do that, right?.

Well, hold your horses. Let’s look at the physics & econmics.

1.1 Orbital Computing Units: The Radiation Trap

Yeah yeah yeah, we get it. With rapid progress we will eventually be able to build GPUs which withstand space, and after all, there is a Space Station floating around and a lot of other computers just floating up there. But we have to make a distinctive difference here.

The ISS is similar to the computer of a plane with its Redundancy and Voting System. Critical computers are replicated (e.g., triple‑modular redundancy) so that if one gives a wrong answer, the others outvote it and the system keeps working. This system protects the ISS actively beyond material protection. But for AI, you need raw throughput, not just safety.

The most critical part we did not even talk about is pretty simple: In orbit, hardware is exposed to high‑energy particles from the Sun and cosmic rays. These effects are called “single‑event upsets” (SEUs), “single‑event latch-ups,” and cumulative dose damage. Key here is cumulative dose damage. While you can spam space with V3 satellites which are cheaply made and launched, essentially the hardware—which is already extremely expensive on earth—only gets exorbitant (pun intended) in space.

Let us just get a rough estimate because again, there are no official numbers online which is why we have to resort to such:

• Compute: The best current space‑usable NVIDIA platforms (Jetson class) offer roughly 1–5% of H100/B200‑class performance per chip. The chips for space usually need to be “Rad-Hard” (Radiation Hardened). But Rad-Hard chips are typically huge, slow, and 3-5 generations behind current tech (think 28nm or 65nm process). You cannot just buy an H100 off the shelf and expect it to survive a solar storm without heavy shielding (lead/tantalum), which kills your launch cost advantage. In additon, there is currently no radiation-hardened 4nm process in existence (hence the example above). You would essentialy need to triple Modular Redundancy (running three chips to vote on one answer), which triples your mass and power requirements, destroying the economic viability.

• Unit Price: Raw silicon is much cheaper than an H100/B200, but after full space qualification and integration, the total cost per usable space compute node can end up in the same order of magnitude as a single high‑end data‑center GPU, despite delivering only a few percent of the performance.

• Obsolescence: Oh Moore’s law, how many dreams have you destroyed by now? The law states that computing power grows significantly every 2-3 years, which means by the time you have a fully orbital space center, it is already irrelevant.

You could argue “well let us just coat H100 Chips for space” (meaning with RAD shielding) but the physics here are a problem too. We already mentioned the latch-up problem, but just to showcase how severe that actually is: Modern AI chips use tiny transistors (4nm process nodes) to get their speed. The smaller the transistor, the more vulnerable it is to radiation. A stray cosmic ray can flip a bit (turning a 0 into a 1), causing calculations to fail, or worse, cause a “latch-up” that burns out the chip entirely.

The chip itself costs around $40,000. Prepare and launch it to space and for the sake of our argument assume it is like $80,000. That is $80,000 just going kabuuf on a single unit for a usage time that is guranteed not longer than it´d be on earth.

You do not have the same problem on the Earth we live on. The real problem is that AI is used for slop in any kind of way for free by the masses—and yes we do especially mean those unfunny videos on X or right-wing propaganda—and that AI itself is not computing efficiently, which is why that much computing power is needed. Yes, this is still a new technology, but resorting to space instead of fixing the problem on Earth is typical Musk fashion.

To sum it up - GPUs in space are a feat of engineering which we have not achieved yet and while it sounds almost too good to be true, the consequences of having giant Solar run Data Center is something so abstract that we do not even know what effects it could have on earth or space, maybe it could be a problem for future research incentives.

1.2 Thermal Management: The Thermodynamic Brick Wall

In movies, you might see things or people that are in Space freezing to death; they literally grow ice sticks out of their nose. So if we put our Data centers in space we do not need to worry about the climate on Earth anymore while we smartly use the icy cold of space - sounds like a win-win situation until it doesn’t.

It basically demonstrates a fundamental misunderstanding of thermodynamics

Let us point out the obvious: since it is space, you cannot use fans since there is no air. You also do not have water in space which just on standby for cooling your Data Center.

Okay, pretty simple so far, but how does the ISS do it then? Before we answer that we have to know what even works in space and it is basically only one answer which is radiators. The only way to get rid of heat is thermal radiation—emitting infrared light into the void. This is governed by the Stefan-Boltzmann law.

Alright then, how big can those radioters be? Well, massive. The ISS uses massive ammonia-filled radiators just to cool a tiny fraction of the power a data center uses.

Below you see a picture of the radioters on the ISS just to cool ~70 kW.

(Image by NASA)

So in order for us to reject the megawatt-level heat generated by AI clusters, you need massive radiators. A study on a theoretical 1 Gigawatt orbital data center calculated it would need 3.3 square kilometers of radiator surface area. For context, that is essentially deploying a structure the size of a small village just to act as a heat sink. So maybe it was not as easy as sending some v3 Satellites in space as elon said. You are not only launching servers, you are launching giant, fragile umbrellas made of exotic materials just to keep the chips from melting. Below you see how simple cooling is on earth in comparison.

(Image from Misiler)

But wait, this is still not all there is to it but we try to keep it shorter so we can attain your attention.

1.3 Power Generation & Constraints: The Solar Cost Fallacy

You know at this point we get tired of doubting and scrutinizing this idea of data centers in space, making it sound like a future of NieR: Automata is awaiting us with hot robo-androids and stuff, but no, this is genuinely frustrating to debunk because what is the basis for this stuff? Energy is already a problem on Earth so why should it be better in space? Alien technology? Okay, this was a little exaggerated, we don't hate on visionaries and we don't hate on trying or believing, otherwise we'd still put some eau de toilette on after we finish our business… anywayssss since we are not a science magazine we can only write what is bugging us with this idea.

Energy in space—before you say "But solar power is free!" Yes, solar irradiance is high (~1366 W/m²). But capturing it and delivering it to a hungry GPU is a financial black hole. But again, in space you not only pay a premium, you also pay for the high-quality space-grade stuff which runs you more expensive than on Earth.

On Earth, silicon solar panels are cheap (~$0.03/watt). In space, you need high-efficiency Gallium Arsenide (GaAs) or multi-junction cells to survive the radiation. These cost roughly $350/watt. To build a 5 Gigawatt array in space (sufficient for a major AI cluster), you would need panels covering an area roughly the size of lower Manhattan (4km x 4km). The cost of the panels alone would be in the hundreds of billions, completely destroying the economic argument compared to plugging into the grid on Earth. Let us say no H100 chips (so less electricity) , no need for much cooling and so on we’d be still looking at 1 GW - the cost here will most definitely outweigh whatever net positive it’d bring.

Even in space, you pass through the Earth’s shadow (eclipse) unless you are in a very specific “Sun-Synchronous” orbit. That means you still need heavy batteries to keep the servers running during the dark side of the orbit, adding massive launch mass. We are not even touching the points of space debree or anything like that.

In summary, Space Data Centers try to solve a terrestrial energy constraint by introducing three worse constraints: radiation damage, impossibility of cooling, and 10,000x higher energy infrastructure costs.

2. Humanoids, for What?

All rivers lead to NieR: Automata and 2B - if they released a model like that people be lining outside of the Tesla factory like it is the release of Halo 3 but the reality is much, much more grim. Hate to break the news for you but the Humanoids we are talking about are for once totally controlled by VR as we saw on that prominent Tesla event where people actually ate that slop up.

For the other, the reason it is brought up is pretty simple: as EV growth slows and margins compress (Operating Income down 40% YoY), the promise of “unlimited labor” is being used to bolster stock valuations. The pitch is that Optimus will be a general-purpose worker, capable of doing anything a human can do. As if the whole AI thing couldn’t get better we get in the future humanoids as pharmacist running on ChatGPT giving out false drugs like candy and saying once after you died “you are totally right, these were the wrong pills” and messes up with the next dosage again as it tosses the pack of Viagra into your grave. Tesla is after all a Tech company and no car company, so let us look into this frontier of tech.

2.1 Outlook and Market: The General Purpose Fallacy

Market looks big for Humanoids, after all companies like Amazon, assembly line and things of that sort that have costly human structure that could be replaced by robots are….going to be replaced by humanoids?

Yeah, doesn't sound so good because well it isn't. Goldman Sachs and others project a massive Total Addressable Market (TAM) based on the idea that Optimus can replace human labor 1:1. However, a robot that tries to do everything often ends up doing nothing well compared to specialized machinery. Optimus is competing against specialized, perfected industrial tools, not just humans. Why try to replace a Human by a human-like robot? That is exactly the reason why we got Robots in the first place. We are getting back to the 2B maid point we said at the beginning. The critical disadvantage of humanoids compared to traditional robots is the continuous inference cost. They require expensive, real-time AI processing just to execute even the simplest tasks effectively.

After all, where you could theoretically replace humans with Humanoids, you’d need Factories which are designed for this specifically. But factories are not designed for bipeds; they are designed for the product. The most efficient way to move a box is a conveyor belt, not a biped carrying it. The most efficient way to weld is a 6-axis arm bolted to the floor, not a robot standing on two legs. This is going into the same direction like Boring company tunnels in Las Vegas: how about using a train instead?

Not saying that it is completely off in the future to have humanoids but it takes time until that technology matures and finds its real place in the world, maybe we are not ready for clankers yet. You’ll see more of that in the next point.

We are leaving the technical aspect out of this with the battery and how long it can function without being connected to the grid and so on, this is mumbo jumbo for us right now because the mere idea of integrating it into the infrastructure is not viable right now. The question with these things are how scalable are they? In demos they (including Boston Dynamics) showed that they can do repetitive tasks for maybe 2 hours. Optimus carries a 2.3 kWh battery. A human works 8 hours on a sandwich. A robot that needs a charging break every 3 hours is not a replacement for a worker but a liability.

This is for the nerds real quick, so here is the math: Tesla claims Optimus Gen 2 carries a 2.3 kWh battery and can work a full shift. Let’s apply the physics of “Cost of Transport” (CoT). Human walking is incredibly efficient (~160 Watts). Robots are not. Historical data shows bipedal robots like ASIMO or Atlas consume between 350W and 500W just to walk, without carrying loads. If Optimus runs its AI compute computers (~150W) plus sensors (~50W) plus actuators (~300W+ for walking/working), it is burning roughly 500-800 Watts continuous. With a 2.3 kWh battery, that gives you a runtime of 2.8 to 4.6 hours, not an 8-hour shift. A robot that needs a charging break every 3 hours is not a replacement for a worker; it is a liability. Sandwich it is!

Companies are trying hard to maximize energy efficiency. But for repetitive work, we could just use a traditional industrial robot instead if we are this eager to not have humans in warehouses anymore.

2.2 The Promises We Have Been Giving: The Wizard of Oz

Just to give you a sense of timeline. Elon Musk said in 2021 that the first prototype will be ready next year and then later on said that 2025 it’ll be time for them to deploy on a scalable level. There are exactly the same amount of fully functioning Optimus bots as there are Roadsters on the street.

The credibility of the program took a massive hit with the “fainting” incident. During a demo, an Optimus robot fell over. But it wasn’t a normal fall. As it fell, its hands shot up to its head in a gesture that perfectly mimicked a human pulling off a Virtual Reality (VR) headset. This strongly implies the human pilot panicked, ripped off their headset, and the robot mirrored the motion while crashing. It’s the “Wizard of Oz” moment.

3. Safety First - Robotaxis

We keep it short now: the first two are visionary work, but this one is just straight nonsense compared to the competitors.

The third pillar of the Muskian vision is the Robotaxi network. This vision relies entirely on Tesla’s Full Self‑Driving (FSD) software achieving Level 4 or Level 5 autonomy. However, 2025 has brought damaging admissions and regulatory crackdowns that undermine the whole premise.

While Tesla marketing claims FSD is “safer than a human,” the data tells a very different story once you look at what is actually going on under the hood.

In the recent Austin pilot program, Tesla Robotaxis (which still require human safety monitors) crashed roughly once every 35,000 miles.

In comparison, Waymo’s fully driverless fleet (with no human in the car) crashes only once every 476,000 miles, and a human driver crashes about once every 214,000 miles.

Before you buckle up in a Tesla Robotaxi, start praying and make sure your life insurance is up to date—especially because the odds of being in a crash, even if it’s not fatal, are higher than getting an upset stomach from a questionable sandwich at the deli (for the calculation, see this video and we highly recommend them btw)

3.1 If you buy cheap, you buy two times

To cut prices down and scale cheaply, Tesla & Musk decided to exclusivly Camera system for their Cars instead of LiDAR like Waymo for example did. There is of course a hefty price difference

Robotaxi: Est. <$30,000

Waymo: Est. $100,000 – $150,000+

Ask any Tesla owner in Seattle or London what happens when it rains hard. The screen flashes “FSD Degraded: Cameras Blocked.” Cameras are passive sensors; they need light. Heavy rain scatter, fog, and direct sun glare blind them just like they blind a human. As we said before, Waymo uses LiDAR and Radar. Radar waves shoot right through fog and rain and provides a 3D map of the world regardless of lighting. This is why Waymo is confidently expanding testing to London, a city famous for its complex streets and miserable weather. Robotaxis expanding to the majority of europe is simply not imaginable - the reason they have patnered up with Abu Dhabi is not only bacause the UAE welcomes any western company and hype it can get it hands on but also because the weather is “optimal” (whatever that means) for camera usage.

If you need any proof let us explain real quick: This fatal flaw known as Mie Scattering. Visible light (400-700nm) scatters when it hits water droplets (fog/rain) or dust. This causes "whiteout" conditions where cameras simply cannot see.

See Below the difference between sensors and ask yourself in which one you would ride in:

(Image from Bloomberg)

We run into a Geographic Wall here.

Until Tesla puts active sensors back on the car (which contradicts Musk’s ego), the “Global Robotaxi” is effectively a “Fair-Weather Robotaxi,” restricted to the Sunbelt. You cannot run a taxi service that shuts down every time it rains. If you ever went to Hamburg, Germany - where we from you know this is a dead investment.

The race for autonomy has revealed two very different corporate strategies and in our opinion has already been won by Waymo.

Tesla insists on doing everything alone (Vertical Integration) but the base is not something to build on.

They build the car, the chip, the software, and the insurance. This sounds great for margins, until your “basis” (HW3) turns out to be faulty. Now, that vertical integration is a liability—they have to recall and retrofit millions of their own cars because they refused to use industry-standard sensors.

Waymo plays the long game.

Instead of building cars, they partnered with Zeekr (Geely) to build a purpose-made robotaxi with sliding doors and easy cleaning. They partnered with Uber to handle the demand network, instantly gaining millions of customers without spending billions on user acquisition. We are btw long since they will directly profit instead of being threatened by AV.

And guess what? Waymo acquired Latent Logic, a UK AI firm specializing in “imitation learning,” years ago. This allowed them to simulate complex human behaviors (like a cyclist weaving in traffic) long before Tesla started bragging about its “neural net planner.”

Let us conclude this here in four words: The Hangover is Coming

We are witnessing a Capital Expenditure Bubble of historic proportions. Tesla is burning cash to build data centers for a Robotaxi that doesn’t work on current hardware and a Humanoid that needs a human pilot to stand up. Waymo is quietly winning the war by treating autonomy as a safety engineering problem, while Tesla treats it as a stock pumping mechanism.

We chase the sun, but let us remember the fate of Icarus.

We are not seconds before a revolution; we are likely seconds before a correction.

Thanks for reading this lengthy report and let us know what you think!

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities

That is genuinely crazy. In markets like this, everyone feels like a superb investor, and that is fine. Enjoy the wins. But as we have stated many times: Investing is a marathon, not a sprint.

Sure, if you double €10,000 in a year, you have €20,000. That’s great. But if you focus on the long game and let capital compound for 20 years—well, you get the picture.

Since the opportunity is presenting itself, I just have to address the elephant in the room: I use dashes unironically—and a lot. This started long before AI. In Germany, we love our commas, so I tried to mix it up with dashes to create a better flow, and well—here we are. So please do not think this is some AI Slop.

So, why sit down and write this article now, while everyone else is spending time with their family?

A couple of reasons. We want to:

1. Look back at how our investment theses are performing today compared to the day of publishing. & give you an honest update on whether we still believe in the idea and hold high conviction.

2. Provide a small outlook on what is about to happen in the near future.

3. Preview what the upcoming year has to offer.

Before we dive in, I want to get this off my chest: Nobody comes into this world knowing everything, and investing is no different. The market can seem irrational from our point of view, and vice versa for others. If you didn’t finish the year strong or didn’t beat the market, do not worry too much. We all live for the first time.

We have discussed the German concept of Lehrgeld before—the “tuition money” you pay by making mistakes early on. Honestly, you would rather make those mistakes now than later. You are still at the beginning of your journey.

We don’t do this simply because we are Samaritans who want everyone to get rich—though we do want to see you achieve that and provide our best of assistance by writing these thesis and post for you. Our dream is to build a life and a living by helping you, so maybe maybe in the distant future we might take a little fee but also and defintley provide free content too - thank you for being with us thus far and supporting us, Our Substack gew faster than we imagined, we are still small but it is an amazing feeling to help people with their hard earned money. As Buffett said, “To create money, you have to provide value.”

Thank you for embarking on this journey with us.

The Review

We will keep this fairly simple. We will go through every stock from the day of publishing, look at the price back then versus today, and write a short sentence on whether we still hold our conviction.

Without further due ( this sounds like something ned flenders would say btw) let us start!

Entegris at $75 – Ough, what an ugly story it has been with you. Published on June 25th, it was our first-ever post and well – it did not have to be. Don’t get us wrong, we think Entegris is still a good stock and a Buy, just not at these prices.

Currently, the price sits around $85, which is an upside of around 13.3% from our day of publishing – that is not bad, but not great either. Personally, we are around 15% down on this investment, bought in at 82€. The upside is still there, but even if we should make 50% by the end of next year – which we do not believe – the opportunity cost was so high that investing into the S&P 500 would have been more stress-free for almost the same amount of ROI - even if there is a 10% difference.

Good thing that we did not have a big audience back then, but still, if the US should invest into the stock – which in our opinion it should, because if they invest into Intel the next logical step is Entegris, especially since they are investing into all kinds of precious metal companies – this could turn out well.

Conviction therefore: Cautionary. If the AI boom cripples, Entegris is the first loser, but inconveniently, it is/ was also not a winner during the AI boom.

Napco Security Technologies, Inc. at ~$29.82 – published on June 28th. Great stock, we sold at a 60% win – do we still see more alpha? Yes, but we needed capital for other investments. Great stock and still good. Now sitting around $42, you would have made around 41%. Glad if you did! Conviction: Room for more but probably better investments out there.

UFP Industries at ~$100 – published on July 2, 2025. This one is a little bit complicated: rates are going down and there is a 50-year mortgage, but the housing market is still looking depressed in all kinds of ways. We keep it short, there is still a lot of room – realistically by the end of 2026 it hits $120, but if the cycle should start again we are looking at $200. But this is a long play; 4 months for this stock is too early to evaluate. Let’s talk end of next year. Currently down by 8%, nothing crazy since we mentioned it is a value play.

Conviction: Tea & Wait – it is a defensive stock. Not recession-proof, but the cycle should start soon.

Novo Nordisk at $69.17 – Published on the 5th July – seems difficult, but it is not. Yes, the price was high at the time of writing, but we bought more and more the lower the price went – right now it is at $53.00 (-23.4%). The thesis was strong at $69, why should it be weak at $53?

Fundamentals matter, and though the management is lazy at times, the products speak for themselves (oral Wegovy approval). We kept adding and our conviction is high – it is the second highest position in our portfolio. DCA is the way here; with dividends at around 3-4%, if you score 10-15% p.a., you easily beat the market. Price matters, but who would have thought it would go down that much? DCA is the way with this one. We stand by it.

Oscar at $16.50 – published on July 9th – now at $14.92 (down about 9.6%). Could easily double – Trump’s insurer policies make it go up and down, but management is flexible and working relentlessly. High conviction, does not need any further comment. See for further updates – no worries here.

UNH at $303.10 – published on July 13th – now at $327.72 (up about 8.1%). Best hedge against the crazy frenzy with Tech, best defensive stock. Basically an ETF kind of safety. High conviction.

ASML at €706.00 – published on July 16th – now at €899.00 (up about 27.3%). European blue chip, still a little room for more but probably more alpha at other places. Still a good investment, but would wait until the price drops.

PayPal at $76.00 – published on July 23rd – now at $59.84 (down about 21.3%). Our third biggest position in our portfolio. We think it is a big $150 stock, PainPal will take some time, but in our view, it is one of the few undervalued stocks in the current market – well, at least in the big-cap sector. Read our report for more info, but overall: high conviction even though management is not the best. We again adding at lower prices.

Photronics at $19.79 – published on August 1st – now at $33.39 (up about 68.7%). A hidden Gem? YES! High conviction, the last quarter speaks for itself.

Nu at $12.04 – published on August 15th – now at $16.76 (up about 39.2%). The purple revolution! From me, Batu, the favorite colour. We still believe in it – the chart, the numbers, and everything else speak for themselves.

MTR at HK$27.40 – published on August 23rd – now at HK$30.10 (up about 9.9%). One of the safest, best, and most defensive stocks. Safe dividends and a fortress – actually GOATED.

Clinuvel Pharmaceuticals at A$10.43 – published on August 31st – now at A$12.78 (up about 22.5%). Our goal is at 25$, you could take the money now since Pharma is not for the light hearted. No comment actually.

Adobe at $366 – published on September 20th – now at $353.93 (down about 3.3%). Same story as PayPal – let us just wait. Numbers are strong though.

2G Energy at €23.35 – published on September 26th – now at €34.50 (up about 47.8%). Infrastructure, especially energy – an energizing topic, and the stock is going up with a strong current. High conviction – no worries about this one.

We will not talk about ACMR - since it is really new, we´ll see about it next year.

Portfolio Summary Across all 15 positions reviewed above, the average return is approximately 10.75%.

Is that result amazing? Definitely not. However, it is arguably better than the S&P 500 if you consider the reality of DCA (Dollar Cost Averaging). We did not invest a lump sum on day one; we entered these positions over time. Calculating a simple return from June 25th doesn’t tell the full story, but it gives us an honest baseline.

Let us talk about The Three Stocks We Advised Against

• Apple on July 19th – was at $210 and is now at **$274** (up about 30.5%). That is a hefty jump. Back then we said: “A 29% return over 3–4 years is solid, but not compelling enough at today’s price. We’d wait for a broader market pullback or temporary panic to buy this crown jewel at a more attractive valuation.” We missed the short-term rally, but the valuation is even richer now, so we stand by our patience.

• Berkshire Hathaway on July 29th – up around 5%. That is okay, and exactly what we predicted: “Berkshire’s investment case is less about explosive gains and more about enduring resilience, long-term value preservation, and the capacity to capitalize on market dislocations when they arise.” It is doing exactly what it is supposed to do.

• Palantir – up 25% since we published our report. We are still very cautious about this one and simply do not see the sense in investing in it at these valuations. The hype is real, but so is the risk.

Let us go the next section - what is up in the near term?

Macro & The “Debtstar” Rate cuts are probably coming, which changes the landscape. Oracle – the “Debtstar” of the industry – is kind of recovering, signaling resilience in legacy tech.

The AI Boom Continues We expect the AI boom to continue, actually. Demand for HBM (High Bandwidth Memory) and NAND is up, and with US-China tensions cooling down, we might see an even bigger boom as global trade friction eases. However, the landscape is shifting: expectations are that NVIDIA might lose some market share to AMD as competition heats up.

Our Q1 Strategy We predict that the first quarter will perform well. Our plan is to take some profits in the new tax year to free up capital for our high-conviction stocks. At the same time, we will sell the positions we no longer believe in this fiscal year to gain a tax advantage.

What Do We Expect for 2026?

To keep it simple: turbulence.

We do not think that Trump and his policies will cool down one bit. It is going to be a noisy, volatile year, and we need to be ready for it - basically just like this one.

Well – that sums it up.

Thanks for reading and wishing you a good start to the new year. May your year end green and the next one be even better.

Take care and until then!

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities

Ahh yeah, would we be Hazelnutsresearch if we didnt have a new SemiCon stock? With flying and we are presenting you the next pick and shovel play during this AI Hype - we are still waiting for to bounce though.

First and foremost, what does ACMR even do? They build the machines that clean the chips.

Wait, cleaning? That sounds boring. But in the microscopic world of semiconductors, “cleaning” is the difference between a multi-million dollar wafer and a piece of trash. ACM Research (ACMR) specializes in single-wafer wet cleaning equipment. As chips get smaller (and AI chips get more complex), the cleaning process becomes exponentially harder and more critical for yield.

But you aren’t here for a lecture on wet chemistry. You are here because this company is sitting on a geopolitical goldmine.

Disclaimer: We bought this stock at around $15, bought again at $20, and kept adding at $25. Now, with the price hovering near $40 and a P/E (KGV) of ~32, the “easy money” has been made. But we are not selling. Why? Because we believe the market is still fundamentally mispricing the geopolitical leverage of this company.

It’s a conviction play. Here is the deep dive on ACM Research (ACMR).

We thank and appreciate one of our favourite accounts here on Substack: for providing a guest paragraph.

⸻

Company: ACM Research

Ticker Symbol: ACMR

Current Price: ~$39.48

P/E (KGV): ~32.34

⸻

🏰 1. The Company & Its Moat – The “Technological Swiss Army Knife”

Most investors hear “cleaning equipment” and fall asleep. No Ai no hype.

In the era of AI and 3D chips (like High Bandwidth Memory - HBM), you can’t just wash a wafer with water. The structures on these chips are microscopic skyscrapers—fragile and deep.

• The Tech (SAPS & TEBO): This is the core IP.

  • SAPS (Space Alternated Phase Shift): Imagine trying to clean a skyscraper with a pressure washer, but if you press too hard, the building collapses. SAPS uses megasonic (sound) waves that alternate phases to clean thoroughly without destroying the delicate patterns on the wafer.

  • TEBO (Timely Energized Bubble Oscillation): This prevents the bubbles created by the sound waves from imploding violently and damaging the chip.

  • Why it matters: As chips move to 3D NAND and advanced DRAM (for AI), the “Aspect Ratio” (height vs. width) gets extreme. Traditional cleaning fails here. ACMR succeeds. This is why key customers like SK Hynix (the leader in AI memory) and YMTC use them. Memory is surging, order books for all major makers are full - see .

• The Moat: The “National Champion” Status.

  We got this insight from the Kerrisdale Report that changed our view: US Sanctions are ACMR’s Moat.

  Normally, a moat is brand or patent. Here, the moat is Geopolitics. The US government has banned American giants like Lam Research (LRCX) and Screen Holdings from selling advanced cleaning tools to China.

  • The result: Chinese fabs have no choice but to buy ACMR. The sanctions effectively illegalized ACMR’s competition in its biggest market. ACMR is the beneficiary of a state-sponsored monopoly by accident.

📈 2. The Story: The “Delete America” Catalyst

Two words: Domestic Substitution.

China is currently executing a strategy to “Delete America” from its supply chain. They are ripping out Western gear and replacing it with domestic alternatives.

• The Paradox: The market sees ACMR as risky because it sells to China. We see it as robust because it sells to China.

  • Global Peers (Lam, Applied Materials): Their China revenue is flatlining or dying due to export controls.

  • ACMR: Their China revenue is growing at 30-40% CAGR. They are capturing the market share that the big guys are forced to leave behind.

• The Growth Runway: Kerrisdale points out that ACMR is expanding from Cleaning (a $5B market) into Deposition and Advanced Packaging (a much larger TAM). They are becoming a platform company, not just a niche tool maker.

• The “Entity List” Reality Check:

  Investors panicked when customers like YMTC or SMIC were put on the US Entity List. What happened? Sales went up.

  • Fact: Sales to SMIC grew from $19M (2020) to over $93M recently despite SMIC being on the blacklist.

  • Why? ACMR focuses on “Mature Nodes” (28nm, 45nm, etc.) which are not as heavily restricted, but are still printed in massive volumes for EVs, IoT, and industrial chips.

📊 3. The Numbers: Why a 32 P/E is Actually Cheap

You might look at a P/E of 32 and say “Too expensive.” But you have to look at the PEG Ratio (Price/Earnings-to-Growth).

• The Growth Engine: Revenue is growing at ~30-40%.

  • If a company grows earnings at 35% a year, a P/E of 32 implies a PEG ratio of roughly 0.9. In the Peter Lynch world, anything under 1.0 is undervalued.

  • Target: Management has reiterated a path to $1 Billion in revenue soon, with a long-term sight on $3 Billion.

• Margins: Gross Margins are sticky between 40% and 50%. This is software-level profitability for a hardware business.

• Balance Sheet: They are sitting on a pile of cash (Net Cash positive). In a high-rate environment, they earn interest on their cash rather than paying interest on debt. Keep in mind that the stake in the Shanghai business is 4x their US market cap - that is just insane.

Okay okay let us all come down a bit - yeah? Contrary to our wild baffling let us talk to some sense into you through our friend here is a guest paragraph:

We always enjoy reading Hazelnuts Research’s work and we are just as excited about ACMR’s prospects, so sharing some of our thoughts here is a great honor. To keep it rather short and not repeat what follows in this great report, we want to point out three key points: stabilization of order frequency for ECP, Furnace and Advanced Packaging segments; a bulk of innovations getting rolled out early 2026 prompting an upgrade cycle; HLMC, SMIC and YMTC (the China Big 3) representing 15%, 14% and 12% of ACMR’s FY2024 revenue respectively.

On the first point, Cleaning was always the largest segment, while the other two had on-off quarters with lumped order volume resulting in the lack of consistent growth trend. Over the last couple of quarters, the volume started to have a “hard” floor, and the growth keeps at above 40% YoY, which is primarily driven by an increased focus on rolling out next-generation Furnace products.

On the second point, last month ACMR took part in the semiconductor conference in Munich displaying the round of fresh innovations announced within the last two quarters. The message is clear, ACMR is ready to compete with the “big boys” and support the ambitious plans of the Chinese OEMs as they push for more advanced chips. Importantly, the ceiling for the production technology is still much higher (due to overall market’s capacity and know-how lagging the US counterparts), and this translates into several more “renewal” cycles possible in the short to medium term, as opposed to already shipping the most advanced tech, which would make renewal rather improbable as it would require significant efforts to improve output.

And lastly, ACMR does not need to “win” any new Chinese customers to ride the “beef up the tech” wave in China. It already has long term contracts and relationships with the key players covering everything from foundry to NAND design. It is clear that the authorities want homegrown products and players, which will remain a major tailwind for the next 3 years for the whole sector.

Now enjoy reading a great report, that will take you from A to Z about the company and the opportunity that lies ahead of it.

And thank for this great paragraph!

💰 4. The Valuation – The “Mother of All Arbitrages”

This is the most elaborate part of the thesis, derived from the Kerrisdale deep dives.

The Setup:

ACMR (Nasdaq) owns ~75% of ACM Shanghai (listed on the STAR Market in China, Ticker: 688082).5

• The Disconnect:

  • ACM Shanghai trades like a Chinese tech darling: High multiples (~40-50x P/E), massive market cap.

  • ACMR US trades with a “China Fear” discount.

• The Math: At various points in the last year, the market value of ACMR’s 75% stake in the Shanghai subsidiary was higher than the entire market cap of the US parent company.

  • Translation: You are buying the Shanghai business at a discount, and getting the US business, the cash, and the IP for free.

• Kerrisdale’s “Blue Sky” Scenario:

  If ACMR were valued purely like its Chinese peers (like Naura or AMEC), it wouldn’t be a $2.5B company; it would be a $10B+ company. That would imply a stock price north of $150.

  We don’t need it to go to $150 to win. We just need the gap to close slightly.

• Our scenario is a cool 80 ~ 90$, while 150$ is a real possibility we do not think that the sentiment could be overturned that quick and that much because it is not a NVIDIA or AMD, most people do not know ACMR.

Why pay 32x Earnings now?

Because the “earnings” are depressed by heavy R&D spending to enter new markets (Furnace, Track, PECVD). As these product lines mature, operating leverage kicks in. The “normalized” P/E on future earnings is likely closer to 15x.

⚖️ 5. The Risks – The Fine Print

We are Hazelnuts, not cheerleaders. Here is what keeps us awake at night.

1. The “Nuclear Option”: If the US government bans US Persons (citizens/green card holders) from working for Chinese semi companies, ACMR is in trouble. CEO David Wang is a US citizen. This would decapitate the leadership. (Probability: Low/Medium, but impact: High).

2. Overcapacity in China: China is building fabs like crazy. If the economy slows and these fabs sit empty, orders for ACMR machines will vanish (Cyclical Risk).

3. The Short Seller Ghost: In 2020, J Capital accused them of fraud (inflating revenues). ACMR released a 112-page rebuttal verified by auditors. Since then, cash balances have risen, and dividends have been paid. Frauds usually don’t pay dividends. We consider this risk largely “debunked,” but the stigma lingers.

🎯 6. Conclusion & Action Plan

• The Verdict: ACMR is a rare breed. It is a high-growth compounder disguised as a geopolitical risk.

• The Price (~$39.48): At a P/E of 32, the market has realized the bankruptcy risk is near zero. Now, it is pricing in growth.

• Our Plan:

  • We are HOLDING our core position. We are letting the winners run.

  • Buy Zone: We are buyers if volatility pushes this back to a P/E of ~25 (approx. $30-$32 or even lower, this is a no brainer for us).

  • Target: We see a path to $80-$90 over the next 18-24 months as they hit the $1B revenue mark and the market accepts their “National Champion” status.

  • The most bullish case we can make out is that they hit 4x - yes you read that right. ACMR is THE best play for China see here:

🚀 The 4x Case: How ACMR Can Hit $160

Timeframe: 3–5 Years Implied Return: ~300%

You want the Bull Case?

You want the “How does this turn $40 into $160” roadmap? We got you covered.

It sounds aggressive, maybe even delusional to some. But when you break down the math, the “National Champion” status, and the operational leverage, a 4x return (Multi-Bagger) is not just a dream—it is a mathematically plausible scenario based on management’s own targets and peer valuations.

Pillar 1: The $3 Billion Revenue Target (The Scale)

Management has explicitly set a long-term revenue target of $3 Billion ($1.5B from China, $1.5B International). Currently, the company is approaching a ~$1 Billion run rate.

• The Driver: China’s semiconductor CapEx is expected to remain the highest in the world for years as they fight for tech survival. ACMR is capturing market share from Lam Research and Screen Holdings every single day.

• The Math: If ACMR hits $3B in revenue, they are simply 3x the size they are today. But stock prices don’t just move 1:1 with revenue... they move with earnings.

Pillar 2: Operating Leverage (The Profit Explosion)

This is where the magic happens. Hardware businesses have high fixed costs (R&D, factories). Once you cover those costs, every extra dollar of revenue flows almost straight to the bottom line.

• Current State: Margins are currently suppressed because ACMR is spending aggressively on R&D to launch new products (Furnace, Track, PECVD) and with aggressive we MEAN aggressive.

• Future State: As revenue triples to $3B, R&D as a % of sales drops.

• The Assumption: Mature semi-cap equipment companies (like Applied Materials or Lam) generate Net Profit Margins of 25–30%.

• The Calculation:

  • Revenue: $3,000,000,000

  • Net Margin (Conservative 20%): $600,000,000 Net Income

  • Share Count (assuming some dilution, say 65M shares): ~$9.20 EPS

Wait, did we just calculate nearly $10 in Earnings Per Share? Yes.

(For context: TTM EPS is currently around $1.30 - $1.60 range).

Pillar 3: Valuation Re-rating (The “China Premium”)

Currently, you are paying a P/E of ~32x (on depressed earnings) or ~9x (on forward estimates if you believe the growth). But what is the right multiple for a high-growth semi monopoly?

• The “China Discount” disappears: Right now, ACMR trades at a discount because it’s “scary China stock.”

• The “National Champion” Premium: Look at ACMR’s peers listed in Shanghai (where ACMR Shanghai is also listed):

  • Naura Technology: Trades at ~40x–50x P/E.

  • AMEC: Trades at ~50x+ P/E.

• The Argument: If ACMR proves it is the “Naura of Cleaning,” why should it trade at 15x or 20x?

• The Multiple: Let’s be conservative. Let’s not use the crazy Chinese 50x. Let’s use a standard “High Growth Tech” multiple of 20x–25x.

🧮 The Math for 4x

Here is how the stars align for a $160 stock price:

1. Revenue hits $3 Billion (Driven by China domestic substitution + Int’l expansion).

2. Net Margins hit 20% (Economies of Scale).

3. Net Income = $600 Million.

4. EPS = ~$9.00 - $10.00.

5. Valuation Multiple = 20x P/E (Still cheaper than peers!).

$9.50 EPS × 20 P/E = $190 Share Price.

Even if we are wrong and they only hit $2.5 Billion revenue and get a 15x Multiple:

$2.5B Rev × 20% Margin = $500M Profit / 65M Shares = $7.70 EPS.

$7.70 EPS × 15 P/E = $115 Share Price (Nearly 3x).

💡 The “Kerrisdale” Wildcard (The 10-Bagger Scenario)

Kerrisdale Capital points out an even crazier possibility: Full Valuation Convergence.

If the US market ever wakes up and values ACMR exactly like its Shanghai-listed subsidiary (ACMR Shanghai), the market cap wouldn’t be $2.5 Billion. It would be $10 Billion+.

• Current Market Cap: ~$2.5 Billion

• Shanghai-Implied Market Cap: ~$10 Billion

• Upside: 400% (4x) just by closing the arbitrage gap, without even factoring in future growth.

Conclusion: The Asymmetric Bet

To hit a 4x return ($160), ACMR doesn’t need a miracle. It just needs to:

1. Do what they said they would do (Hit $3B revenue).

2. Maintain respectable margins (20%).

3. Not get banned by the US Govt.

If those three things happen, the math forces the stock price significantly higher. At $40, you are buying a venture capital-style growth company that is already profitable. We could take it further and say this is a 10x but the market often stays longer irrational than you can stay solvent, but in any case we think ACMR is a big opportunity and asymmetric investment.

Thanks a lot to and the team of Kerrisdale for their great report which we based our thesis partially from and for the guest paragraph.

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🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

Why does this happen? Because most people trade on emotion. And how do you win? By sticking to the basics: buying great companies, not just good ones.

The Ground Rules (No Degeneracy Allowed)

In this report, we’re sticking to the absolute basics. No leverage, no options, no WallStreetBets-level YOLOing. The broad market always goes up eventually, but leverage can kick you down faster than you can open your neobroker. We are looking at stocks, pure and simple.

What Even IS a Stock? (Spoiler: You’re an Owner)

A stock, or equity, is essentially a tiny piece of paper that says you own a slice of the company. The price is determined by the collective expectation of future profits and is constantly updated on the exchange.

The most important lesson out of this is: You are a stakeholder. You are a part-owner. So, maybe keep up with the finances and news.

The Palantir Trap: How FOMO Makes You Stupid

Picture this: you’re scrolling through some German boulevard magazine, and the headline screams, “THE NEW GIANT: WHY YOU SHOULD BUY PALANTIR ASAP!” You open your neobroker, see it rose 1000% in two years, check Reddit, and see degenerates bragging about “generational wealth.” You develop the Fear Of Missing Out (FOMO) and press ‘Buy’ without even knowing what the hell the company does.

Let’s go through step-by-step what a rational investor would do instead.

Case Study 1: NVIDIA & That Wombu Jumbo P/E

NVIDIA is trading at a P/E of about 25. That means the Price resembles 25 times the annual Earnings.

• What P/E Means: You are basically paying $25 for every single dollar in Net Income (Profit) that NVIDIA generates per share. You do this because the consensus is that NVIDIA will generate much more dollars in the future, justifying the high current price.

• The Valuation Question: If competitors usually trade between 10-15 P/E, NVIDIA is either ridiculously overpriced, or its future growth is so exceptional that it is still justified.

• The Growth & Moat: High Compound Annual Growth Rate (CAGR) and a dominant position in AI are the catalysts. If NVIDIA didn’t have a Moat (a huge competitive advantage), this valuation would collapse.

💸 The Financial Basics: Intrinsic Value and Future Potential

We need to know what a stock is truly worth—its Intrinsic Value—and what your money could become—its Future Value.

1. Future Value (FV): What Your Money Could Actually Become

Let’s look past the P/E noise and focus on what high growth means for you. Let’s say you invest $1,000 (PV) into a high-growth stock that you believe can generate a compounded return of 15% (r) per year over 10 years (n).

This is where the math shows the power of compounding:

Future Value(FV) = PV× (1 + r)”

FV = $1,000 × (1 + 0.15) 10

FV = $1, 000 × (4.0456)

Your $1,000 would become approximately $4,045.60. That’s the difference between investing in a high-CAGR company with a moat versus buying a lazy dividend stock.

2. Book Value (The “Liquidation” Value)

Book Value is the simplest and most conservative measure. It tells you what shareholders would theoretically receive if the company sold all its assets and paid off all its debts.

Book value per Share =Total Assets - Total Liabilities/Total Shares Outstanding

• Explanation: For modern tech companies, Book Value might be low because their greatest assets (software, patents) are intangible and not fully captured. It’s useful, but not the final word.

3. Intrinsic Value (The “Future Earnings” Value)

The most rigorous method is the Discounted Cash Flow (DCF) Model. It’s complex, but the idea is simple: You are bringing all the cash flow the company will generate in the future back to today’s value, because a dollar tomorrow is worth less than a dollar today.

Interensic value:

• Explanation: This proves that a stock’s worth is based entirely on its ability to generate future cash flow. If the current market price is lower than the calculated Intrinsic Value, the stock is a bargain.

Case Study 2: OKLO & The Pure Hopium Play

Let’s go onto OKLO. OKLO is Sam Altman’s vision. Sounds great, right? Yeah, but there is no product. Actually, there is nothing but a vision.

The Stock Snapshot:

• Market Cap: Around $13.7 Billion

• P/E: Negative

Is this a stock for a rational investor? Simply no. You’re betting purely on a hope. Would you spend your money on a company that generates $0 in commercial revenue? Don’t lose to FOMO. The risk of rapid decline (the “elevator down”) is too high.

Case Study 3: ACMR & Hidden Value (The China Moat)

Let’s look at ACM Research (ACMR). Value is around $2 Billion. The real catalyst here is China.

ACMR has a Shanghai division listed on the Shanghai stock exchange. That division’s value? Around $4 Billion—double the value of the US entity. This is not only a Moat (strategic importance to China), it’s Hidden Value—exactly what we are looking for, because that value isn’t fully reflected in the US stock price.

The Takeaway

The market is usually faster than you, but that doesn’t mean you can’t participate. Just do your due diligence.

You work 41 hours a week to make a buck; ensure your money works just as hard by checking the P/E, the CAGR, the Moat, the Book Value, and the calculated Intrinsic Value. Don’t donate it to Wall Street by buying nonsense. The stock market is irrational sometimes, yes, but you can hedge against stupidity.

This is just a follow-up to our last report. We will slowly but surely explain what we look into a stock. Thanks for reading!

Your Greatest Asset is the Unused Clock.

Everybody had that moment or is about to have that moment – you have a real job – your first real job with money that you did not have before. After you spend the first few months buying everything you longed for, you’re sitting there and thinking – do I only get money to consume? And then it strikes you: Your money is finite and there is only so much that you can consume and only that many versions of labubus. You got to sit and financially prioritize what is important for you, or maybe you don’t - for some this moment comes way too late or never.

So what to do with the excess cash?

Investing into CS GO or Lootboxes will not cut it – we can tell you that much. A market that is controlled by one company and can be destroyed by one single update may not be the best idea. Investing into gold maybe? Solid idea – literally. What about investing into SAP since you are an accountant and use the product every single working day? That’s pretty smart – but maybe too risky? Let’s invest into the German Stock index which not only has SAP but every major German stock company. You might ask yourself – oh what if Germany collapses and aaaalll my money is going down into the drain – i could earn much more with a savings account which gives me a whopping 2% a year. Yes – but only because you could do that it does not mean you should.

The 2% savings account guarantees a real loss of purchasing power over time. The only defense is to understand your ultimate moat: Time. It’s the one asset even the richest financier cannot buy back. Your low current cash-flow needs are your biggest psychological advantage—use it.

• The Cash Fortress: Before you get all hot and ready start to Invest you need to put a little on the side too, maybe with a 50/50 plan. 50% of your excess money on stocks and 50% in cash until you reach 3 months and for our Americans more like 6 months of living expenses in a savings account. This is the Margin of Safety for your life, ensuring you never have to sell your stocks in a panic crash or due to job loss.

Section 2: The Strategy: The Choice is Yours (The Lerngeld Lesson) ⚖️

Strategy is Personal: You Are Your Own Best Guru.

Like in everything in life—besides probably love—there has to be a strategy. You need to sit down and think; there is no AI that can help you with that and no financial guru in this world who will do the job for you. YOU have to research and decide what to invest in.

The most important thing in investing is your strategy: what are you ready to risk and for what reward? Do you need a monthly, quarterly dividend to show your progress, or can you invest eyes closed and open up your account in 20 years? Most investors who invest in single stocks do not beat the market. You could beat the market, but that needs not only due diligence but also “Lerngeld”—which is a German word for learning money—you may lose capital, but if you leave smarter afterwards, that is a win.

The markets are much more dynamic than they ever have been. But as a Turkish proverb says – “Drop by drop there will be a sea.” This philosophical wisdom is the foundation of compounding.

Section 3: The Snowball Strategy: The Shocking Math of Front-Loaded Discipline 📈

Drop by Drop There Will Be a Sea: The Power of Time, Capital, and Rate.

To demonstrate exactly how starting age, initial capital, and contribution rate interlock to determine your financial destiny, we compare three investors, all aiming for retirement at 65, assuming a consistent 7% average annual return which is historically the annual return you can expect over the long run.

Meryem 25 y.o. starting with 5000€ investing 200€ per month.

Fatih, 30 y.o. 20.000€ with 2000€.

David, 50 y.o. 100.000€ with 4000€.

The Core Principle: The Fatih Effect

Fatih’s 20-year head start over David allows the compounding machine to run for much longer. The cost of waiting is brutal: Fatih’s portfolio is more than double David’s value at age 65. The time gained by Meryem is the greatest investment multiplier. Though she invested less than David by far - she comes out ahead on the efficiency scale.

But these numbers are for many unrealistic, how about starting young investing into dividends? We will use a simple model and method to calculate this.

Let us say you invest 300€ a month as a 25 y.o., your starting capital is 5000€, you get paid out 3,5% every year and the Dividend ETF is going up 7% p.a. So everything is really reachable - nothing crazy.

As you can see from the chart you will be not super rich but you’ll be in a better position than you are today or you would be if you’re not investing. We have to say that this figure is coming together because we are assuming that you are reinvesting your dividends.

Section 4: Growth vs. Income: The Hidden Cost of Time 💰

Topic: Active Alpha Hunting, Opportunity Cost, and The Silent Tax.

What if you opt for Growth/Value Investing? Meryem took 10,000 and achieved 50% ROI on ASML. The profit is instantly reduced to ca. 36.8% after the German Abgeltungsteuer.

But the true danger is the Opportunity Cost of a bad choice:

• You lost 15% on that penny stock your colleague recommended, while the broad market gained 7%.

• Your Total Lost Ground is -15% - (+7%) = -22%. This is the compound cost of a single, bad decision.

The most brutal cost, however, is not a bad stock but inaction:

The Silent Tax: The 2% savings account is losing money to inflation every day. This Silent Tax is the irreversible destruction of your non-invested capital. Unlike a stock crash, which is reversible, a 100 bill losing 3% to inflation is a guaranteed 3% loss without a chance of recovery. This philosophical weight of guaranteed loss should compel you to start immediately. As buffet said, the strongest day for the Dollar is Today.

The strategy you choose depends on your Strategy. If you have children, buying an accumulating (reinvesting) ETF is often more sensible. For yourself, you might prefer distributing dividends or simply reinvesting. This is all made possible by neo brokers where you don’t pay abhorrent fees. If you trust yourself and want to learn or even overachieve, you might as well be like meryem and invest into good stocks.

(Which is why you should follow us for)

Section 5: The Tax Hack & The Global Shield 🛡️

Topic: The Global Moat and The Principle of Understanding.

It is a free market and a free world. Choose what to invest in. Thinking USA might collapse and China will rise? Invest into China. Thinking vice versa? Invest into USA. If you think Kazakhstan might be the big winner - well you get the picture. Thinking we all love each other? Then you can invest into all three - nobody is stopping you!

• The Global Scenario: The broad market ETFs (like the MSCI World ETF) offer a superior Growth Component by including dominant global markets that consistently outperform the DAX over long periods. This is your insurance against the “What if Germany collapses?” scenario.

• The Kanye West Principle: Warren Buffett famously said, do not put all eggs into one basket, but you also should not force yourself to diversify. If you invest into something you don’t understand, you might as well not invest into it at all. See yourself as a co-owner. As Kanye West said, “I like some of the GAGA songs but WTF does she know about Polaroid?” Be comfortable in what you know, but even more in what you don’t.

• The Tax Hack: Utilize the Sparer-Pauschbetrag (German Exemption Allowance) of 1,000 (2,000 for couples). This creates a 0% Tax Regime for your crucial early dividends, turbocharging the compounding base while you are still accumulating wealth. Inform yourself about how to get the best out of your local tax system. Trading too much and you might loose because of tax!

Section 6: The True Investment: It’s All for You 💖

Topic: Investing In Yourself is the Ultimate Investment.

What if the market goes down? Good news, you can simply buy more.

The broad market never went linearly down; it always recovered. Yes, it takes time, and yes, it might be depressing, but you have that with every asset, even with property. There is simply no bullet proof asset, and time will eventually be your biggest friend or foe.

• The Psychology of the Crash: Your DCA plan is your psychological shield. You can buy more shares for lower prices and maximize your eventual exit. Chasing fast money is like drinking salt water; it will never quench your thirst.

• The Philosophy: Investing money is not to make the rich richer nor doing that to impress other people. You do it for yourself. Money is a tool for many things: enable your dreams, help loved ones, drive the car you always wanted, or getting that house you need because you want 4 children. Even if you just buy gold, you help yourself and thank yourself afterwards for going out of your way and doing what was necessary.

It is important to invest, but the best investment you can do is investing in yourself. We are not encouraging you to spend thousands on courses, but reading, researching, and taking part of that process go a long way.

If you had an looser stock and it crashes even more during a crash you should ask yourself these questions:

1. Was it a good investment to begin with or FOMO?

2. Did I learn a lesson from it?

3. Will it recover?

4. Does it make sense to hold it further?

It seems painful but sometimes selling a stock with a loss is better than holding to it forever - as we said - do not put all eggs into one basket and you can cancel your losses with your profits and get still a positive ROI overall.

The most crucial decision is simply starting.

If you liked this, feel free to follow and subscribe - it is free and will be like this for quite some time.

Next time we will discuss what WE as Hazelnuts look into when deciding to invest into something.

Final Call to Action (CTA): Stop waiting for the perfect moment. Start your DCA plan, utilize your 1,000 tax allowance, and let time work its magic.

🌰 Hazelnuts Research – The search for quality at a fair price... and an early start.

Ticker Symbol: 2GB.DE

Current Price: €23.35 (as of Sep 26, 2025)

🏰 1. The Company & Its Moat – What am I really buying here?

The Business Model: At its heart, 2G Energy sells sophisticated, high-efficiency combined heat and power (CHP) systems. Think of them as compact, decentralized power plants in a box, installed right where the energy is needed—at factories, municipal swimming pools, or large agricultural operations. They generate electricity and capture the resulting heat, a two-for-one deal that slashes energy costs and carbon emissions for their customers. The company makes money first by selling these units, and then, more importantly, through a long-tail, high-margin business of servicing and maintaining its global fleet of over 8,000 installations.

The Moat: The competitive advantage here isn’t a patent you can hang on a wall; it’s the deep, accumulated technical expertise and that vast installed base. When a customer invests hundreds of thousands of euros into a complex machine that is critical to their operations, they are not going to shop around for the cheapest mechanic. They stick with the experts who built it. This creates an incredibly sticky and predictable service revenue stream that competitors find nearly impossible to penetrate. Furthermore, 2G’s forward-looking focus on making their systems “hydrogen-ready” gives them a crucial head start in the next phase of the energy transition.

Management & Culture: We are not partnering with hired guns here. The company is led by the sons of the founder, Christian and Ludger Groll, who collectively own more than 50% of the shares. Their personal wealth is overwhelmingly tied to the long-term success of this business. This is a family legacy, not just a line on a resume, and their decisions reflect a deep-seated commitment to sustainable, profitable growth over short-term market fads.

📈 2. The Story & The Strategic Levers – Why now?

Market Environment: 2G Energy is sailing with some of the most powerful and enduring winds of our time.

Energy Security: The era of cheap, predictable energy is over. Geopolitical shocks have forced businesses and governments to crave energy independence, shifting the focus from massive, vulnerable central grids to resilient, local power generation.

Decentralization: This is the natural consequence. The world is moving towards a network of smaller, smarter, and more efficient energy sources located exactly where they are needed. 2G is a primary outfitter for this new world.

Decarbonization: With systems that can already run on biogas or hydrogen blends—and a clear path to 100% hydrogen—2G provides a practical bridge technology for today and a destination technology for the green hydrogen economy of tomorrow.

Strategic Position: 2G is perfectly positioned as the “picks and shovels” provider in this energy gold rush. They are selling a direct solution to three of the biggest problems a CFO faces: volatile energy costs, grid instability, and carbon taxes. Their recent, clever acquisition of heat pump manufacturer NRGTEQ expands their toolkit, allowing them to offer customers a fully integrated solution for power, heat, and cooling.

Cyclicality & Geopolitics: While the business is tied to industrial investment cycles, the urgent global demand for energy security provides a powerful, non-cyclical tailwind that should buffer it from typical economic downturns. The “Made in Germany” engineering label serves as a global seal of quality and reliability, a critical factor when purchasing essential infrastructure.

📊 3. The Numbers: Financial Check & Growth – How healthy is the company?

Growth History: The company has a proven track record of consistent, organic growth. Over the last five years, it has compounded its performance at an impressive rate:

Revenue CAGR: ~12.2%

EPS CAGR: ~11.8%

Financial Health: The numbers paint a picture of a robust and conservatively managed enterprise. The EBIT margin has been stable in the 6-7% range, with clear potential to expand as the higher-margin service business makes up a larger share of revenue. Critically, the Return on Invested Capital (ROIC) has recently exceeded 18%, blasting past our 15% benchmark for a high-quality business. The balance sheet is a fortress, with an equity ratio of around 60% and negligible net debt, meaning it can easily withstand economic shocks or fund future growth.

Stakeholder Value: Management wisely prioritizes reinvesting profits back into the business to fuel R&D and strategic growth, which we see as the correct strategy. They supplement this with a modest but steadily growing dividend, rewarding shareholders without starving the company of capital needed for expansion.

Outlook: The consensus on the street is for this growth story to continue. Analysts expect double-digit revenue growth to persist over the next few years, with earnings per share projected to climb towards €2.00 by 2026.

💰 4. The Valuation – What is a fair price?

Valuation Check: The market is currently offering us this high-quality business for a P/E ratio of around 15-16x. This is a noticeable discount to its own 5-year historical average valuation of roughly 20x earnings. When compared to the often-unprofitable companies in the “green” energy space, 2G’s valuation appears downright cheap.

Price Target Calculation: We can build a sensible price target based on conservative assumptions.

Expected EPS in 2-3 years × Fair Multiple = Price Target

€2.00 × 20x = €40.00

We are using the 2026 analyst consensus EPS of €2.00 and assigning a multiple of 20x, which is simply a return to the company’s historical average. Given the powerful tailwinds and superior quality, this feels more than fair. This calculation reveals a potential upside of over 70% from the current price, implying a CAGR of ~30% over the next two years.

Margin of Safety: With an estimated fair value of €40, the current share price of ~€23 provides a substantial buffer. Our downside appears well-protected by the company’s rock-solid balance sheet, its profitable and recurring service revenue, and the founder-led management team.

⚖️ 5. The Investment Thesis: Opportunities & Risks – What needs to happen?

The Bull Case:

The Hydrogen Catalyst: As green hydrogen production scales and becomes cheaper, 2G’s fleet of H2-ready systems becomes the logical choice for industrial power, triggering a significant re-rating of the stock.

Service Margin Expansion: The service business, which is stickier and more profitable, continues to outgrow the hardware business, systematically lifting the company’s overall margins and cash flow.

US Market Breakout: 2G establishes a major foothold in the vast and underserved North American market for decentralized energy, adding a powerful new engine for growth.

The Bear Case:

Technological Disruption: A radical breakthrough in another area, such as long-duration battery storage, makes CHP technology less attractive sooner than expected.

Regulatory Whiplash: A major, unexpected reversal in energy policy (e.g., a return of massive subsidies for centralized grids) dampens demand for decentralized solutions.

Execution Stumble: Management fumbles the integration of an acquisition or fails to manage its international expansion effectively, leading to unforeseen costs and margin pressure.

🎯 6. Conclusion & Action Plan – What does this mean for my portfolio?

Summary: 2G Energy is a financially formidable, founder-led leader in the critical field of decentralized power. The stock is currently trading at a discount to its intrinsic value, offering a rare combination of quality, growth, and price.

Potential: A price target of €40 per share within the next 2-3 years appears realistic. This is not a speculative bet but a target based on continued execution and a simple reversion to a fair valuation multiple.

Recommendation: The current price offers an attractive entry point for an investor with a multi-year time horizon. The risk/reward profile is skewed favorably, providing a clear margin of safety. We view this as a compelling opportunity to initiate a first position in a high-quality company poised to benefit from unstoppable global trends.

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you’re buying.

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author’s personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

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Company: Adobe

Ticker Symbol: ADBE

Current Price: ~$366

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🏰 1. The Company & Its Moat – What am I really buying here?

When we look at Adobe, we see a business that has successfully transformed itself not once, but twice. First, by pioneering the digital creative space, and second, by making a daring pivot from selling one-time software licenses to a powerful, recurring subscription model. This move, which now accounts for roughly 95% of its revenue, fundamentally changed the company's DNA, creating a financial engine that purrs with predictable stability.

• The Business Model: Adobe’s core is a simple, elegant idea: empower creators. Its money comes primarily from subscriptions to its Creative Cloud, the digital workshop for millions of creative professionals. This is where tools like Photoshop and Illustrator live, the de facto industry standard for visual art. But Adobe’s reach extends far beyond that. Its Document Cloud, centered on the ubiquitous PDF, is a mission-critical tool for businesses of all sizes, and its Digital Experience business helps enterprises with everything from marketing to e-commerce. The entire business is a masterclass in recurring revenue, making it both robust and immensely scalable.

• The Moat: Adobe's greatest strength isn't its software; it’s the sheer weight of its ecosystem. Imagine asking a master carpenter to abandon their meticulously organized tool shed and start from scratch with a new set of tools. That's what it would feel like for a professional to leave the Adobe ecosystem. The years of muscle memory, the seamless file formats, the industry-wide collaboration—it all conspires to make a departure extraordinarily difficult. This is the company's primary defensive advantage, cemented by a massive portfolio of intellectual property. Adobe's patents are designed to create a "defensive depth" that makes it almost harder for a competitor to replicate the entire workflow experience from scratch.

• Management & Culture: We see a leader in CEO Shantanu Narayen, who has been at the helm since 2007. He’s a long-serving, visionary manager who orchestrated the bold and successful transition to the cloud. His track record suggests a disciplined approach to capital allocation and a strategic eye for acquisitions that bolster the core business. However, a skeptical investor will notice that management’s ownership of the company’s stock is remarkably low at just 0.18% of outstanding shares. While this doesn't tell the whole story, it is a point of concern for those of us who believe in aligning incentives.

📈 2. The Story & The Strategic Levers – Why now?

The Adobe story is currently defined by one central conflict: the collision of its dominant past with an uncertain, AI-powered future. The market is not questioning the company’s history; it is questioning its very ability to survive the next decade. This is where the opportunity lies for a discerning investor.

• Market Environment: The overarching trend is, of course, generative AI. This technology is a dual-edged sword, offering incredible new possibilities while simultaneously threatening to commoditize the very creative workflows Adobe has monopolized for years. This is where the opportunity lies for a discerning investor.

• Strategic Position: Adobe’s strategy is not to fight the AI revolution, but to own it. The special "lever" here is the company's ability to embed AI directly into its existing, indispensable products. Think of tools like Firefly and Acrobat AI Assistant—they are not stand-alone apps but new layers of power seamlessly integrated into Photoshop and Acrobat. This strategic position allows Adobe to sell new features, like "generative credits," to its vast and captive user base, all while reinforcing the ecosystem's value.

• Cyclicality & Geopolitics: Adobe’s subscription-based model provides a high degree of predictability, making the business far less susceptible to economic cycles than traditional software companies. While an economic downturn could slightly reduce corporate spending on creative tools, the effect would be cushioned by the long-term contracts already in place. On the geopolitical front, the recent, failed acquisition of Figma demonstrates that regulatory scrutiny can be a significant hurdle for an M&A-driven growth strategy - otherwise no big geopolitical exposure.

📊 3. The Numbers: Financial Check & Growth – How healthy is the company?

The qualitative story of Adobe’s dominance is powerfully confirmed by its financial health, which reveals a business that is not just successful, but profoundly efficient.

• Growth History: For a business of its scale, Adobe’s growth has been consistently impressive. Over the last five years, revenue has grown at a respectable ~15% CAGR, while both EPS and free cash flow have outpaced that at around 19-20% per year. This is the signature of a company that is not just growing, but doing so with increasing profitability.

• Financial Health: The company's margins are truly a sight to behold. Its gross margin hovers around 89%, a testament to its powerful pricing. More importantly, its ability to generate profits on capital is exceptional. We see a return on invested capital (ROIC) of 25.4% and a return on equity (ROE) of over 51%.

For a business that is so good at turning every dollar of capital into a significant profit, we’re left with little doubt about its quality. The balance sheet is also a fortress, with virtually no net debt and ample liquidity to weather any storm.

• Stakeholder Value: Adobe does not pay a dividend, a common practice for high-growth tech companies that believe they can generate a higher return by reinvesting every dollar back into the business. Instead, management returns capital to shareholders through an active share repurchase program. The strategy is clear: grow the underlying value of the business, and allow the stock price to follow.

• Outlook: The consensus from analysts is cautious but optimistic. They forecast that revenue will continue to grow at a steady rate of 8-9% annually for the next few years, with earnings per share growing slightly faster at 11-12%. This outlook, while a deceleration from historical levels, suggests a stable business that is still expanding.

💰 4. The Valuation – What is a fair price?

This is where the story gets interesting, and where the skeptical investor finds their opportunity. The market has taken a deeply pessimistic view of Adobe’s future, creating a valuation disconnect that simply cannot be ignored.

• Valuation Check: The current price-to-earnings (P/E) ratio sits around 23x-26x, which is a remarkable 50% discount to its 10-year historical average of 47.8x. It is also significantly cheaper than its peer group average of 66.4x. This is not a random occurrence. The market is screaming its concern about the risks of AI disruption and the slowing growth we noted above. To us, this is not a red flag; it is a gift. The market is offering a chance to buy a high-quality company at a price that reflects deep-seated fear, not fundamental weakness.

• Price Target Calculation: Let’s be conservative. If we assume EPS grows at just 10% annually—well below its historical average and right at the low end of analyst expectations—it would reach around $21.49 in four years. If the market then re-rates the company to a still-conservative P/E of 30x, the resulting price target is $644.70. This implies a significant upside of 75% from today’s price, which translates to a compound annual growth rate (CAGR) of over 15%. This is a powerful return for a company of Adobe’s caliber.

• Margin of Safety: The current price offers a meaningful buffer against the risks we’ve discussed. Based on an intrinsic value estimate of ~$485 per share, Adobe is trading at a notable discount. This built-in margin of safety suggests that even if the company's growth is slower than expected or if the market remains stubbornly pessimistic, the downside is limited while the upside remains substantial.

⚖️ 5. The Investment Thesis: Opportunities & Risks – What needs to happen?

• The Bull Case: What needs to happen is simple: Adobe must execute its AI strategy.

1. The company successfully integrates and monetizes its AI tools like Firefly, turning a market threat into a new revenue stream. We are already seeing this with new "generative credits" and AI-driven products like the Acrobat AI Assistant, which is designed to make document workflows conversational and intuitive.

2. The market recognizes this successful execution and re-rates the stock, allowing the multiple to expand from today’s pessimistic levels toward its historical average.

3. AI tools reinforce Adobe's ecosystem, making the products even more integral to creative and business workflows and deepening the company's formidable competitive advantages.

• The Bear Case: What could break this thesis?

1. The existential threat of AI proves too great. New, AI-native competitors like Midjourney are praised for their "artistic excellence", while simpler tools like Canva are winning over the non-professional market, potentially eroding Adobe's long-term user base and pricing power. If these disruptors succeed in eroding Adobe's user base and pricing power, the company’s high margins and slowing growth would collapse.

2. The low valuation is not a gift, but a "value trap" for a business whose high-growth days are over.

3. Management stumbles in its execution. The failed Figma acquisition serves as a warning, highlighting the risks of a M&A-driven strategy and the increasing regulatory scrutiny that could hinder future growth.

4. We have to make one thing clear - the adoption of AI and the current AI landscape is scary for adobe in some regards. Grok, Claude or Gemini are developing fast and with software in the creative space the moat is not as strong as in other sectors e.g. photomask like . The risk is real, while valuation is attractive the risk/reward for us is not as safe as for example. While this is priced into the current price, see above in our thesis why we think a comeback might be possible. Failing to buy Figma only hurts the most further.

🎯 6. Conclusion & Action Plan – What does this mean for my portfolio?

• Summary: Our analysis of Adobe suggests a quality company with a okay-ish moat and a fortress balance sheet, currently trading at a compelling discount due to market fears about AI disruption. The core investment thesis is that the company’s AI integration will succeed, reigniting growth and unlocking shareholder value.

• Potential: The potential for a doubling of the stock's value within 2-4 years is realistic. Our price target of $644.70 shows a clear path to significant upside.

• Recommendation: For a patient, long-term investor, the current price represents an attractive entry point to initiate a position. While the risks are real and the execution is high-stakes, the favourable risk-reward profile offers a compelling opportunity to buy a great business at a fair price, rather than a fair business at a great price.

⸻

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you're buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author's personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

⸻

Company: Clinuvel Pharmaceuticals Limited

Ticker Symbol: CLVLY (ADR) / CUV (ASX)

Current Price (CLVLY): US$11.15 (as of market close, August 29, 2025)

⸻

🏰 1. The Company & Its Moat – What am I really buying here?

The Business Model: At its core, Clinuvel is a story of intense focus. The company makes its money from a single, revolutionary product: SCENESSE®️. This isn't a pill you pick up at the local pharmacy. It's a first-in-class injectable implant that treats a rare and brutal genetic disorder called erythropoietic protoporphyria (EPP). For EPP patients, exposure to light is agony. SCENESSE®️ allows them to live something resembling a normal life. Clinuvel controls the entire process, from manufacturing to distributing the treatment through specialized centers in Europe and the USA, giving them a direct relationship with their patients and a full grasp on pricing.

The Moat: The company's competitive advantage is a fortress built on two powerful walls. The first wall is a web of patents protecting its technology. The second, and perhaps more formidable, is its "orphan drug" status granted by regulators like the FDA and EMA. This designation, reserved for treatments of rare diseases, provides years of market exclusivity, effectively bolting the door against competitors. Anyone wanting to challenge Clinuvel wouldn't just need a better drug; they'd have to navigate a regulatory maze that is deliberately designed to protect the incumbent. This creates a powerful, high-margin monopoly in its niche.

Management & Culture: The company is led by Dr. Philippe Wolgen, who has been at the helm since 2005. This is not a hired-gun CEO. His long tenure and significant personal investment in the company (owning over 2.6 million shares) mean his financial well-being is directly tied to that of his fellow shareholders. The company's communications reflect a disciplined, long-term, and almost stoic culture, prioritizing clinical progress and prudent financial management over market hype.

📈 2. The Story & The Strategic Levers – Why now?

Market Environment: We are living in an era of personalized medicine, where treatments are increasingly targeted at specific genetic markers. Furthermore, global awareness of skin health and the damaging effects of UV radiation has never been higher. Clinuvel sits at the intersection of these two powerful currents: a deep scientific understanding of how human skin interacts with light and the ability to translate that into targeted therapies.

Strategic Position: The true excitement, and the core of this thesis, lies in the company's strategic lever: vitiligo. For years, the market has valued Clinuvel as a one-trick pony serving a very small EPP patient population. But the company is in the advanced stages of getting SCENESSE®️ approved for vitiligo, a condition affecting up to 2% of the global population—orders of magnitude larger than the EPP market. The science is analogous; the drug helps repigment the skin. If successful, this single move would transform Clinuvel from a niche player into a major dermatological company. This isn't a hope; it's a tangible, clinical-stage strategy that the market seems to be heavily discounting.

Cyclicality & Geopolitics: The business is entirely non-cyclical. The need for EPP treatment doesn't change with interest rates or consumer confidence. As Clinuvel expands its global footprint and manufactures its product in the USA, it benefits from the "Made in USA" tag and insulates itself from the kinds of supply chain disruptions that have plagued other industries. Its destiny is tied to clinical and regulatory outcomes, not economic cycles.

📊 3. The Numbers: Financial Check & Growth – How healthy is the company?

Growth History: The numbers tell a story of explosive, profitable growth. From 2019 to 2024, Clinuvel grew revenues at a compound annual rate (CAGR) of 22.6%. More impressively, this wasn't profitless growth; Earnings Per Share (EPS) compounded at 17.4% annually over the same period. This was achieved purely through organic expansion, not risky acquisitions.

Financial Health: The company's financial profile is pristine. It operates with a gross margin that hovers around 93%, a testament to its pricing power. The EBIT margin stands at a remarkable 57% (FY2024). Return on Invested Capital (ROIC), a key measure of quality, has consistently been well above 50%, indicating an exceptionally profitable business. Most importantly, the balance sheet is a fortress: the company holds over A$180 million in cash and has zero debt. It can fund all its ambitious growth plans from its own profits.

Stakeholder Value: Management has demonstrated a clear and balanced strategy for rewarding its owners. They reinvest heavily into research and development to expand the drug's potential, but not at the expense of shareholder returns. The company initiated a dividend in 2021 and has a share buyback program in place, signaling confidence in the stock's value and a commitment to returning excess capital.

Outlook: While specific analyst coverage is limited, the consensus points toward continued double-digit revenue growth for the core EPP business. The real upside, which is harder to model, hinges on the timing and extent of the vitiligo approval. Success here would render current growth estimates obsolete.

💰 4. The Valuation – What is a fair price?

Valuation Check: Historically, the market has awarded Clinuvel a premium valuation for its quality and growth, with a P/E ratio often sitting between 30 and 50. Currently, it trades at a P/E of around 22. This is cheap relative to its own history. The peer group is tricky. Compared to a large, diversified biotech like Incyte (P/E ~17), it looks slightly more expensive. Compared to a clinical-stage hopeful like Disc Medicine (which has no earnings), it's in a different universe. The current valuation seems to reflect the market's uncertainty about the vitiligo expansion, pricing it more like a mature company than a high-growth one.

Price Target Calculation: To double our investment, the company's value needs to double. Let's see if that's realistic in the next 3 years (by late 2028).

Expected EPS: The company earned A0.715pershareinFY2024.AssumingthecoreEPPbusinesscontinuestogrowataconservative151.25** by FY2028 seems entirely achievable.

Fair Multiple: Once the vitiligo indication is approved and de-risked, the market will likely re-rate the stock back toward its historical average. A P/E multiple of 30 is a reasonable assumption for a debt-free company with a new, massive growth runway and 90%+ gross margins.

Price Target: A$1.25 (EPS) × 30 (P/E) = A$37.50. This translates to roughly US$24.75 for the CLVLY ticker.

Upside Potential: From the current price of US$11.15, this target represents an upside of 122%, or a CAGR of 30.4%.

Margin of Safety: The current price offers a significant buffer. The valuation essentially gives you the highly profitable, growing EPP business for a fair price, with the transformative vitiligo opportunity thrown in for free.

⚖️ 5. The Investment Thesis: Opportunities & Risks – What needs to happen?

The Bull Case:

Vitiligo Approval & Commercialization: This is the single most important catalyst. A successful launch in this market would validate the thesis and force a fundamental re-evaluation of the company's size and scope.

Geographic Expansion: Gaining approval and launching SCENESSE®️ in new markets, particularly in Asia (e.g., China, Japan), would open up significant new revenue streams for the core EPP indication.

Pipeline Success: Positive clinical data from its other pipeline programs, like PRÉNUMBRA®️ for stroke, could further diversify the company and unlock additional long-term value.

The Bear Case:

Vitiligo Flops: The treatment could fail to gain traction against competing therapies in the vitiligo market, either due to efficacy, pricing, or patient preference. This would leave Clinuvel as a niche EPP company.

Regulatory Setback: A surprise rejection or delay from the FDA for the vitiligo indication would significantly push back the growth story and likely cause a sharp drop in the share price.

Competition: A new, more effective therapy for EPP emerges from a competitor. While the moat is strong, it's not eternal. This is a lower-probability risk in the near term but always a factor in pharmaceuticals.

🎯 6. Conclusion & Action Plan – What does this mean for my portfolio?

Summary: Clinuvel is a rare find: a financially impregnable, founder-led company with a monopolistic position in its current market. The investment thesis rests on the market's failure to properly price in the high probability of the company leveraging its proven technology to enter a market that is over 50 times larger than its current one.

Potential: A doubling of the stock price to ~US$25 within the next 3-4 years is not just a hopeful fantasy; it appears realistic and is supported by conservative assumptions about future earnings and a return to a historically justified valuation multiple.

Recommendation: From a risk-reward perspective, the current price represents a highly attractive entry point. The downside appears protected by the profitable and growing core business, while the upside from the vitiligo launch offers multi-bagger potential. For a long-term, entrepreneurially-minded investor, initiating a first tranche at these levels is a compelling proposition.

⸻

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you're buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author's personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

⸻

Company: MTR Corporation Limited

Ticker Symbol: 0066.HK

Current Price: HK$27.40

⸻

🏰 1. The Company & Its Moat – What am I really buying here?

The Business Model: At first glance, MTR runs Hong Kong’s world-class subway system. But that’s only half the story. The real genius is the "Rail + Property" model. The government grants MTR land development rights around new stations at their pre-railway value. MTR then partners with developers to build residential and commercial towers, capturing the massive value uplift created by its own infrastructure. This firehose of property profit funds new rail lines and subsidizes the transport operations, making MTR one of the few profitable public transit systems on earth. It’s not only a railway company but also a government-chartered urban development corporation whose engine is a railway. What we espically like is that even though it operates mainly in HK, its reach extends far beyond the city’s borders: the company also operates major overseas rail networks, including London’s Elizabeth Line and several lines in Australia, giving it a global footprint and diversified earnings base.

The Moat: MTR's competitive advantage is absolute. It operates a government-sanctioned monopoly on rail transport in one of the world's most densely populated cities. The capital required to build a competing network is unthinkable, creating an impenetrable barrier to entry. This is fortified by a powerful network effect—each new station makes the entire system more valuable to its 5.6 million daily riders. A competitor can't just build one better line; they'd have to replicate the entire, seamlessly integrated system. It's an impossible task.

Management & Culture: The company is run by a stable, experienced team of insiders, led by CEO Dr. Jacob Kam. However, the most important person in the room is always the majority shareholder: the Hong Kong government, which owns about 75% of the company. This is a double-edged sword. It guarantees unwavering support and a pipeline of strategic projects, but it also means management's primary duty is to public policy, not just maximizing profit for minority shareholders. We must accept that financial returns, while important, will always be balanced against the government's broader socio-economic goals.

📈 2. The Story & The Strategic Levers – Why now?

Market Environment: Two powerful, long-term trends are working in MTR's favor. First is the economic integration of the Greater Bay Area (GBA), a megapolis of over 80 million people. MTR is the primary artery connecting Hong Kong to this vast economic zone. Second is Hong Kong's own ambitious development plan, the "Northern Metropolis," which will require massive new transport infrastructure.

Strategic Position: MTR is not just a participant in these trends; it is the chosen instrument of government policy to execute them. The "Rail + Property" model is the government's preferred mechanism for funding these multi-billion-dollar projects without tapping public finances. This positions MTR to receive a guaranteed pipeline of transformative, value-creating projects for decades to come.

Cyclicality & Geopolitics: The business is undeniably cyclical, tethered to the boom-and-bust nature of Hong Kong's property market. This is the source of the current opportunity. The market is pricing in the pain of the current property downturn, which we see as temporary. Geopolitically, the company's success is linked to Hong Kong's stability and its deepening ties with Mainland China, making the GBA initiative a critical long-term tailwind.

📊 3. The Numbers: Financial Check & Growth – How healthy is the company?

Growth History: Over the past five years, revenue has grown at a compound annual rate of 7.2%. However, this growth is lumpy. Earnings per share (EPS) and free cash flow (FCF) are volatile, swinging dramatically based on the timing of property project completions. This isn't a business you measure quarter-to-quarter; you measure it cycle-to-cycle.

Financial Health: MTR's balance sheet is a fortress. With an equity ratio of over 50% and a conservative debt-to-equity ratio of 41.2%, the company is built to withstand any storm. This financial prudence earns it credit ratings on par with the Hong Kong government itself (AA+ from S&P, Aa3 from Moody's), granting it access to cheap and abundant capital. Returns are respectable but not spectacular (ROE of 8.8%, ROIC of 7.34%), reflecting the capital-intensive nature of the underlying railway business.

Stakeholder Value: MTR is a dividend machine. A stable, gradually increasing dividend is the cornerstone of its shareholder strategy. With a current yield of around 4.8%, it provides a substantial income stream. The dividend is secure, backed by recurring rental income and the company's financial strength. However, do not expect share buybacks; returning capital this way is not part of the company's playbook.

Outlook: Analysts expect a dip in revenue and earnings for 2025. This is not a sign of fundamental weakness but simply the result of lapping a year with unusually high property development profits. The market is focused on this short-term dip, creating the valuation gap we see today.

💰 4. The Valuation – What is a fair price?

Valuation Check: On an asset basis, the stock looks cheap. It trades at a price-to-book ratio of around 0.90x, meaning we can buy its vast portfolio of prime real estate for less than its stated value. Its P/E ratio of around 10.8x is also attractive compared to the broader Asian transportation industry average of 15x. The dividend yield of 4.8% is historically high, suggesting good value.

Price Target Calculation: To smooth out the lumpy property profits, we use a normalized EPS figure that reflects the company's long-term earning power.

Formula: Expected Normalized EPS × Fair Multiple = Price Target

Our Assumptions: We assume a normalized EPS of HK$2.40 over the next 3 years and assign a fair P/E multiple of 16x, which is conservative given the company's quality and historical range.

Price Target: HK$2.40 × 16 = HK$38.40

This implies an upside of 40% from the current price, or an 11.9% CAGR over three years, not including the dividend.

Margin of Safety: Based on our fair value estimate of HK38.40,thecurrentpriceofHK27.40 offers a substantial margin of safety of 29%. For a defensive, blue-chip company, this is a significant buffer against error or unforeseen events.

⚖️ 5. The Investment Thesis: Opportunities & Risks – What needs to happen?

The Bull Case:

Property Market Recovery: A cyclical upswing in Hong Kong's real estate market is the single most powerful catalyst. Recent government stimulus and a more favorable interest rate outlook are positive signs.

Valuation Re-rating: The market could simply wake up and re-price the stock closer to its net asset value, closing the current discount.

GBA Integration: Continued progress on major infrastructure projects connecting Hong Kong to the Greater Bay Area will unlock decades of future growth for the "Rail + Property" model.

The Bear Case:

Prolonged Property Slump: If the current downturn is secular, not cyclical, it would severely impair MTR's primary profit engine.

Adverse Government Intervention: The government is both majority owner and regulator. A policy shift that weakens the "Rail + Property" model or imposes punitive fare caps could permanently damage the investment case for minority shareholders.

🎯 6. Conclusion & Action Plan – What does this mean for my portfolio?

Summary: MTR Corporation is a high-quality, wide-moat infrastructure and real estate company, backed by the government. It is currently trading at a historically attractive valuation that offers a significant margin of safety and a compelling dividend yield for the patient, long-term investor. We are buying a fortress during a storm that we believe will pass.

Potential: Is a doubling of the stock price in 2-4 years realistic? It's possible, but it would require a very strong and rapid recovery in the Hong Kong property market. Our more conservative and, we believe, realistic price target is HK$38.40.

Recommendation: The current price represents an attractive entry point for initiating a position. The downside is well-protected by the company's fortress balance sheet, the essential nature of its services, and a high, sustainable dividend. The upside, driven by a normalization of the property cycle, is substantial.

⸻

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you're buying.

⸻

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author's personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.

Ticker Symbol: NU

Current Price: $12.04

🏰 1. The Company & Its Moat – What am I really buying here?

When we look at Nu Bank, we're not just buying shares in another financial institution. We're investing in a digital powerhouse that has fundamentally reshaped banking across Latin America, a region historically plagued by high fees and limited access. This isn't a bank; it's a movement.

The Business Model: Nu Bank makes money by doing what traditional banks do, but with a radical twist: it puts the customer first, always. It started with a no-fee credit card, a revolutionary concept in Brazil, managed entirely through a sleek mobile app. From there, it expanded its arsenal to include digital payment accounts, personal loans, investment platforms (thanks to the Easynvest acquisition), insurance, and even cryptocurrency trading. Revenue flows from net interest income on its growing loan book, interchange fees, and commissions from its expanding suite of services. The magic lies in its ability to monetize its massive customer base – over 118 million strong – by getting them to use more products, increasing their "share of wallet" from an initial $5 per month to over $25 for mature users.[5, 2]

The Moat: Nu's competitive advantage isn't just wide; it's deep and multifaceted. First, there's the brand. Nu has cultivated an almost fanatical "customer love," topping KPMG's customer experience reports, even outranking giants like Nike and Amazon.[6] This translates into an astonishingly high Net Promoter Score (NPS of 90+) and organic, word-of-mouth growth that keeps customer acquisition costs (CAC) incredibly low, around $5-$6 per customer. Second, its digital-first architecture means it operates with a cost-to-serve of less than $1 per customer per month – roughly 85% lower than legacy banks burdened by physical branches and antiquated IT systems. This isn't just scale; it's a structural advantage. Third, a powerful data network effect is at play. With 118 million active users, Nu collects a treasure trove of behavioral data, constantly refining its proprietary credit models to underwrite risk with uncanny precision, even for segments traditional banks ignore. Finally, Nu has masterfully turned regulation into a competitive advantage, proactively engaging with authorities to shape a favorable environment, rather than fighting it.

Management & Culture: At the helm is co-founder and CEO David Vélez, whose personal frustration with Brazil's banking oligopoly sparked Nu's very existence. Vélez embodies "skin in the game," maintaining a substantial ownership stake (75% of the bank) and famously taking only a symbolic salary. This aligns his interests directly with long-term shareholder value. The recent appointment of Roberto Campos Neto, former President of Brazil's Central Bank, as Vice-Chairman and Global Head of Public Policy, is a masterstroke, providing unparalleled regulatory insight and influence. The culture is one of relentless customer-centricity, smart efficiency, and a hunger to challenge the status quo.

📈 2. The Story & The Strategic Levers – Why now?

Nu Bank isn't just riding trends; it's shaping them. The "why now" for this investment lies in a confluence of powerful macro forces and Nu's unique positioning to capitalize on them.

Market Environment: Latin America is a fertile ground for financial disruption. It's a region where a vast population remains unbanked or underserved, trapped by an oligopolistic banking sector that charges exorbitant fees. The pandemic dramatically accelerated the digitalization of daily life, pushing millions online for their financial needs. This is a massive, ongoing tailwind. Furthermore, the region boasts favorable demographics, with nearly 60% of Nu's customers under 35 – a digitally native generation poised to grow their financial lives with Nu. The advent of Open Finance frameworks in Brazil and beyond is another game-changer, leveling the playing field by allowing data sharing with customer consent, which Nu, with its superior tech, is uniquely positioned to leverage. Lastly, the anticipation of interest rate cuts in Brazil's high Selic rate environment could stimulate loan demand and improve Nu's net interest margins.

Strategic Position: Nu isn't merely benefiting from these trends; it's actively exploiting them. Its digital-first, low-cost model is the perfect antidote to the region's banking woes, allowing it to profitably serve segments traditional banks couldn't touch. The company's expansion into Mexico and Colombia isn't a speculative gamble; it's a disciplined replication of its proven Brazilian playbook, already securing the #1 spot in new credit card issuance in both countries. This strategic lever alone has the potential to double Nu's addressable market. Nu's relentless focus on solving "sharp pains" for customers, rather than internal company problems, ensures its products resonate deeply and drive adoption.

Cyclicality & Geopolitics: As a financial institution, Nu's business is inherently tied to economic cycles. Latin America, known for its macroeconomic volatility, high inflation, and currency fluctuations, presents a challenging backdrop. However, Nu has a battle-tested history, having successfully navigated a "deepest recession in 100 years" and a global pandemic since its 2013 inception.[18, 19, 10] This resilience is a testament to its robust operational and financial framework. The strategic appointment of Roberto Campos Neto, a former Central Bank President, further strengthens Nu's ability to navigate the complex regulatory and geopolitical currents, transforming potential headwinds into strategic advantages.

📊 3. The Numbers: Financial Check & Growth – How healthy is the company?

The qualitative story of Nu Bank is compelling, but the numbers truly bring it to life, painting a picture of a company rapidly maturing into a highly profitable, efficient financial powerhouse.

Growth History: Nu's growth has been nothing short of explosive.

Revenue: For Fiscal Year 2024, revenue surged to $11.5 billion, a remarkable 58% year-over-year increase on an FX-neutral basis. Over the last five years, its sales growth (TTM) has been an astonishing 75.92%.

Earnings Per Share (EPS): As it transitioned to profitability, EPS has followed suit. The trailing twelve months (TTM) EPS stood at $0.44 as of March 2025, with a five-year EPS growth (TTM) of 37.76%.

Free Cash Flow (FCF): Nu's cash-generating ability is equally impressive. Annual FCF for 2024 hit $2.394 billion, a staggering 92.11% increase from 2023. This robust FCF provides immense financial flexibility.

Financial Health: Nu's financial health is robust, outperforming traditional peers.

Margins: Gross profit margin reached a healthy 45.6% in Q4'24, and the net profit margin was 17.4% in Q1'25. Its operating margin (TTM) stands at 53.35%.

Return on Equity (ROE): This is where Nu truly shines. Its ROE is an impressive 29% for FY24, with an annualized adjusted ROE of 32% in Q4'24. This significantly outpaces traditional Brazilian banks, which typically hover around 15-18%.

Efficiency Ratio: Nu's efficiency ratio, a critical measure for banks, improved to 29.9% in Q4'24. This is dramatically better than the ~50% seen in traditional banks, highlighting Nu's lean, digital operations.

Balance Sheet: The balance sheet is solid. As of Q1'25, Nu held $11.03 billion in cash and short-term investments. Total equity stood at $8.61 billion, yielding an equity ratio of approximately 15.89%. Deposits, a key funding source, surged 55% year-over-year to $28.9 billion in Q4'24. A low loan-to-deposit ratio of 40% (Q3'24) further underscores its strong liquidity and funding stability.

Shareholder Value: Nu's shareholder strategy is clear: maximize long-term capital appreciation through aggressive, profitable growth. We won't find share buybacks or regular dividends here. Instead, every dollar generated is reinvested back into the business – expanding its product suite, deepening customer relationships, and fueling geographic expansion. For a company consistently generating 29-32% ROE, this reinvestment strategy is a powerful engine for compounding value, far more impactful than a modest dividend in its current growth phase.

Outlook: Analysts are bullish on Nu's continued trajectory. Consensus EPS forecasts project $0.55 for 2025, $0.79-$0.88 for 2026, and $1.13-$1.28 for 2027. This implies a robust compound annual growth rate (CAGR) of approximately 47% from 2024 to 2027.

💰 4. The Valuation – What is a fair price?

Now, for the crucial question: what's a fair price for this digital disruptor? The market's current assessment, we believe, offers a compelling entry point.

Valuation Check: Nu's current trailing twelve months (TTM) P/E ratio hovers around 27x, with a forward P/E closer to 22x. This might seem high compared to traditional Brazilian banks like Itaú or Bradesco, which trade at a mere 9-12x P/E. However, this premium is entirely justified by Nu's vastly superior growth rates, profitability, and disruptive business model. What's truly intriguing is how Nu's current P/E is a staggering 69% lower than its own 3-year historical average of 86.55x, and a far cry from its peak of over 500x. This suggests a significant market re-rating, moving from speculative enthusiasm to a valuation grounded in consistent profitability. The PEG ratio (Price/Earnings to Growth) offers further insight: Nu's TTM PEG is 0.77, notably below the "Banks - Foreign" industry average of 0.95. A PEG below 1 often signals that a stock is undervalued relative to its growth rate – a clear bargain in growth-adjusted terms.

Price Target Calculation: Let's project Nu's potential over the next 4 years (to the end of 2027), using analyst EPS estimates and a range of fair P/E multiples. Our current share price is $12.04.

Conservative Price Target:

Using a 2027e EPS of $1.13 and a conservative P/E multiple of 30x (still a premium to traditional banks, but modest for Nu's growth):

* Price Target = $1.13 × 30 = $33.90

* Upside Potential: ~181.5%

* Compound Annual Growth Rate (CAGR) over 4 years: ~29.4%

* Fair Price Target:

Using a mid-range 2027e EPS of $1.205 and a fair P/E multiple of 40x (reflecting its high growth and efficiency, aligning with a PEG of ~0.8):

* Price Target = $1.205 × 40 = $48.20

* Upside Potential: ~300.3%

* CAGR over 4 years: ~41.5%

* Optimistic Price Target:

Using a higher 2027e EPS of $1.28 and an optimistic P/E multiple of 55x (if market perception fully embraces its disruptive power and compounding ability):

* Price Target = $1.28 × 55 = $70.40

* Upside Potential: ~484.7%

* CAGR over 4 years: ~50.2%

Margin of Safety: Compared to our fair estimated intrinsic value of $48.20 for 2027, the current price of $12.04 offers an implicit margin of safety of approximately 75%. This wide buffer provides significant protection against unforeseen events and underscores the attractive risk-reward profile for a long-term investor.

⚖️ 5. The Investment Thesis: Opportunities & Risks – What needs to happen?

Every investment has its shadows and its light. For Nu Bank, the path to doubling value is clear, but we must also acknowledge the potential pitfalls.

The Bull Case:

Deepening Customer Monetization: The most potent catalyst is Nu's ability to extract more value from its massive existing customer base. As customers mature and adopt more products – from loans to investments – their average revenue per user (ARPAC) continues to climb dramatically. Nu's strategic push into higher-income segments with offerings like Ultravioleta is accelerating this "share of wallet" expansion.

Profitable Geographic Expansion: Nu's proven playbook for entering and dominating new markets like Mexico and Colombia is a powerful growth engine. These underserved markets offer vast new customer pools, and Nu's low-cost, digital model is perfectly suited to capture them efficiently. Success here means replicating its Brazilian triumph on an even larger scale.

Compounding Operational Leverage: Nu's inherently lean, digital operating model means that as revenues grow, costs grow much slower. This powerful operational leverage is already translating into rapidly expanding margins and a continuously improving efficiency ratio. Each new customer and product adoption contributes disproportionately to the bottom line, driving robust EPS growth.

The Bear Case:

Credit Quality Deterioration: The most common concern is Nu's aggressive expansion into lending, particularly to lower-income segments, which could lead to rising Non-Performing Loans (NPLs). Critics point to its blended NPL rate being higher than the Brazilian system average. If economic conditions worsen significantly, or if Nu's credit models falter, this could hit profitability hard.

Intensifying Competition: While Nu disrupted the market, incumbents are fighting back with their own digital initiatives, and new fintechs are constantly emerging. This could lead to higher customer acquisition costs and pricing pressure, eroding Nu's margins.

Macroeconomic & Regulatory Headwinds: Operating in Latin America exposes Nu to inherent risks: high inflation, fluctuating interest rates, political instability, and currency volatility. Unforeseen regulatory changes could also impose new costs or restrict its business model.

🎯 6. Conclusion & Action Plan – What does this mean for my portfolio?

Summary: Nu Bank is a high-quality, founder-led digital financial platform with a formidable competitive moat, demonstrating superior profitability and efficiency. It's poised for significant long-term growth by deepening customer relationships and expanding into new, underserved markets, all while trading at a compelling growth-adjusted valuation.

Potential: Yes, there is a realistic potential for Nu Bank to more than double its value within the next 2-4 years. Our fair price target of $48.20 suggests a 300% upside from the current price.

Recommendation: The current price represents an attractive entry point for a first tranche. The substantial margin of safety, combined with Nu's proven business model, strong management, and powerful tailwinds, offers a compelling risk-reward proposition for long-term, entrepreneurially-minded investors.

🌰 Hazelnuts Research – The search for quality at a fair price.

Not every price drop is a risk. Some are a gift – if you understand what you're buying.

⚠️ Disclaimer

The information provided herein is for informational purposes only and also serves as a personal trading journal for the author. It represents the author's personal analysis and opinion and does not constitute financial advice, investment recommendations, or an offer or solicitation to buy or sell any securities. The author is not a registered financial advisor, and readers should consult with their own financial advisors before making any investment decisions.

The content presented is based on publicly available information, sources believed to be reliable, and insights gathered through a combination of manual and automated analysis tools. While efforts are made to ensure accuracy, the author does not guarantee the completeness or timeliness of the information provided and assumes no responsibility or liability for any errors or omissions in the content or for any actions taken in reliance on the information presented.

Readers should be aware that investing involves risks, and past performance is not indicative of future results. The author may or may not hold positions in the companies mentioned. Any investment decisions made based on the information in this report are at the sole discretion of the reader, who assumes full responsibility for their own investment activities.