A Rally Built on Structural Change

Micron’s momentum is being driven by forces that go far beyond a typical industry rebound. Demand for advanced memory solutions has accelerated sharply as data centers scale up to support generative AI workloads. These systems require dramatically higher memory capacity and speed, turning products like high bandwidth memory into mission-critical components rather than interchangeable commodities.

As a result, Micron is benefiting from stronger pricing power, improved utilization, and a level of forward visibility that memory producers rarely enjoy. Investors are increasingly recognizing that the current upcycle is rooted in long-term infrastructure investment rather than short-term inventory swings.

Why This Cycle Looks Different

What makes the current environment stand out is the nature of demand. AI servers consume multiple times more memory than traditional systems, and leading cloud providers are racing to secure supply. This has tightened the market and shifted negotiating leverage toward suppliers with the right technology and scale.

Micron’s positioning allows it to participate directly in this shift. With much of its advanced memory capacity effectively allocated well ahead of delivery, the company has gained confidence in its revenue outlook and margin trajectory. That confidence has begun to show up in analyst revisions and investor sentiment.

Micron's performance this year

Valuation Debate Is Heating Up

As Micron’s stock climbs, debate naturally turns to valuation. Skeptics point to the sector’s history of boom-and-bust cycles, while supporters argue that applying old valuation models misses the point. If memory demand is increasingly tied to AI infrastructure growth, then earnings durability could be far stronger than in past cycles.

For now, the market appears willing to assign a premium to that possibility. Continued execution, disciplined supply management, and sustained AI investment will be key factors in determining whether Micron can justify even higher levels.

The Bigger Picture for Investors

Micron’s story highlights a broader shift underway in the semiconductor industry. Memory is no longer simply a supporting component but a strategic pillar of modern computing. As AI adoption expands, companies that control critical parts of the hardware stack stand to benefit disproportionately.

While volatility remains part of the equation, Micron’s evolution suggests that its recent rally may be less about speculation and more about a reassessment of its long-term role in the AI era. For investors looking beyond short-term price swings, Micron is increasingly difficult to ignore.

That narrative is now evolving. With key restrictions lifted and governance normalized, the bank is gradually shifting from fixing legacy issues to actively deploying capital. The fourth quarter of 2025 should therefore be read less as a standalone earnings report and more as confirmation that Wells Fargo is re-entering the cycle as a fully functioning growth-oriented institution.

How was the last quarter?

Wells Fargo $WFC reported net income of $5.4 billion for the fourth quarter of 2025, which equates to earnings per share of $1.62. This is a year-over-year improvement from $5.1 billion and $1.43 per share in Q4 2024. Adjusted for a one-time severance item of $612 million, earnings would have been $5.8 billion and $1.76 per share, respectively, confirming the bank's solid operating performance.

Total revenues increased 4% year-on-year to USD 21.3 billion. Net interest income reached USD 12.3 billion, up 4% year-on-year, mainly due to loan growth, improved trading performance and the revaluation of fixed interest assets. Non-interest income increased 5%, with positive contributions primarily from higher asset management fees, card fees and mortgage banking income. In contrast, venture capital and investment results were weaker than in the previous year.

On the cost side, discipline is evident. Non-interest expenses declined 1% year-on-year to $13.7 billion, reflecting lower regulatory costs and ongoing efficiency measures. The bank's efficiency ratio improved, with the efficiency ratio falling to 64% from 68% in Q4 2024. The provision for loan losses was $1.04 billion, slightly lower than a year ago, with the quality of the loan portfolio remaining stable.

The bank's balance sheet also confirms a return to growth. Average lending reached USD 956 billion, up 5% year-on-year. Deposits rose to USD 1.38 trillion, up 2% year-on-year. CET1's capital adequacy ratio reached 10.6%, which, while a slight decline from the previous year, still provides ample scope for returning capital to shareholders.

• Full presentation with results.

CEO commentary

CEO Charlie Scharf called 2025 a watershed year, largely due to the Fed's removal of the long-term cap on balance sheet size and the completion of several key regulatory actions. He said that Wells Fargo has managed to achieve its ROTCE target return on tangible equity of 15% and the bank has now set a more ambitious medium-term target of 17-18%.

Scharf highlighted that year-on-year earnings per share grew 17%, fee income grew 5% and net loan losses fell 16%. At the same time, the bank returned $23 billion to shareholders in 2025, including $18 billion in buybacks, and increased the dividend by 13%. Management said it was able to fund significant infrastructure investment and growth by reducing its cost base over the long term, which has fallen by $15 billion cumulatively over the past five years.

Outlook

The outlook to 2026 is openly growth-oriented for the first time in a long time. Bank management expects that the removal of regulatory restrictions will enable more dynamic credit expansion, particularly in commercial and investment banking. Growth is also expected to continue in consumer lending, where higher credit card activity and a return to growth in auto financing are positive signs.

At the same time, the Bank expects further efficiency improvements, although the pace of cost reduction will not be as strong as in previous years. A key objective remains to move ROE towards the levels of the largest US banks, with management openly communicating an ambition to get to a ROTCE in the 17-18% range within a few years.

Long-term results

The long-term numbers show that Wells Fargo has had a very volatile period, but one from which it is gradually stabilizing. Total revenue in 2024 is $125.4 billion, up 8.7% year-over-year. A year earlier, they grew by as much as 38%, but this was partly driven by one-off factors and the return of interest margins after a sharp rise in rates.

Operating profit in 2024 was $23.4 billion, up 8% year-on-year, while net profit reached $19.7 billion. Profitability is therefore improving more slowly than revenues, reflecting both cost pressures and conservative provisioning. Still, there is a clear trend towards normalisation - after a significant fall in 2022, EPS has gradually returned to US$5.43 in 2024, up from US$3.17 in 2022.

An important structural factor is the long-term reduction in share count. The average number of shares has fallen from over 4 billion in 2021 to around 3.43 billion in 2024, significantly supporting earnings per share growth and return on capital. EBITDA is nearly $31 billion in 2024, confirming the bank's solid ability to generate cash even in more challenging periods.

Shareholding structure

Wells Fargo's shareholder structure remains highly institutional. Approximately 79% of shares are held by institutional investors, while the share of insiders is negligible. The largest shareholder is Vanguard Group with 9.5%, followed by JPMorgan Chase with 9.3% and BlackRock with 8.1%. Fidelity also holds a significant stake through FMR. This structure confirms that the title is seen as a long-term position for large institutional investors rather than a speculative bet.

Analyst expectations

Analysts agree that 2026 should be the first full year of growth for Wells Fargo after a long period of retrenchment. Earnings per share growth is expected to continue, driven by a combination of credit expansion, stable interest margins and aggressive share buybacks. The consensus expects further improvement in return on capital and a gradual convergence to the performance of the largest US banks.

Analysts' price targets are currently mostly above current market prices, with more optimistic scenarios assuming that the market will begin to value Wells Fargo as a growth bank rather than a restructuring story. The macroeconomic slowdown and credit quality developments remain key risks, but the baseline scenario assumes a relatively stable environment and continued improvement in fundamentals.

Fair Price

This business operates far from technology hype and headline sectors. Its activities may appear unglamorous, but they sit at the core of food supply chains, animal nutrition, and renewable fuels. The real investment question is not whether the company is cyclical, but whether it is emerging from a trough just as favourable long-term dynamics begin to reassert themselves.

Top points of analysis

• The company operates a globally unique business based on bio-waste recycling with high barriers to entry.

• Core segments provide stable cash flow, while renewable fuels represent a growth opportunity.

• Current results reflect cyclical pressures, not a breakdown of the business model.

• 2026 may mark a turning point for earnings, sentiment and valuation.

Company performance

Darling Ingredients $DAR is a global processor of biological by-products generated by the food, agriculture and meat industries. Its core business is the collection, logistics and processing of materials that would otherwise pose an environmental and hygiene burden. It then transforms these inputs into raw materials for use in the feed, food, pharmaceutical and energy industries.

• 15% global market share

• 1.2B gallons of renewable fuel

• Company returns 11 billion gallons of water back to the environment annually

Darling's fundamental competitive advantage is scale and physical infrastructure. The company operates the largest rendering network in the world, with thousands of collection routes, dozens of processing plants and long-term contractual relationships with waste suppliers. Building a similar system would require huge amounts of capital, regulatory approvals and years of enforcement, creating very strong barriers to entry.

Importantly, Darling is not a pure commodity company. Although input and output prices fluctuate, the company controls a key point in the supply chain and benefits from the fact that biowaste is generated regardless of the economic cycle. This differentiates Darling from traditional industrial or energy companies whose business is significantly more sensitive to demand shocks.

Products and services: the three pillars of the business

Darling's business is divided into three main segments. The first is Feed Ingredients, the production of proteins and fats used in livestock and pet food. This segment is the most stable, generates predictable cash flow and acts as the mainstay of the entire group.

The second segment is Food Ingredients, where Darling is one of the world leaders in the production of collagens and gelatins. These products have a wide range of applications in the food, pharmaceutical and health and wellness sectors. Compared to the feed segment, the company achieves higher margins and greater differentiation here, which reduces price sensitivity.

The third and most investment-worthy pillar is Fuel Ingredients. Here Darling processes used oils, fats and bio-waste into inputs for the production of renewable diesel, biogas and SAF fuels. This segment is more cyclical but also offers the greatest growth potential, especially if regulatory incentives remain in place.

How the company makes money

From an investment perspective, it is key to understand that Darling combines defensive and growth characteristics. The feed and food segments provide relatively stable margins and cash flow that allow the company to weather weaker periods without materially disrupting the balance sheet.

The fuel segment acts as an option element. In an environment of favourable regulations and high prices, it can significantly increase EBITDA for the entire group. Conversely, in periods of uncertainty and low margins, it can drag down results in the short term, as has been reflected in recent years.

This structure means that Darling is not betting on one scenario. The investor is not buying a pure green energy play, but a business that has the underlying cash flow backed by physical infrastructure, plus exposure to the long-term decarbonisation trend.

Structural opportunities

While much of the investment debate around Darling Ingredients revolves around the cyclical bottom and the return of margins, less attention has been paid to the fact that the firm has several structural opportunities that are not dependent on short-term macro or a one-off regulatory push. It is these opportunities that are key to long-term shareholder returns.

The first fundamental opportunity is Darling's position at the top of the value chain. The firm does not compete primarily at the end-product level, but controls access to scarce feedstocks that are difficult to substitute. In an environment where demand for sustainable raw materials is growing faster than supply, this position tends to increase bargaining power and margin stability over the long term. This is not a cyclical effect, but a structural change in the functioning of the market.

The second opportunity is a gradual shift in the mix towards higher value added. Darling has historically operated as an efficient industrial processor with relatively low margins. Today, however, an increasing amount of value is created in segments where price is not determined by the commodity market but by product functionality, quality and long-term contracts. This shift is not immediate, but over time it can significantly change the profile of the entire company - from a cyclical processor to a more stable supplier of specialty ingredients.

A third, often underestimated opportunity is the combination of regulation and physical market limits. In many of the areas where Darling operates, capacity simply cannot be increased without long-term investment, permits and infrastructure. This creates an environment where growth in demand does not automatically lead to pressure on prices, but can instead favour existing players. If the regulatory framework stabilises, Darling may become one of the main beneficiaries of this imbalance.

Markets in which Darling operates: Expectations of growth

Processing of animal by-products (rendering, feed)

• Expected market growth: approx. 2-4% CAGR over the long term

• Role of the segment: stable cash flow, high barriers to entry, low volatility

• Investment significance: finances expansion into growth segments, buffers cyclical risks

Functional food ingredients (collagen, gelatin)

• Expected market growth: approx. 7-10% CAGR (nutraceuticals up to 10-12% CAGR)

• Key driver: health, aging population, premium nutrition

• Investment case: higher margins, better ROIC, profit growth faster than revenue growth

Renewable fuels and SAF

• Expected market growth: approx. 15-25% CAGR over the next decade

• Structural constraints: lack of feedstock, not demand

• Investment relevance: largest upside, potential for leapfrog EBITDA growth, higher volatility

Management

The company is led by longtime CEO Randall C. Stuewe, who has led the company for more than two decades. That in itself is a significant factor: Darling is run by a leader who has been behind key strategic decisions, incremental expansion and the building of today's global infrastructure. From an investor perspective, this increases continuity of strategy and reduces the risk of sudden, incoherent changes of direction.

Stuewe's management style can be characterized as long-term infrastructural and counter-cyclical. The firm has repeatedly invested during periods of weaker margins when competitors were cutting capacity, and in turn benefited from a better position in the subsequent recovery cycle. This is an approach that has historically worked in a business with high barriers to entry, but also places high demands on balance sheet and cash flow management.

It is here, however, where the main question mark for the equity investor lies. Expansion into the fuel segment and associated capital investment has led to higher debt and lower financial flexibility. Management is thus entering the next phase of the cycle with less room to manoeuvre than in the past. It is therefore crucial for investors to monitor whether management can switch from expansion mode to optimisation mode.

Risks to the future of the business

The company's investment thesis is based on the return of margins and structural growth in selected segments. The main risks therefore lie not in the business itself, but in the speed with which these assumptions come to fruition and in external factors not fully under the company's control.

Key risks

• Regulatory uncertainty (fuels, SAF) - Changes in tax credits, quotas or time delays in support can delay the return of margins and keep profitability under pressure longer than the market expects.

• Margin volatility - Dependence on feedstock and commodity prices means fluctuations in EBITDA and EPS, increasing short-term share price uncertainty.

• Debt and capital intensity - Higher debt limits flexibility, increases interest rate sensitivity and reduces room for capital allocation errors.

• Risk of unmet expectations - If improved results come more slowly than the market has priced in, the stock may stagnate even as fundamentals gradually improve.

• Slowing the shift to higher value-added - If growth in high-value segments does not replace weaker parts of the portfolio, the company will remain in a low-margin profile longer.

Financial performance

On the face of it, recent years look weak for Darling. Revenues have fallen from US$6.8bn in 2023 to US$5.7bn in 2024, operating profit has fallen by more than 50% and net profit by almost 57%. EBITDA has fallen from US$1.48bn to around US$1.0bn. Such numbers are naturally interpreted by the market as a deterioration in fundamentals.

However, on deeper analysis, it is crucial to distinguish cyclical pressure from structural change. The decline in profitability was not due to a loss of customers, a collapse in demand or technological obsolescence of the business. The main factors were lower fat and protein prices, pressure on margins in the fuel segment and regulatory uncertainty, which temporarily reduced the economic attractiveness of renewable fuels.

Meanwhile, historical data shows that Darling is able to generate EBITDA steadily above US$1.3-1.5 billion in more favourable conditions. That said, the current level of profitability is below the company's normalized potential. It is therefore important for investors to view the current numbers as a point in the cycle, not a new long-term standard.

Valuation

Darling's current valuation, with an enterprise value of around US$10bn and multiples of around 12-13× EV/EBITDA, does not look extremely cheap at first glance. However, the key point is that these multiples are calculated on cyclically muted earnings. The market implicitly assumes that a return to higher profitability will be slow or uncertain.

If EBITDA in 2026 is close to the historical average, say $1.4bn, the current enterprise value multiple would be closer to 7-8x EV/EBITDA. This would already look significantly more attractive for an infrastructure business with a long-term growth trend. In other words, valuations today reflect skepticism, not normalization.

From an equity investor's perspective, there is an asymmetry. The downside is partially constrained by existing cash flow and physical infrastructure, while the upside comes from relatively little change in margin expectations and regulation. This change in expectations is often what allows titles to outperform the market later in the cycle, even if the absolute earnings growth is not dramatic.

Why Darling in a slowing market environment

The underlying investment framework for 2026 is fundamentally different from previous years, according to Raymond James (investment bank). After three consecutive years of double-digit returns, the S&P 500 index is entering a phase where room for further expansion in valuations is running out. As Raymond James CIO Larry Adam points out, the index's valuations are around the 95th percentile of its historical range, meaning that future returns will no longer be driven by higher multiples, but solely by earnings growth.

This has major implications for stock investors. If the market as a whole delivers more single-digit returns in 2026, as Raymond James expects, then the importance of picking individual titles increases dramatically. The index ceases to function as an "automatic return generator" and investment success shifts to the ability to identify companies that can grow faster than the aggregate market gains, or for which there will be a change in expectations for future profitability.

This is where Darling Ingredientscomes into play. Raymond James presents Darling not as a defensive haven, but as a title that is fundamentally at the bottom of the cycle while the broader market is near a valuation peak. This creates an asymmetric situation: the index is reliant on "pure" earnings growth without the support of multiples, while Darling can benefit from both earnings normalization and valuation reassessment.

Another key point in the Raymond James argument is the distinction between sources of growth. While for the S&P 500, growth in 2026 is driven primarily by macroeconomic factors - the pace of economic growth, Fed policy, and overall corporate profitability - for Darling, firm-specific catalysts play a primary role. These include regulatory developments in renewable fuels, the return of margins in the fuel segment, and the stability of upstream operations that generate cash even in a weaker environment.

Moreover, Raymond James specifically points out that Darling is near both fundamental and sentiment lows. This is a fundamental difference from most index titles where expectations are still relatively high. If the slowing market scenario plays out in 2026, then it is companies with low expectations and clearly defined catalysts that historically have the best chance of significantly outperforming the index, even if absolute market growth remains limited.

From an investment perspective, then, Darling is interesting not because it is "safer than the index" but because its return profile is decoupled from the index. While the S&P 500 will likely be dependent on corporate earnings actually delivering the expected double-digit growth in 2026, Darling can generate outperformance even in an environment where the index is stagnant - purely due to a return to normalized margins and a change in the market narrative.

That's why it makes sense to frame this investment thesis not as a "Darling will grow" bet, but as a relative bet against the market. If Raymond James is right, and index returns flatten in 2026, then it will not be a matter of whether stocks grow, but which ones grow more than the market. And in that context, Darling Ingredients fits the exact profile of a title that has the structural prerequisites for such outperformance.

Investment scenarios

Optimistic scenario

The optimistic scenario assumes that the regulatory framework for renewable fuels stabilises, credit prices improve and margins in the fuel segment normalise. EBITDA returns above US$1.3bn, debt gradually declines and the market reassesses valuations towards historical averages. In such an environment, Darling can significantly outperform the index, not only by earnings growth but also by multiple expansion.

• Earnings growth: + 5-7% CAGR (mix effect + fuel segment stabilization)

• EBITDA growth: + 12-15% CAGR (return of margins + higher share of high-value segments)

• EPS (normalized): growth from approx. $1.7 → $3.5-4.0 by 2026-27

Baseline scenario

The baseline scenario assumes gradual improvement. The fuel segment remains volatile but does not deteriorate further, the feed and food segments provide stable cash flow and the company gradually optimises its capital structure. The stock is likely to deliver a solid but not spectacular return in this scenario, slightly above the market.

• Revenue growth: +3-4% CAGR

• EBITDA growth: +6-8% CAGR

• EPS: growth to c. $2.5-3.0

Negative scenario

Negative scenario occurs in the event of further regulatory deterioration or sustained low margins in the fuel segment. EBITDA remains under pressure, debt becomes a more significant risk and the market begins to discount the possibility of limited financial flexibility. Again, however, this is not an existential scenario, but a situation where Darling lags the market, not a business collapse.

• Revenue growth: 0-2% CAGR

• EBITDA: stagnation or slight decline

• EPS: remains around $1.5-2.0

What to take away from the article

• Darling Ingredients is a cyclical title with structurally strong business fundamentals, not a speculative bet.

• The current weakness in results says more about the phase of the cycle than the quality of the company.

• Management has experience and continuity but is entering a period where capital discipline is key.

• Valuations today reflect market skepticism, creating room for positive surprises.

• 2026 may be a test for Darling to see if cyclical weakness turns into investment opportunity - and this is where the potential to outperform the market lies.

The year 2026 opens in markets in an environment vastly different from previous years. After a period of extreme concentration of capital into a narrow group of technology and artificial intelligence titles, it is becoming increasingly clear that markets are beginning to re-differentiate between pure hype and fundamentals. While valuations in parts of the technology sector remain historically stretched and vulnerable to any disappointment, capital is gradually moving into areas where long-term trends are meeting tangible results. Investors are returning to sectors whose growth is supported by demographics, geopolitics and real demand.

This shift is evident across global markets.

• Healthcare is benefiting from an ageing population, pressure on healthcare efficiency and the rapid emergence of new therapies.

• The defence industry is coming under the spotlight due to the long-term rearmament of Western economies, the growth of military budgets and the changing security architecture of the world.

• The energy sector is being profiled as a key element of economic stability, geopolitical influence and transformation towards new types of infrastructure.

It is the combination of these three areas that is creating a market area that is experiencing high demand, investment inflows and investor optimism for the years ahead.

For many investors, however, sector choice is not necessarily the source of the problem. Rather, it tends to be the selection of the individual representatives of these sectors. Stockpicking requires hours of time studying individual companies and their businesses. Certainly, if an investor gets it right, his portfolio can deliver above-average profits. But all the members at Bulios know this, because tools like the Fair Price Index help them do it. Even so, it's not the ideal choice for everyone. A large group of investors prefer diversification and a broader scope in the sector they might be focusing on.

After reading this article, you'll know exactly what that means and how to have a broad range in several market sectors in your portfolio with significantly less risk than you would take when picking individual stocks.

At the end of the article, you'll find a table with a summary of all the ETFs from the article that you can copy and save.

iShares Global Healthcare ETF $IXJ

While the healthcare sector experienced pressure through most of 2025 due to regulatory uncertainty and concerns over drug prices, the end of the year brought a positive turn in sentiment and significant capital inflows into ETFs tracking the segment. In November 2025, global healthcare ETFs saw the largest monthly capital inflows in five years at approximately $6.8 billion.

The healthcare sector has long been viewed by markets as one of the pillars of stable investments. Populations in developed economies are aging, chronic diseases are proliferating, and the pressure to innovate is unprecedented, especially with breakthroughs in pharmaceuticals and technologies such as personalized medicine, advanced diagnostic tools, and AI-powered research platforms. Demographic changes alone represent the long-term potential for stable and well-estimated revenues. These factors give the sector, and therefore the ETF that tracks it, fundamental strength.

TheiShares Global Healthcare ETF $IXJ is an ETF managed by BlackRock $BLK that tracks the performance of the S&P Global 1200 Healthcare Sector Index, whose components include global pharmaceutical and biotechnology companies, medical equipment and services. The fund provides investors with broad exposure to the healthcare sector worldwide in a single vehicle.

Despite pressures in 2025, the sector managed to close the year strongly. Between September and December 2025, the ETF tracking the global healthcare index returned roughly 13%, well above its long-term historical average of 6% per year. The total return for 2025 after that, which was reduced by the dip in April, was 13.86%. Since last year's lows, the ETF is up nearly 21% through the end of 2025.

The health care sector has historically shown a lower correlation to technology cycles and serves as a defensive volatility damper in the portfolio.

Source: nabtrade.com

Key Features of the IXJ ETF

• Global diversification: IXJ holds stocks of pharmaceutical, biotechnology and healthcare companies from multiple regions, adding to risk diversification

• Defensive nature: historically, healthcare titles tend to be less sensitive to economic cycles, which helps them better withstand market downturns

• Growth drivers: demographic changes and innovation in healthcare are driving growth in the sector independent of cyclical markets

• ETF liquidity and transparency: as an exchange-traded fund, IXJ allows for easy tradability and transparent portfolio composition without the need to manually select individual titles

VanEck Defense ETF $DFNS.MI

The defense sector has undergone a fundamental transformation over the past five years. What was still perceived as a cyclical and politically sensitive segment at the beginning of the decade is gradually turning into a pillar of economic policy for developed nations. The war in Ukraine, the escalation of tensions in the Middle East, the growing rivalry between the US and China and the accelerated militarisation of the Indo-Pacific region have led to an unprecedented increase in military budgets. According to NATO data, which our team has analyzed extensively, the alliance's member states are heading towards a long-term anchoring of defense spending above 2% of GDP, with many countries still increasing their defensive budgets beyond the 2% threshold. However, there are still some countries that continue to fall short of this alliance requirement.

Source: atlanticcouncil.org

From a macroeconomic perspective, it is important that defence spending stops acting as a one-off response to crises and increasingly resembles longer-term investment. These are not just weapons purchases, but large-scale programmes to modernise armies, digitisation, cyber capability development, space systems, unmanned technologies and air defence. These programmes have an investment horizon of often decades. This makes the predictability of cash flows in this sector easy to read.

In this context, the defence sector finds itself in a similar position to that of the energy and health sectors in the past. It is becoming a long-term beneficiary of government budgets. This changes its investment profile significantly. Whereas defence stocks used to be sensitive to political cycles and budget cuts, today they are increasingly based on multi-year contracts, high barriers to entry and strategic irreplaceability.

The VanEck Defense ETF ($DFNS) is designed to capture just that transformation. The fund focuses on companies whose core business is directly tied to defense contracts, military technology, cybersecurity, space systems and advanced infrastructure. It is therefore not just about traditional arms manufacturers, but a broader ecosystem of companies that benefit from the modernisation of the security apparatus.

Unlike more general industry ETFs, $DFNS focuses on a segment where demand is largely decoupled from the traditional business cycle. This creates relative earnings stability even during periods of economic slowdown. At the same time, the technology component such as software, sensors, data systems, artificial intelligence, and satellite communications are gaining ground. Defence is thus gradually changing from a heavy industry to a high-tech sector.

A combination of several factors is evident in the defence companies associated with this type of ETF:

• a growing backlog of contracts

• high visibility of future revenues

• a gradual improvement in margins due to more sophisticated products.

From a financial perspective, these are firms with relatively stable cash flows, long-term contracts and often significant bargaining power with states as key customers. This reduces the risk of sudden drops in sales, but also creates an environment where long-term value accumulation can occur.

Examples of companies in ETFs:

Source: stockanalysis.com

Another element is the changing nature of conflicts. Modern defence is not just built on physical systems, but increasingly on data, connected networks, autonomous technologies and space platforms. This broadens the sector's investment base and allows defence companies to participate in civilian contracts, for example in the field of cybersecurity or satellite navigation. This intersection of defence and technology is one of the reasons why the sector is on the radar of longer-term investors in 2026.

Key Features of the $DFNS ETF

• Tied to government budgets: multi-year defense programs and long-term contracts create high visibility into the future earnings of the underlying companies and reduce sensitivity to short-term fluctuations in the economy.

• Exposure to long-term geopolitical trends: the Fund offers direct exposure to the rearmament of Western economies, the modernisation of armies and the growth of military budgets, which are projected many years ahead according to NATO data and national budget frameworks.

• Defense Modernization: a significant portion of the companies in $DFNS are focused on cybersecurity, sensors, space systems, software and autonomous technologies.

Vanguard Energy ETF $VDE

The energy sector enters 2026 in a very different position than at the beginning of this decade. After years of being seen as either cyclical or outperforming in the eyes of investors due to the push to decarbonize, energy has once again become a major global theme. Not just economic, but also geopolitical. Wars, sanctions, the fragmentation of global trade, and rising electricity consumption due to digitisation and the development of AI infrastructure have returned energy to its role as one of the key pillars of the global economy.

From a macroeconomic perspective, the energy sector today is underpinned by several concurrent trends:

• Long-term high global demand for oil and gas, which continues to grow despite the development of renewables, particularly in Asia, Latin America and Africa

• Limited supply: after years of being under-invested, oil and gas companies are entering a period where new projects are not enough to fully compensate for the natural decline of old fields.

• Technological transformation of the economy: data centres, artificial intelligence, electro-mobility and the digitisation of industry are dramatically increasing the demands on stable energy supplies.

Electricity consumption in data centres is growing at a rate that is multiples of the rest of the economy, putting the energy infrastructure under pressure.

Today, large energy companies are generating high free cash flow, reducing debt, returning capital to shareholders, and at the same time investing in the transformation of their portfolio, as they are the only ones that can supply the energy needed to run today's highly demanding AI technologies. And large companies are willing to pay often large sums for this energy, otherwise they would not be competitive.

The Vanguard Energy ETF $VDE is constructed as a broad exposure to this entire ecosystem. It tracks the U.S. energy sector and includes oil and gas producers, refining companies, transportation infrastructure and energy services. The result is an ETF that covers the entire energy value chain, from production to distribution.

Importantly from a sector behaviour perspective, energy companies have changed their capital discipline significantly in recent years. After a period of aggressive production growth, most major players now prioritise return on capital, cost optimisation and cash flow stability. This is reflected in lower debt, more stable margins and greater resilience to commodity price fluctuations.

Another important level is the gradual integration of traditional energy with new sources and technologies. Today, large energy companies are investing not only in oil and gas projects, but also in LNG infrastructure, hydrogen technologies, carbon capture and grid upgrades. This is creating a hybrid sector that is less vulnerable to political pressures to decarbonise while retaining a high capacity to generate cash.

Key features of $VDE

• Exposure to the entire energy chain: $VDE includes oil and gas producers, transmission companies, refiners and energy service providers

• Strong link to cash flow and return on capital: energy companies are among the largest generators of free cash flow today.

• Strategic role in the economy: the growth of data centres, the electrification of transport and the digitisation of industry are increasing structural demand for energy

Full table with ETF overview

You can view the full table here.

Conclusion

Markets are returning to more realistic pricing of risk and value as capital shifts. After years of dominance by a narrow set of technology themes, investment focus is broadening towards sectors whose importance is embedded deep in the structure of the global economy. Healthcare, defence and energy are now not marginal market segments, but areas where demographic pressures, geopolitical priorities and the infrastructure needs of modern society intersect.

The current shift reflects a deeper change in what markets consider valuable. Cash flow stability, strategic indispensability and the ability to operate across economic cycles are now taking the reins of growth. And while AI and technology may still have more to offer, these sectors may be able to overtake them.

The fourth quarter provided a clear answer. Strong investment banking activity, resilient trading performance, and disciplined expense management combined into record earnings per share. Crucially, the results suggest that Goldman’s business model can generate outsized profitability even without the support of one-off tailwinds, reinforcing its position as a cycle leader.

How was the last quarter?

In the fourth quarter of 2025, Goldman Sachs $GS reported net revenues of $13.45 billion, with net income of $4.62 billion. Earnings per share were $14.01, a significant year-over-year improvement from $11.95 in the same period last year, and also up from the third quarter. Return on equity reached an annualized level of 16%, confirming high capital efficiency even in a period of rising costs.

The Global Banking & Markets segment was a key driver, generating $10.41 billion in revenue in the fourth quarter. Investment Banking contributed $2.58 billion, with Advisory benefiting from a significant increase in closed M&A activity. Trading activity also saw a strong recovery, particularly in equity derivatives and financing, which benefited from higher client activity and favourable market conditions.

In contrast, the Platform Solutions segment remained a weak spot in the results. Quarterly revenue was negative at minus $1.68 billion, related to write-offs and adjustments associated with the discontinuation of the Apple Card program. However, these negative impacts were largely offset by the release of loan loss reserves.

• Full presentation with results.

Management Commentary

CEO David Solomon's comments highlighted that 2025 represented a return to full performance of the core bank. Management said that investments in sales teams, technology facilities and corporate client relationships were proving to deliver results just as the capital markets were rebounding. The strong performance of investment banking and trading is evidence that Goldman is able to benefit above average from the cyclical recovery, according to management.

At the same time, management noted that despite rising costs, discipline in managing efficiency remains a key theme. Higher employee compensation is seen as a necessary cost of retaining the talent behind strong performance in key segments.

Outlook

Goldman Sachs enters 2026 with a strengthened capital position and a clear signal of confidence in future performance. The increase in the quarterly dividend to $4.50 per share shows that management is confident about the sustainability of earnings in future periods. The bank also expects M&A and capital markets activity to remain elevated, which should continue to support investment banking earnings.

Higher market volatility and the sensitivity of trading results to macroeconomic developments remain a risk. Nevertheless, the outlook is based on the assumption that diversification between advisory, trading and asset management will allow the bank to maintain above-average returns on capital.

Long-term results

Goldman Sachs' long-term track record clearly shows that it is a highly cyclical but structurally strong business whose performance is closely tied to capital market activity. After an exceptionally strong year in 2021, when the bank benefited from record IPO, merger and trading activity, a significant weakening came in 2022 and 2023. Revenues fell to $68.7 billion in 2022 and net income fell by nearly half, reflecting a combination of weaker investment activity, lower asset valuations and subdued trading.

While 2023 marked a stabilization, it was still a period of below-average performance. Revenues rose to $108.4 billion, but operating profit remained relatively low and return on capital was well below the bank's long-term target. Goldman faced criticism from investors at this stage for its higher cost base and the ambiguous benefits of some strategic experiments, particularly in Platform Solutions and consumer financial products.

The turning point came in 2024, which in terms of the long-term trend can be described as a return to the bank's standard cyclical profile. Total revenue grew 17% to $126.9 billion, operating profit increased more than 70% year-over-year to $18.4 billion, and net income reached $14.3 billion. This jump was not the result of a one-time factor, but a combination of a recovery in investment banking, strong performance in equity and interest rate markets, and improved operating leverage.

Working with the cost base is an important structural element of long-term performance. Although absolute operating costs remain high, Goldman has long demonstrated the ability to quickly restore margins when earnings return to growth. EBITDA has grown to $20.8 billion in 2024, confirming that the bank's core business has very strong operating leverage and can generate cash even without extreme market conditions.

Shareholder structure

Goldman Sachs shares are largely held by institutional investors, who control approximately three-quarters of the free float. Vanguard Group, BlackRock and State Street remain the largest shareholders, underscoring the title's character as a core position for long-term investors focused on the financial sector. Insider holdings are relatively low, which is typical of large investment banks with dispersed ownership structures.

Analysts' expectations

Analysts enter 2026 with a largely constructive view of Goldman Sachs. The key argument is a combination of a recovery in investment banking, a strong trading position and disciplined capital management. The bank is expected to be able to maintain a return on equity of around 15 percent even if market activity cools slightly.

Target prices are on average above current levels, with analysts highlighting in particular the potential for further earnings per share growth through buybacks and a stable dividend policy. As a result, Goldman Sachs continues to be viewed as a title that offers a combination of cyclical growth potential and solid capital return for shareholders.

Fair Price

Thanks and take care.

The fourth quarter underscored more than volume growth. It tested TSMC’s ability to translate leadership in advanced nodes into superior margins and earnings quality. Investors focused not only on growth rates, but on revenue mix, profitability, and early signals for 2026—key indicators of how durable this advantage may be.

What was the last quarter like?

TSMC $TSM reported consolidated revenue of 1.046 billion Taiwan dollars in the fourth quarter of 2025, representing a year-on-year growth of 20.5% and a quarter-on-quarter improvement of 5.7%. The significant acceleration was mainly driven by continued strong demand for the most advanced manufacturing nodes, particularly from customers focused on AI accelerators, data centers and high-end mobile chips. In dollar terms, sales reached $33.7 billion, confirming that growth was not simply a currency effect, but a reflection of real volume expansion and pricing power.

The company's profitability reached an extraordinary level at the end of the year. Net profit rose 35% year-on-year to TWD 505.7 billion, with earnings per share reaching TWD 19.50. Gross margin moved to 62.3%, operating margin to 54.0% and net margin to 48.3%, clearly showing that TSMC can grow not only in volume but also with very high operating efficiency. Such high margins are rather exceptional in the capital-intensive semiconductor industry and confirm the company's structural advantage.

The technology mix of revenues was also an important element of the results. Three-nanometer processes already accounted for 28% of total wafer revenues, five nanometers accounted for 35% and seven nanometers 14%. Overall, advanced technologies defined as 7 nm and better accounted for 77% of wafer revenues. This means that TSMC is increasingly exiting lower-margin legacy nodes and moving towards high-value orders where it has a virtually unassailable position.

• Full presentation with results.

Management commentary

In his comments, CFO Wendell Huang highlighted that the fourth quarter performance was clearly underpinned by strong demand for the most advanced manufacturing technologies. He also confirmed that this trend is expected to continue into early 2026. Management is implicitly suggesting that the current demand is not a short-term blip, but part of a broader structural shift towards compute-intensive applications.

Management also pointed to the high visibility of lead-edge process orders, which puts the firm in a relatively comfortable position for production and capital expenditure planning. This is particularly key in an environment where most competitors are still struggling with the return on investment in the latest technologies.

Outlook

For the first quarter of 2026, TSMC expects revenue in the range of $34.6 billion to $35.8 billion, which would represent further quarter-on-quarter growth. Gross margin is expected to be between 63% and 65% and operating margin between 54% and 56%, levels that confirm continued operating leverage. These projections suggest that the company enters the new year with very strong momentum.

At the same time, management announced a 2026 capital budget of $52 billion to $56 billion. This confirms an aggressive investment strategy focused on expanding capacity at the most advanced nodes, but also suggests that TSMC is confident of recouping these investments through long-term contracts with strategic customers.

Long-term results

A look at the long-term trend shows that 2024 represented a turning point for TSMC. Total sales grew nearly 34% year-on-year to 2.89 trillion Taiwan dollars, while net profit increased 36% to 1.16 trillion. This growth followed a weaker 2023, when the company faced a temporary cooling in demand, and confirmed TSMC's ability to adapt quickly to changes in the cycle.

More importantly, the development of operating profitability. Operating profit grew by more than 43% and EBITDA by more than 30% in 2024, showing that revenue growth was not offset by a disproportionate increase in costs. The cost base did grow, but at a significantly slower rate than revenue, confirming strong operational discipline and efficient use of capital.

Over the long term, it is evident that TSMC has been able to maintain a stable number of shares outstanding, which means that earnings per share growth is driven primarily by actual improvements in performance, not financial adjustments. This factor is crucial for long-term investors as it increases confidence in the quality of reported results.

News

The most significant event of the quarter was the further strengthening of the share of three-nanometer production, which is becoming the main driver of margins. At the same time, the company continues to prepare for the next generation of manufacturing processes, which should maintain its technological edge in the coming years. The 2026 capital budget indicates that capacity expansion remains a key strategic priority.

Shareholding structure

TSMC's shareholding structure remains stable and relatively conservative. Institutional investors hold approximately 16% of the shares, with FMR, JPMorgan Chase and Capital World Investors among the largest. The low share of insiders underscores the firm's character as a widely held global leader whose stock serves as long-term exposure to a technology megatrend rather than a speculative title.

Analyst expectations

The analyst consensus is shifting towards continued growth in 2026 following the results, with the combination of strong demand for AI chips, high order visibility and TSMC's ability to maintain margins at historically high levels being key drivers. At the same time, analysts point out that it is the technological dominance in 3nm and future 2nm processes that creates a barrier to entry that competitors are struggling to catch up to.

Part of the market, however, remains cautious due to high capital expenditure and geopolitical risks. Still, the prevailing view is that TSMC remains a key "must have" title for investors who want long-term exposure to the growth of computing power and artificial intelligence.

Fair Price

Merck remains heavily powered by oncology today, but the strategic challenge is what comes next. Late-decade revenue cliffs force large pharma to balance internal R&D timelines against the uncertainty of biotech innovation. Revolution Medicines fits that logic precisely: cutting-edge, high-risk targets with the potential to anchor an entirely new oncology platform rather than simply extend an existing franchise.

Top points of the analysis

• Merck views the acquisition of Revolution Medicines as a long-term bet on the future of oncology.

• The value of the target lies in the pipeline, not in current revenues.

• The price of around $30 billion reflects strategic value and competitive pressure.

• The acquisition carries high potential, but also clinical and integration risks.

• For Merck, it is a test of capital discipline and long-term vision.

What does Merck really want to buy?

The key point of the whole transaction is that Revolution Medicines does not generate significant revenues today. The company's value lies not in its current cash flow, but in its research and clinical pipeline. This dramatically changes the way an investor must think about the $28-32 billion price tag.

Revolution is focused on RAS inhibitors and related signaling pathways, an area that has been considered an "elusive target" in oncology for decades. It is only in recent years that technological advances are showing that it is possible to target these mechanisms selectively and with potentially breakthrough clinical impact. If even a part of this pipeline were to reach late-stage development successfully, the economic potential could be enormous.

From Merck $MRK s perspective, this is about buying time and probability. In-house development of cancer drugs is long, costly, and has a high failure rate. Acquiring Revolution Medicines would mean immediately bolstering the portfolio with projects that are already several years ahead of the competition. This is exactly the type of asset that big pharmaceutical companies are willing to pay a premium for.

Why now: strategic timing of the acquisition

The timing of these deals is not coincidental. The pharmaceutical sector is entering a phase where the battle for quality oncology assets is intensifying, while the number of truly differentiated biotech firms is limited. In such an environment, pricing is not based on accounting multiples but on strategic value.

Moreover, Merck has a very strong balance sheet and stable cash flow, which allows it to consider large transactions without jeopardizing its dividend or investment grade rating. In an environment where the organic growth of large pharmaceutical companies is gradually slowing down, acquisitions are becoming a key tool to sustain long-term EPS growth.

One important signal is the fact that AbbVie $ABBV was also reportedly interested in Revolution Medicines. Although AbbVie has officially denied the negotiations, the very existence of this speculation suggests that this is not a marginal asset, but a highly valued target that the big players may be vying for.

Is a price of around $30 billion defensible?

From the perspective of traditional valuations, a price of $30 billion may seem extreme. Revolution Medicines does not have stable revenues, does not generate profits, and its value is based on projects that have yet to go through clinical development. From a purely financial perspective, such an acquisition would not make sense if judged by the same metrics as established pharmaceutical companies.

In biotechnology, however, a different logic applies. If one or two of Revolution Medicines' key programs achieve approval and commercial success, potential annual revenues could be in the multi-billion dollar range. In such a scenario, the acquisition could pay for itself within a product generation, especially if Merck can leverage its global distribution network and regulatory expertise.

At the same time, the price must be considered to reflect the competitive environment. If multiple large players are interested in the same target, a premium valuation is virtually inevitable. For Merck, the issue is thus rather binary: either pay a premium today or risk losing key oncology assets.

Acquisition risks: clinical, integration and capital discipline

The biggest risk of the whole deal remains clinical development. The history of biotechnology is littered with cases where promising projects have failed in late-stage testing. If Revolution Medicines' core programs prove less effective or problematic from a safety perspective, the economic logic of the acquisition would quickly unravel.

Another risk is integration. Biotechnology companies often operate in a different cultural and organizational mode than pharmaceutical giants. Too rapid or rigid integration can lead to a loss of talent, a slowdown in development or a weakening of the innovative spirit that was the original reason for the acquisition.

From a Merck shareholder perspective, capital discipline is also important. While a $30 billion acquisition is manageable, it limits flexibility for other transactions or share buybacks. Thus, an investor must consider whether the potential future growth will outweigh the short-term capital burden.

Probability of pipeline success vs. price paid

In the acquisition of a biotechnology company for approximately $30 billion, it is crucial to abandon the intuitive "what if it works" question and replace it with "what is the probability that it will work - and how much are we paying for that probability." Merck is not buying a finished product, but a set of clinical programs, each of which carries binary risk.

Historical clinical development data shows that the probability of success varies significantly by phase. Candidates in Phase 1 have a long-term probability of approval of around 10-15%, in Phase 2 around 25-35% and in Phase 3 around 50-60%. Thus, if a substantial portion of the value of Revolution Medicines is based on Phase 1-2 projects, this means that Merck is implicitly paying for a relatively low probability of success, albeit with a very high potential return.

For an equity investor, how much of the purchase price is concentrated in one lead candidate is crucial. If, for example, 60-70% of the economic value of an acquisition depended on a single program, then the transaction is significantly more binary than it would appear at first glance. In contrast, a diversified pipeline with multiple independent mechanisms would mean that Merck is buying a portfolio of probabilities, not a single "all-in" bet.

Portfolio Revolution Medicines

Impact on Merck's return on equity (ROIC vs. WACC)

From a shareholder perspective, the key question is whether this acquisition will increase or decrease Merck's long-term return on capital. Merck has a relatively low cost of capital, typically estimated at around 7-8%, which means that any large acquisition must generate a return above this threshold over time to be value-creating.

At a purchase price of around $30 billion, an acquisition would have to generate roughly $2.5-3 billion in annual operating profit in the steady state to get above WACC. This implicitly assumes that at least one of the major programs achieves blockbuster status, or that multiple programs collectively generate significant and stable cash flow.

However, if the pipeline yields only moderately successful products that generate lower margins or shorter life cycles, the ROIC of the acquisition could be below the cost of capital over the long term. In such a case, the transaction would function more as a defensive move to maintain sales than as a true driver of shareholder value creation.

Opportunity cost: what Merck is sacrificing with this acquisition

Any acquisition of this size has significant opportunity costs that are often underestimated. Investing $30 billion in one target means that Merck:

• limits the scope for other large M&A

• reduces flexibility for share buybacks

• and increases the dependence of future growth on the success of one strategic bet

From a purely financial perspective, alternative uses of capital - such as more aggressive buybacks - could boost EPS in the short term with significantly less risk. Therefore, the acquisition of Revolution Medicines only makes sense if management believes that the long-term growth benefits outweigh this more certain but less ambitious alternative.

For the long-term investor, it is critical to monitor whether this transaction increases the concentration of risk. If Merck's future growth begins to rely predominantly on the success of a single acquisition, the volatility of expected returns increases. Conversely, if the acquisition is clearly embedded in a broader strategy and complements the existing portfolio, even a high price may be defensible.

Specific market Merck is targeting: oncology and targeted therapies for RAS

The acquisition of Revolution Medicines is not an abstract bet on "biotech innovation", but a very concrete move into the fastest growing part of the global pharmaceutical market - oncology. Merck already generates a substantial portion of its revenues from oncology medicines, and this segment is a key pillar of its long-term strategy. It is therefore not about entering a new market, but about deepening exposure where the company already has the infrastructure, relationships with regulators and commercial strength.

The global oncology market is currently around US$230-250 billion per annum and long-term estimates envisage growth of 8-10% CAGR at least into the first half of the 2030s. This growth is not only driven by demographics, but primarily by the shift from chemotherapy to targeted and personalised treatments where margins are higher, treatments are longer lasting and barriers to entry are significantly stronger. This is where Revolution Medicines is heading in the value chain.

Even more specifically, the focus is on RAS signaling pathways, which play a key role in some of the most common and deadliest cancers, including lung, colorectal and pancreatic cancer. Historically, this has been an area where development has failed, ironically creating a huge unaddressed market. But once it became clear that RAS could be targeted selectively and safely, it became one of the most desirable segments of cancer research.

The size of the opportunity: why it could be a billion-dollar business

From an investment perspective, the key point is that targeted cancer therapies in successful indications routinely generate annual revenues in the range of US$2-6 billion per drug. If even a single Revolution Medicines program were to succeed in a broader indication with high prevalence, the economic potential would quickly justify much of the acquisition price.

Moreover, it is not just the size of the market, but its structure. Oncology drugs typically have:

• long periods of exclusivity

• high switching costs for patients and physicians

• and relatively low price elasticity

This means that a successful product is not just a source of revenue, but of stable, high-quality cash flow that can be expanded over time with new indications and treatment combinations. Combination therapy is where Merck can leverage its existing portfolio and create synergies that a stand-alone biotech could not monetize.

Importantly, the growth of the oncology market is not cyclical. It does not depend on the economic cycle, consumer sentiment or interest rates. Thus, for Merck shareholders, this exposure acts not only as a growth engine, but also as a valuation stabilizer during periods of macroeconomic uncertainty.

Investment Scenarios: How might this acquisition play out?

Scenario A: "Strategic Jackpot"

• Revolution Medicines' one core program becomes a blockbuster (revenues >$5 billion per year).

• Merck leverages global distribution and clinical expertise to accelerate adoption.

• Acquisition becomes clearly value-creating.

Impact:

• Acquisition increases long-term EPS growth.

• ROIC rises above cost of capital.

• The market retroactively considers the $30 billion price tag cheap.

Investment Interpretation: Acquisition fundamentally strengthens Merck's long-term story as an oncology leader.

Scenario B: "Defensive success"

• Pipeline delivers one or two solid products, not a breakthrough.

• Sales are significant, but below blockbuster levels.

• Acquisition offsets future shortfalls but does not deliver significant additional growth.

Impact:

• EPS stagnates in the short term, stabilizes in the long term.

• ROIC is close to WACC.

• Acquisition is strategically defensible, but not above standard.

Investment interpretation: Merck is "buying time" and stability, not extraordinary returns.

Scenario C: "Expensive insurance"

• Key programs fail or are significantly delayed.

• Merck has to write off part of the value.

• The market begins to question management's capital discipline.

Impact:

• One-time write-downs, pressure on EPS.

• ROIC below WACC.

• Stock under pressure due to loss of confidence, not core business.

Investment interpretation: not an existential problem, but an unnecessarily expensive capital allocation mistake.

Scenario D: "No acquisition"

• The transaction ultimately does not go through (price war, regulation).

• Merck must look for another growth engine.

• Short term positive market reaction, long term open growth question.

Impact:

• Better capital flexibility.

• Risk that Merck will pay more elsewhere later.

Investment interpretation: Neutral in the short term, strategically uncertain in the long term.

Summary of scenarios:

In the base case scenario, Merck completes the acquisition, Revolution Medicines' core programs progress through clinical development without major complications, and the company gradually integrates new oncology projects into its portfolio. The acquisition will have a neutral to slightly negative impact on EPS in the short term, but will strengthen the company's growth profile in the long term.

The optimistic scenario envisions one or more of Revolution Medicines' programs becoming blockbusters. In that case, today's price would in retrospect appear to be very strategically advantageous and Merck would secure a dominant position in the next wave of targeted cancer therapies.

The negative scenario occurs in the event of clinical failure or significant development delays. In this case, Merck would face write-downs and investors would start to question its capital allocation. However, this scenario represents a risk that is inseparable from the potential return in biotechnology.

What to take away from the article

• This transaction is not about short-term growth, but about securing a future portfolio.

• Merck wants to buy the probability of a breakthrough, not certain cash flow.

• The price may seem high, but it is not unusual in the context of oncology.

• The risk of clinical failure remains a major factor of uncertainty.

• For Merck shareholders, it is a bet that external innovation will complement internal development.

US inflation since 2017

Markets, which at the beginning of the year had begun to adopt a sense of certainty about the economy, suddenly find themselves back in the uncertainty that dominates one of the key macroeconomic themes - inflation. After a series of reassuring data that suggested that price pressures were slowing, new inflation data has again delivered worrying news. While the latest inflation data did not show a dramatic surprise, a deeper look at the structure of the data reveals persistent pressures, particularly in service prices and rents, which continue to pull headline inflation higher and may have a greater impact on the market's existing expectations for interest rates and economic growth.

Despite relatively steady consumer price growth of 2.7% y/y in December, the inflation picture remains deeper and more complicated than the headline numbers suggest, and markets are beginning to give it more weight. Our team's detailed analysis of the data shows that the main inflationary pressures are coming from rising food prices and rents, which are dragging headline inflation higher even as core inflation remains relatively subdued. This suggests that the inflation base is broader and less prone to rapid declines, raising the risk that the pace of price increases will remain above central banks' target levels for an extended period. And markets don't like to see that.

As a result, expectations about the future direction of interest rates also change almost daily. Markets were initially betting on a significant rate cut later in the year, but more recent data is causing a gradual reduction in these expectations, which have continued to fall since the last rate cut in December. Although some inflation data came in as expected, as was the case in December, where price growth was in line with forecasts, the overall context still signals pressure to keep rates higher for longer than expected. This is putting pressure on valuations.

Moreover, political disagreements further complicate the outlook for rates. In addition to the standard economic indicators, public debates and political pressures on the Fed have begun to come into play, including calls for rate cuts based on the latest inflation data. All of this is weighing on the Fed at a time when the central bank is - by some officials' own admission - still cautious about moving to aggressive monetary easing. This adds to the uncertainty: markets are sensitive to any hint of a change in rhetoric from central bankers as well as to actions from the policy sphere that may indirectly affect investors' expectations.Thus, in recent days, we have seen increased volatility in the markets, to which, in addition, the start of earnings season is beginning to contribute.

Earnings calendar for next week - you can view it here

But according to this study, inflation does not arise as an isolated phenomenon, but is closely related to labour market dynamics, expectations and structural factors in the economy. The study shows that wage cost pressures can be a significant factor in inflation dynamics, especially in an environment where the labour market is tight. Just as is the case now.

This combination of data and market expectations creates an environment in which monetary policy is increasingly dependent on the interpretation of labour market data. The Fed, which is trying to balance between stabilizing prices and supporting economic activity, now faces the dilemma of whether to keep rates at higher levels for longer to tame inflationary pressures or to lean towards easing in the face of slowing growth.

US interest rate developments since 2019

Uncertainty about inflation and monetary policy is not only reflected in macroeconomic indicators, but translates directly into financial asset prices, their volatility and portfolio allocation. According to this article, equity markets are sensitive to interest rates and the cost of capital. For example, the financial sector, which has traditionally benefited from higher rates due to wider interest margins, faces more volatile yield curves and uncertain expectations about future rates in this environment, which is reflected in the weakening of bank stocks and broader financial indices.

As markets gradually reduce the likelihood of widespread rate cuts, valuations of risky assets are changing. Growth titles may weaken, while defensive stocks may experience gains these days. Research confirms that during periods of heightened inflation uncertainty, commodities provide investors with some diversification benefits and serve as a hedge against losses in equity markets with a high risk premium.

Similar changes are occurring in bond markets, where increasing uncertainty about future rates is leading to a flattening of yield curves and higher volatility in short-term instruments. Short-term yields respond more strongly to changes in expected Fed policy, while long-term yields reflect broader inflation expectations. This divergence is putting pressure on bond prices, which are now under pressure from uncertainty about the direction of rates and expected inflation trends. The result is a higher risk of capital losses on fixed income assets in portfolios.

US 10-year Treasury bond yield chart (US10Y) - weekly

The inflation-related volatility that now accompanies the markets is multidimensional: it is the result of both worse-than-expected data and changes in Fed policy expectations, as well as changes in investor behaviour, which react more quickly to impulses and market signals. Statistics from the options markets show that implied volatility in the major indices has increased to levels that suggest uncertainty about near-term growth, which is typical in environments where the balance between growth and inflation is fragile.

Ultimately, the current market environment does not appear to be the classic inflationary cycle that investors have been used to in past decades, but rather a period of longer-term price volatility where short-term data are no longer decisive in their own right. While inflation may look reassuring (although it is still above the Fed's target, it is significantly lower than in previous years) the deeper pattern of price increases, particularly in services, housing and wage costs, shows that the inflationary process is much more firmly embedded in the economy than a scenario of a rapid return to low inflation would suggest.

This mismatch between the surface reading of the data and its internal dynamics is a major source of the current uncertainty in the markets, as highlighted by a Reuters analysis which points out that inflation in the United States is stronger than it first appears and that the disinflationary process may be significantly slower than what the markets were counting on until recently.

Moreover, there is a political dimension to this environment. Public calls for rate cuts are opposing the central bank's cautious approach and creating tensions that are being reflected in bond yields, the dollar and equity valuations.

From a longer-term perspective, inflation is thus still one of the key issues affecting not only central bank decision-making but also the structure of economic growth, corporate profitability and the attractiveness of individual sectors. Research and data increasingly show that inflationary uncertainty itself acts as a drag on investment, increasing the risk premium investors demand from equities and leading to more fragmented markets where differences between sectors, regions and business models are growing.

The fourth quarter begins to change that framing. Growth across Services, Markets, Banking, and Wealth suggests the core engine is strengthening, even as headline results remain distorted by one-off items. Combined with a $17.6 billion capital return, the message is that Citi is moving closer to a phase where execution—not restructuring—defines the investment case.

How was the last quarter?

Citigroup $C posted net income of $2.5 billion in the fourth quarter of 2025, equivalent to earnings per share of $1.19. On the face of it, this is a year-over-year decline from $2.9 billion in the same period of 2024, but the key is the adjustment for a significant one-time item related to the planned sale of Citibank's Russian AO. Excluding this item, net income was $3.6 billion and adjusted EPS was $1.81, which significantly changes the interpretation of the results.

Revenue was $19.9 billion, up 2% year-over-year, but adjusted for the Russian item, revenue grew 8%. The Banking, Services, U.S. Personal Banking and Wealth segments were the main drivers. Net interest income grew 14% year-on-year, while non-interest income on a reported basis declined significantly due to one-off effects. Operating expenses increased 6% to $13.8 billion, primarily due to higher personnel costs, technology investments and legal expenses, which continue to pressure efficiency.

The provision for credit losses was $2.2 billion, down year-on-year. Net credit losses were lower, particularly in the U.S. Personal Banking segment, indicating stabilization in the consumer portfolio. The loan book as a whole grew, with average loans reaching $737 billion, while average deposits increased 8% year-over-year to about $1.4 trillion.

• Full presentation with results.

CEO commentary

CEO Jane Fraser described 2025 as a period of "significant progress" and highlighted that all major business lines achieved record revenues and positive operating leverage. Her comments indicate that management views 2025 as a transition phase in which the results of long-term investments are beginning to materialise.

Fraser also highlighted the return of capital to shareholders, which reached $17.6 billion in 2025, of which approximately $13 billion was in the form of share buybacks. This move is key to restoring investor confidence as it signals that the bank is no longer in purely defensive mode and can combine transformation with capital distribution.

Outlook

Citigroup enters 2026 with a clearly articulated goal of achieving a return on tangible common equity (RoTCE) of 10-11%. This would represent a significant improvement on the 8.8% achieved in 2025, adjusted for one-off items. Management expects Services and Markets to be the main drivers of growth, benefiting from a global client base and higher transaction activity.

At the same time, the outlook remains contingent on the ability to keep costs under control and further simplify the bank's structure. Citigroup still has lower efficiency than its main competitors, and it is operating leverage that will be the deciding factor in whether the targets can be achieved.

Long-term results

A long-term view of Citigroup's performance shows a bank that has gone through a significantly volatile period. Total revenues have grown from just under $80 billion in 2021 to over $170 billion in 2024, with the biggest jump coming in 2022 as interest rates rise. Since then, there has been a noticeable effort to stabilize the revenue base and reduce reliance on cyclical factors.

However, operating profit has been at much lower levels in recent years than before the pandemic. While it was nearly $27.5 billion in 2021, it declined significantly in 2022 and 2023 and only started to pick up towards $17 billion in 2024. Net profit shows a similar picture - after falling in the restructuring years, it is up more than 37% year-on-year in 2024, but still remains below historical highs.

A positive element of the long-term trend is the systematic reduction in the number of shares outstanding, which helps stabilize earnings per share even in periods of weaker profitability. At the same time, tangible book value per share is increasing, reaching $97.06 at the end of 2025. Thus, over the long term, Citigroup is showing improving capital discipline, although operating performance has not yet fully caught up with its major U.S. peers.

Shareholder structure

Citigroup's shareholder structure is heavily institutional, with more than 80% of shares held by institutional investors. The largest are BlackRock, Vanguard and State Street. The low proportion of insiders suggests a management-driven model rather than a founder-driven structure, which is typical for a global banking group of this type.

Analyst expectations

The analyst consensus views Citigroup as a title with high potential but also with elevated risk. The key factor remains the ability to meet 2026 ROE targets. If the bank manages to approach the 10-11% RoTCE threshold, valuation may be revised towards book value.

On the other hand, analysts caution that any slowdown in the global economy, rising credit losses or other one-off costs could slow this process significantly. Thus, Citigroup remains primarily betting on the successful completion of the transformation.

Fair Price

Bank of America’s fourth-quarter results tell a different story. Stable revenue generation, resilient loan demand, easing credit losses, and improving operating efficiency suggest the bank is entering the next phase of the cycle from a position of strength. The narrative is no longer about protecting capital, but about selectively redeploying it as conditions normalize.

How was the last quarter?

The fourth quarter of 2025 brought Bank of America $BAC s net income to $7.6 billion, up roughly 12% year-over-year and an increase in earnings per share to $0.98. Total revenue, adjusted for interest expense, was $28.4 billion, up 7% from the same period last year. The key driver was the growth in net interest income, which rose 10% to $15.8 billion, despite the gradual decline in rates.

The evolution of lending activity was also a positive sign. Average loans and leases rose 8% year-on-year to $1.17 trillion, with growth evident in all major segments - from consumer loans to small business to corporate clients. Average deposits reached $2.01 trillion and grew for the tenth consecutive quarter, confirming the Bank's strong funding position.

On the risk side, there was a slight improvement. Loan loss provisioning fell to $1.3 billion and net charge-offs declined to the same level, indicating a stabilization of the credit cycle. At the same time, operating efficiency improved, with the cost-to-income ratio falling to 61%, an improvement of almost two percentage points year-on-year.

• Full presentation with results.

Segment performance

Consumer Banking remained the largest pillar of the Group. This segment generated net income of $3.3 billion on revenue of $11.2 billion, up 5% year-on-year. The Bank continued to strengthen its dominant position in the US deposit and retail banking market. Combined card payments reached $255 billion, up 6% year-on-year, and digital channels accounted for nearly 70% of all sales.

The Wealth and Investment Management division benefited from favorable capital markets. Segment net income reached $1.4 billion and revenue grew 10% to $6.6 billion. Client assets under management reached $4.8 trillion, up 12% year-on-year, and positive net capital inflows confirm the return of investor confidence.

Corporate and investment banking posted a solid performance. Net income of $2.1 billion was mainly supported by growth in transaction services and treasury products. Investment banking maintained its third place in the global fee rankings, while corporate deposits grew by 13%.

Markets trading contributed a net gain of $1 billion. Trading revenues grew 10%, with equity trading posting strong growth of 23%. Fixed income remained stable, reflecting lower volatility in bond markets.

CEO comment

In his comments, CEO Brian Moynihan highlighted that the bank closed 2025 with over $30 billion in net income and 19% year-over-year earnings per share growth. His words show that management views the results not only as evidence of resilience, but also as confirmation of the right strategic direction. Moynihan repeatedly highlighted the combination of revenue growth, positive operating leverage and improving efficiencies that have led to improved returns on capital.

His view of the macroeconomic environment is also interesting. The CEO acknowledged lingering risks, but also said that consumers and businesses remain relatively healthy and that the bank enters 2026 with optimism about continued U.S. economic growth. This tone is important because it suggests that Bank of America does not feel defensive, but rather ready to take advantage of any improvement in economic activity.

Outlook

Bank of America's outlook for the period ahead rests on several key pillars. The first is the evolution of net interest income, which, even in an environment of gradually declining rates, should benefit from higher loan volumes and a stable deposit base. Management has repeatedly stressed that volume growth and balance sheet structure will play a bigger role in 2026 than the level of rates themselves.

The second pillar is cost control and efficiency gains. The improvement in the efficiency ratio to 61% in the fourth quarter shows that the bank can absorb some of the inflationary pressures while investing in technology and people. The third pillar is returning capital to shareholders. In the fourth quarter, the bank returned $8.4 billion to shareholders through dividends and share repurchases, underscoring management's confidence in the bank's capital strength.

Long-term results and trend

Looking at Bank of America through the lens of the past four years, we see a classic story of a bank undergoing a rapidly changing environment - from a post-covetous recovery to an inflation shock to a period when the market began to address what rate normalization would do to net interest income and credit quality. At the revenue level, the firm has strengthened significantly between 2021 and 2024: total revenue has grown from about $93.9 billion in 2021 to $192.4 billion in 2024. That in itself looks like a huge jump, but it needs to be read correctly - much of this growth has been driven by the interest rate component and "higher rates" as a macro tailwind. By 2023, the bank had already reported $171.9 billion, and then 2024 added another growth of just under 12%.

However, profitability was not linear over that period and that is what matters to investors. Operating profit fell between 2021 and 2022 (from roughly $34.0 billion to $31.0 billion), reflecting a combination of higher costs, changes in revenues, and a run-up in reserves in some part of the portfolio. In 2023, there was a further decline in operating profit to USD 28.3 billion, and only 2024 brought a slight improvement to USD 29.3 billion. In other words, revenue grew strongly but operating profit stabilised more sideways - a typical signature of an environment where banks are earning interest income but paying a "tax" in the form of investment, wage inflation, higher compliance costs and more careful credit risk management.

From a net profit perspective, the picture is similarly important. The bank has managed to keep net profit in a relatively narrow range: $32.0 billion in 2021, $27.5 billion in 2022, $26.5 billion in 2023 and $27.1 billion in 2024. That said, despite significantly higher revenues, net profit has not yet returned to 2021 levels. At first glance, this may look like a weakness, but the key to the long-term reading is that the bank was also intensively reducing the number of shares outstanding at the time, which supported earnings per share. The average number of shares fell from roughly 8.49 billion in 2021 to 7.74 billion in 2024. As a result, EPS in 2024 reached $3.25, slightly above 2023 ($3.10) and 2022 ($3.21). The bottom line is that even as absolute net income stagnates, some value materializes for shareholders through buybacks and higher EPS.

Another thing that stands out from the long-term data is the cost structure. Operating costs have been significantly "sticky" in recent years - $59.7bn in 2021, $61.4bn in 2022, $65.8bn in 2023 and $66.8bn in 2024. In practice, this means the bank is carrying a higher cost base into the next period and needs either further revenue growth or an acceleration in efficiency to start stretching margins again. That's why the shift in efficiency (efficiency ratio of 61% and year-on-year improvement) is so important in the current Q4 2025 - it's a signal that management is no longer just "holding on" but is gradually squeezing more productivity out of the cost base.

Shareholding structure

Bank of America's shareholder base is stable and strongly institutional. Approximately 70% of shares are held by institutional investors, with Vanguard, Berkshire Hathaway and BlackRock among the largest. Berkshire Hathaway's significant stake underscores the long-term confidence of conservative investors in the bank's business model. Insider ownership remains relatively low, which is standard for banks of this size.

Analyst expectations

Analysts enter 2026 with a mostly neutral to slightly positive outlook. The consensus expects modest earnings growth driven by a combination of higher loan volumes, stable asset quality and continued share buybacks. The bank's sensitivity to rate movements remains a key theme, but there is also a growing focus on fee income from wealth management, transactions and digital services.

A number of analyst houses have warned that if the US economy avoids a major recession in 2026, Bank of America could gradually improve its return on capital and return to pre-2022 levels. At the same time, however, the risk remains a potential deterioration in consumer credit or a faster decline in rates that could pressure net interest income.

Fair Price

According to the bank’s analysts, 2026 represents an inflection point. Operational normalisation, the full realisation of integration synergies, and the return of operating leverage are converging. The narrative moves away from survival mode toward optimisation—creating the conditions for a meaningful re-rating rather than a temporary bounce.

Top points of the analysis

• Bank of America sees price growth potential of around 27% for the selected title.

• The main catalyst is a turnaround in profitability and strong upward EPS revisions.

• Acquisition integration and return of operating leverage improve margins.

• Valuation still does not reflect normalised earnings potential.

• 2026 is set to be the first fully "normal" year post restructuring and integration.

Company profile and business model

Alaska Airlines $ALK is a major regional airline in the United States with a strong presence on the West Coast and in the northern US. The company operates in a segment that is highly competitive, capital intensive and sensitive to the economic cycle, while offering significant operating leverage during periods of recovering demand.

A key element of the current story is the integration of Hawaiian Airlines, which fundamentally changes the profile of the company. It's not just about fleet or destination expansion, but a combination of networks, customer segments and revenue mix. This is where synergies open up that can gradually improve unit revenues and cost efficiency.

The business model is built on a combination of a strong position in domestic traffic, growing exposure to premium passengers and the return of corporate demand. These are factors that increase revenue stability and reduce dependence on the pure price-sensitive leisure segment.

Why Bank of America sees significant upside

Bank of America $BAC ranks the stock among its top small and mid-cap ideas for 2026, with implied upside potential of around 27-30%. The key reason is not short-term factors, but a combination of fundamental turnaround and significant positive revisions to earnings expectations. Roughly 90% of the titles on the list have seen consensus EPS growth in recent months, with the median revision being +8%.

In the case of this company, analysts are betting that 2026 will be the first period where the synergies of integration, cost stabilization and normalization of operations will be fully realized. This should translate into EPS growth in the tens of percentages compared to the weaker previous years, which were marked by volatile demand and high costs.

Importantly, Bank of America's investment thesis is not based on revenue expansion at any cost, but on improving earnings quality. This means higher operating margins, better fleet utilization and more stable cash flow, factors that the market typically values at a higher multiple.

Financial performance: return to profitability after volatile years

The results for the last four years show the extreme volatility typical of the entire aviation sector. The year 2021 was still heavily impacted by the pandemic, while the period 2022-2024 brought a gradual recovery in revenues and strong growth in absolute profits. Revenues in 2024 reached approximately USD 11.7 billion, more than double the 2021 levels.

Net income climbed to approximately US$395 million in 2024 and EPS exceeded US$3, signaling a return to profitability. Still, margins remain relatively low, with a net margin of around 1%, which explains why the market has been cautious on the title so far.

For investors, however, the pace of change is key. Both operating profit and EBITDA are growing at double-digit rates and operating leverage is starting to work. This lays the foundation for a more significant improvement in profitability in the coming years if costs can be kept under control.

Cash flow and capital intensity

Operating cash flow exceeds $1.4 billion in 2024, confirming the ability to generate cash even with relatively low accounting margins. Capital expenditure remains high, mainly due to fleet renewal, and capex is around US$1.3 billion per annum.

Free cash flow is therefore volatile but has returned to positive in 2024. This is important in terms of reducing debt and stabilising the balance sheet. A growing cash position increases flexibility during periods of higher investment and reduces the risk of needing additional external financing.

In the long term, the aviation business remains capital intensive, but the combination of higher operating cash flow and a gradual decline in the investment cycle should lead to improved financial stability.

Balance sheet and debt

Total debt exceeds USD 6 billion and net debt is around USD 5.2 billion. The debt-to-equity ratio is elevated and the interest coverage ratio of around 2.5x suggests that the company is still operating with a tighter balance sheet than before the pandemic.

On the flip side, rapid EBITDA growth is helping to improve these ratios gradually. Investors here are betting that the normalization of profitability will be faster than the pace of further deleveraging. This momentum is one of the main sources of potential overvaluation of the stock.

Thus, the balance sheet today represents a transitory risk rather than a structural problem if the scenario of continued earnings growth comes to pass.

Management and management

The company is headed by Benito Minicucci, who has been CEO since 2021 and came to the company with many years of experience in the aerospace industry. His tenure is closely linked to the restructuring period, the recovery from the pandemic and now, most importantly, the integration of Hawaiian Airlines.

Minicucci profiles as a manager focused on operational efficiency, customer experience and disciplined capital allocation. Under his leadership, the company has not relied on aggressive capacity expansion, but on optimizing its network and revenue mix. This is key to returning margins in an industry where volume without profitability has no value.

From an investor's perspective, it is important that the current management communicates realistic expectations and emphasizes long-term stability, not short-term cosmetic improvement in results.

Valuation: Why low multiples are not a warning but an opportunity

At first glance, the stock's valuation looks contradictory. A P/E over 40 evokes an expensive title, but the reality is more complex. This ratio is heavily skewed by low current profitability and does not reflect the normalized state of the business. In the airline sector, therefore, it is much more relevant to look through EV/EBITDA, where the stock trades at around 9 times, below historical averages in periods of stable operations.

From a revenue perspective, the stock is at 0.4× P/S, implying that the market is still discounting structural margin weakness. This is key: if operating margins were to move even one or two percentage points higher, the implied value of the firm would change significantly faster than sales alone. Valuation is therefore extremely sensitive to the quality of earnings, not their volume.

The view of return on capital is also important. An ROIC of around 1.6% clearly shows that the firm is still in a transition phase. This is where the core of the investment thesis lies - if ROIC starts to approach the cost of capital, the market can reprice the stock significantly higher without the need for an aggressive pace of earnings growth.

Competition and sector position

Compared to the largest U.S. carriers, the company operates as a smaller, more agile player with regional dominance. Compared to the global giants, it has less bargaining power, but also less complexity and a faster ability to adapt.

Compared to low-cost carriers, it offers a higher quality of service and a better position in the premium segment, which increases unit revenues. It is this middle position between legacy carriers and the low-cost segment that is a key element of the investment thesis.

Competition: where the company has an advantage - and where it loses out

Delta Air Lines $DAL - Delta is a symbol of quality in the US airline sector. It has a stronger balance sheet, higher margins and more stable cash flow. The downside, however, is its size and lower flexibility. While Delta is already valued as a quality "legacy carrier", Alaska has room for a catch-up effect if its margins start to approach the sector.

United Airlines $UAL - United offers greater international exposure and growth potential, but at the cost of higher volatility and investment requirements. By comparison, Alaska is more regionally stable and less capital aggressive. This reduces risk in a recession, but also limits the pace of expansion.

Southwest Airlines $LUV - Southwest has a simpler model and lower costs, but suffers from a limited premium segment. This is where Alaska has an advantage - a better mix of premium passenger revenue and corporate demand. The disadvantage is higher complexity and susceptibility to operational errors.

Investment scenarios

Realistic scenario: gradual normalisation

In the baseline scenario, integration synergies and cost stabilisation translate into EPS growth in the range of 20-30% over two years. Operating margins move slightly higher without the company having to significantly increase capacity. The market is still valuing the stock conservatively in this case, but earnings growth is gradually being written into the price.

The share price grows rather gradually in this scenario, with a total return of around 8-12% per annum. This is a scenario where the investment makes sense even without a dramatic revaluation.

Optimistic scenario: re-rating of quality

If faster integration, strong demand for premium travel and a stable economic environment are successful, margins could shift more significantly. In this case, the market will start to see the company less as a cyclical distressed title and more as a quality regional player.

Valuations may shift towards the sector's historical averages, which in itself creates room for 25-30% share price appreciation as predicted by Bank of America. In this scenario, the main driver is not revenue growth but a change in risk perception.

Conservative scenario: volatility without collapse

In a worse macro environment, cost and demand pressures would slow earnings growth. However, the company should be able to manage a period of weaker performance without structural damage thanks to improved liquidity and operating cash flow.

The share price would remain volatile and rather flat in this scenario, but the risk of a deep downturn would be lower than in past cycles. For an investor, it would be more about waiting for the next cycle, rather than losing the investment thesis.

What to take away from the article

• Bank of America sees significant upside potential in the stock due to a turnaround in profitability.

• The main catalyst is EPS growth and operating leverage, not revenue expansion.

• Valuation still does not reflect normalized earnings potential.

• This is a cyclical bet with higher risk but also above-average upside.

That's more than three times the amount in 2024 and clear evidence of how fundamentally trade flows have been reshuffled after the introduction of blanket tariffs. At the same time, tariff revenues have fallen for a second month in a row, and December's figures are more than 10% below the October peak.

Even more interesting is the context: the U.S. trade deficit has fallen to its lowest level since 2009, which suggests that tariffs are indeed curbing imports. On the other hand, even record tariff revenues are far from enough to cover the budget deficit — which exceeded $145 billion in December alone. In other words: tariffs are changing the structure of global trade and increasing government revenues, but they are not a budgetary "game changer" as often politically portrayed. Moreover, the Congressional Budget Office has already cut its long-term estimate of tariff revenue by $1 trillion, which suggests companies and trading partners are gradually adapting.

👉 Question for investors: Do you see tariffs more as a long-term structural factor that will redistribute winners and losers across sectors (industry, retail, logistics), or as a temporary shock the market will quickly adapt to? And which specific stocks or industries do you think will benefit most in the long run from this "new trading regime" — and which will lose out?

The energy sector has had a decade where it was perceived by investors as rather dull and cyclical. Pressure to decarbonise, the technology boom and other obstacles have marginalised conventional energy. Capital has flowed into software, cloud and semiconductors. By contrast, investment in new generation, infrastructure and mining has been very low over the long term.

This is now proving to be a major problem.

The world is entering a period where electricity demand is increasing structurally for the first time in decades. This is a combination of several long-term trends: the massive construction of data centres, the development of artificial intelligence, the electrification of transport, the return of manufacturing to Western countries and the gradual replacement of fossil fuels by electricity. Thus, energy consumption is not only growing in developing countries, but also increasingly in the US and Europe.

The problem is that the energy system is not ready for this. The construction of new sources is slow, expensive and extremely regulated. The transmission system is outdated and new projects face resistance from politicians and the public.

At the same time, the view of the energy sources themselves is changing dramatically. Nuclear, which was toxic in terms of investment and politics just a few years ago, is now making a comeback as the only emission-free source capable of delivering the power needed. Natural gas is seen as a key transition fuel. And strategic raw materials like uranium are once again at the centre of geopolitics.

Energy is thus gradually changing from a defensive, dividend-paying sector to one that combines cash flow stability with ever higher potential. It is in such an environment that the companies most likely to succeed are those that:

• own key production capacity,

• control strategic raw materials,

• or operate infrastructure that the entire system cannot do without.

And these are exactly the companies we have targeted.

Constellation Energy Corporation $CEG

Constellation Energy is now the largest producer of emission-free electricity in the United States and the largest operator of nuclear power plants in the country. That's what makes it one of the most strategic energy companies today. In an environment where the demand for stable electricity is growing rapidly and the pressure to decarbonise is increasing, the company is in an extremely strong position.

While renewables remain weather-dependent and battery storage remains expensive and capacity constrained, nuclear is the only emission-free source capable of delivering large volumes of power around the clock. And it is this feature that is key for data centers, AI clusters, cloud services and industrial plants. In fact, the consumption of these segments is growing by leaps and bounds today. This dramatically increases the value of the stable resources that already exist today and that are capable of delivering the required energy.

Constellation Energy owns not one or two reactors, but an entire nuclear fleet spread across the US. This gives the company not only scale but also a strong negotiating position for long-term contracts. Long-term contracts are gradually becoming a key source of growth. Large technology companies and data centre operators are starting to secure electricity supplies years in advance, recognising that new capacity will not be built quickly enough. Many of the largest companies are even looking to secure power through their own generation, investing billions of dollars in these projects .

This means two major things for society. First, it can gradually rewrite older contracts into new ones with significantly more favorable terms. Second, it significantly reduces the volatility of future cash flow. This increases the intrinsic value of the company and allows for a more aggressive capital policy - share buybacks, dividend growth and new investments. The dividend for $CEG is close to half a percent (0.46%). The strongly rising margins in recent years then only confirm the above.

Another strong factor is the political environment. The US government now sees nuclear as a strategic component of energy security. This translates into support for the operation of existing plants and subsidy programmes. For Constellation Energy, this is crucial because it is not new projects that are of greatest value, but the long-term life extension of existing units. In addition, each year of operation has an extremely high payback because most of the capital costs have already been spent in the past.

The company is not primarily regulated at the revenue level, but sells electricity on the market and through contracts. This allows it to profit much more sensitively from rising electricity prices and the tension between supply and demand.

Constellation Energy thus represents a direct bet on three long-term trends:

• The return of nuclear,

• the growth in electricity consumption

• the expansion of energy-intensive technologies.

If expectations for AI infrastructure development and the electrification of the economy come to fruition, stable, emission-free generation will be one of the most important parts of the overall system. And $CEG is one of the few companies that is already solving this problem today and will continue to benefit from it in the future.

Vistra $VST

Vistra is one of the largest integrated power producers in the U.S. and one of the companies most sensitive to changes in energy market prices. Its portfolio combines nuclear, gas and renewables, giving it flexibility but also significant exposure to wholesale electricity price movements. It is this combination that makes it a very interesting investment in an environment where the balance between supply and demand is deteriorating.

The US power grid, like the European one, will increasingly face capacity constraints. Decades of low investment in new generation, coal plant retirements and rapidly growing consumption are creating an environment where even relatively small swings in demand lead to sharp price movements. It is in this environment that companies like Vistra have extremely strong operating leverage.

Unlike regulated utilities, Vistra sells much of its output at market prices. When electricity prices rise, this does not translate into results in a linear fashion, but in leaps and bounds. The fixed cost base means that any price increase goes largely directly into operating profit and free cash flow. This is why Vistra has shown extremely strong profitability momentum in recent years. Margins have increased very significantly over the last four years and operating profit has grown along with them. And all this at a time when sales were not increasing as much.

Another important factor is the restructuring of the company. In recent years, Vistra has significantly reduced debt, streamlined its portfolio of power plants and focused on return on capital. This has changed the nature of the company from a highly leveraged cyclical player to one that generates capital and actively returns it to shareholders. Share buybacks have become one of management's main tools to take advantage of rising cash flow.

The return of the core to the portfolio also plays a significant role. Nuclear units provide Vistra with a stable base, while gas-fired plants allow it to respond quickly to spikes in demand. This is exactly the mix that will be crucial in the coming years - stable power for data centres and flexible power to cover grid volatility.

Expectations for Vistra today are not based on the world suddenly changing energy policy dramatically. It rests on a much simpler foundation: electricity consumption is growing faster than the market's ability to build new resources. As long as this mismatch persists, prices will remain higher than the sector has been used to for the last twenty years, and $VST will be the company that makes a bundle.

Cameco $CCJ

Cameco is one of the largest and most trusted uranium producers in the world. From an investment perspective, it is not an energy company in the classic sense, but a strategic feedstock link in the entire nuclear chain. If a new era of nuclear energy is truly underway, Cameco is at the heart of it.

The uranium market has one fundamental characteristic: long investment cycles. It often takes ten years or more from discovery of a deposit to full production. After the Fukushima accident, there was a massive reduction in investment, mine closures and project cancellations. Supply was systematically reduced, while demand was met from existing reserves and state reserves. However, this was unsustainable in the long term.

Existing nuclear power plants are extending their lifetime, new units are being built not only in China and India but also in the US and Europe, and at the same time there is talk of small modular reactors. All this is increasing the long-term demand for uranium. The problem is that new capacity cannot be switched on overnight.

This is a key moment for Cameco. The company has some of the highest quality deposits in the world, especially in Canada. This means low production costs, high security of supply and the ability to operate over the long term, even in an unfavourable price environment. But when uranium prices rise, the potential is enormous. Most costs are fixed and any price increase is quickly reflected in margins.

Another important aspect is geopolitics. Western countries are trying to reduce their dependence on Russian and Kazakh suppliers. This increases the strategic value of producers from politically stable areas. This makes Cameco a strategic partner for energy companies and states.

Moreover, the company does not only benefit from production. The company is also active in fuel conversion and processing and participates in key links in the supply chain. This reduces the riskiness of the business and broadens the sources of revenue. Combined with the return of long-term contracts, this creates visibility of future cash flows that the uranium sector has lacked for many years.

From an investment perspective, CCJ is a direct bet that nuclear will not be an interim solution, but part of the future energy mix. If this scenario comes to pass, uranium availability will be one of the main limiting factors. And the companies that can supply it will have a much stronger bargaining position than in the past.

Enterprise Products Partners L.P. $EPD

Enterprise Products Partners is one of the largest midstream companies in North America. Unlike energy producers or commodity miners, they do not base their business on oil or gas prices, but on infrastructure: pipelines, terminals, storage, processing and logistics. This is one of the least replaceable and most underinvested links in the chain.

The energy transition is often presented as a shift from fossil fuels to renewables. However, the reality is considerably more complex. Natural gas is gradually becoming a key stabilising element in the system. It covers the volatility of renewables, allows for rapid power regulation and serves as a base fuel for electricity generation when nuclear and renewables are not sufficient to meet demand.

This is where $EPD comes into play. The company operates one of the most extensive networks of pipelines and terminals in the U.S., connecting upstream areas, processing plants, industrial customers and export terminals. In addition, what plays into the company's hands is the capital intensity, permitting processes and political resistance that combine to create extremely high barriers to entry. This gives established players long-term business protection.

The growing role of the US as an energy exporter is also a significant factor. Gas is increasingly exported to Europe and Asia, replacing coal and Russian supplies. Any such volume has to pass through its infrastructure. Enterprise Product Partners thus benefits not only from domestic consumption but also from the globalization of the American energy industry.

The company's investment strength lies primarily in its stability. Most of its revenue is based on long-term contracts and volume fees. The firm is thus not directly dependent on commodity prices, but on whether energy flows through the system. And in an environment where demand for electricity, gas and export capacity is growing over the long term, this is not and will not be any different in the foreseeable future.

Capital discipline is also important. The company has long financed development primarily from its own cash flow, keeping its balance sheet relatively conservative and systematically returning capital to investors.

But all this was still not enough to prevent the shares from falling significantly in the first half of last year. Since then, they have remained in a sideways trend and have not risen. But that offers an interesting opportunity. That's because according to the Fair Price Index on Bulios, $EPD stock is undervalued at current levels, and significantly so. According to the calculation, which is based on DCF and relative valuation, the current price at which the stock is selling is 49.4% below its fair intrinsic price.

From an investment perspective, Enterprise Products Partners is thus betting on a simple but powerful idea: the energy transformation will not be about a single source, but about a huge flow of molecules and electrons through the entire system. And the tighter the entire energy chain, the more valuable the infrastructure that holds it together.

Conclusion

The energy sector is gradually returning to its role as one of the most important pillars of the global economy. Digitisation, artificial intelligence, automation and the electrification of industry are pushing electricity consumption to levels that the current system was not built for. And with the closure of many power plants in recent years and shortages on the generation side, the future energy mix will be based on a combination of stable generation, strategic feedstocks and robust infrastructure.

It is this complexity that gives the whole sector a new dimension. Energy is becoming a key item for further technological and economic development. The energy sector is thus moving from the margins of the market back to the very centre of the market, and this cannot be ignored.

Everyone's talking about AI and data centers, which have very high electricity consumption. Solar panels on the roofs of those centers will cover only single-digit percentages of their demand, and apart from one exception no one will build a nuclear power plant. So the question remains: where will they get all the electricity from?

Thanks for your opinion.

Paramount’s decision to take the dispute to the Delaware Chancery Court raises the stakes further. While the lawsuit does not halt a deal outright, it challenges the decision-making process at the board level. For investors, the focus shifts from who wins the asset to how governance, timing, and legal leverage reshape the final economics of any outcome.

The crux of the dispute is not price, but structure and control

At first blush, it may appear that the issue is simply the difference between $27.75 and $30 per share. In reality, the conflict is much deeper. Netflix's $NFLX bid combines cash and stock while separating cable assets, including CNN, into a new entity, Discovery Global. This means that $WBD shareholders will have to trust that the value of these "residual" assets will materialize over time.

Paramount, on the other hand, is betting on simplicity: cash, full control, no splintering of the company. From an investment perspective, this is a classic clash of two philosophies:

• Netflix maximizes the strategic value of content and minimizes operational complexity.

• Paramount argues that the market is systematically undervaluing traditional media assets and that WBD's current management cannot or will not defend that value.

This is where the scope for litigation arises - not over whether management has the right to select Netflix, but whether it provided sufficient information to shareholders in doing so.

Why the lawsuit is just one piece of a larger strategy

Going to court is more of a tool than a goal. David Ellison openly talks about the possibility of a proxy fight, i.e., trying to replace the entire WBD board. This is an extreme but effective mechanism if enough institutional investors can be convinced that the current board is not acting in their best interests.

Importantly, Paramount is using this pressure to extend the timeline of the transaction. Moreover, each month increases the probability:

• that Netflix will be forced to upgrade the offer

• that regulatory or political complications will arise

• or that some shareholders may prefer the certainty of a cash offer

From a negotiating perspective, this is a rational, albeit risky, strategy.

The political dimension as an unexpected factor

The situation is further complicated by the fact that the US President has publicly commented on media mergers and implied personal oversight of approvals. This increases uncertainty, especially for Netflix, whose global dominance and cultural influence have become a political issue.

For investors, it means one thing: the likelihood of scenarios is beginning to expand. What a year ago would have been a purely financial decision now involves regulatory, geopolitical and reputational risk.

What could follow?

From a capital markets perspective, the situation can be simplistically divided into three realistic scenarios:

1) Netflix completes the transaction unchanged

This scenario favors stability but limits the short-term upside of WBD stock. The market would likely overvalue Netflix only slightly, while the value of Discovery Global would remain uncertain.

2) Paramount gets a better deal

Either a higher price or concessions on structure. This is the most positive option for WBD shareholders, but also the most burdensome for Paramount in terms of debt and integration.

3) Prolonged stalemate

The riskiest option. Delays, litigation and uncertainty could put pressure on both WBD and Paramount shares, while Netflix would remain relatively on the sidelines.

What investors should take away from this

This story is no longer about who has the "better offer." It's about a fight for time, control and narrative in which even a seemingly minor event - a court decision, a political statement or a change in attitude by large institutional investors - can make the difference.

For investors:

• WBD is a speculative title with an asymmetric risk-return profile

• Netflix has a strategic advantage but also a growing political risk

• Paramount is playing a high stakes game that could deliver either a transformational win or a painful retreat

And that's why this deal has become one of the most interesting media fights of recent years - not just for viewers, but especially for the capital markets.

The fourth quarter of 2025 illustrates that advantage clearly. Record-level earnings are only part of the story. More important is how the bank reallocates capital toward fee-based growth while maintaining credit discipline. The expanded role of Apple Card reflects this logic: a long-term consumer platform bet embedded within a broader, highly diversified earnings engine.

What was the last quarter like?

JPMorgan $JPM reported net income of $13.0 billion and EPS of $4.63 for Q4 2025, with the bank reporting earnings of $14.7 billion and EPS of $5.23 after adjusting for a significant item (more on that below). On a revenue level, it's a very robust quarter: reported revenue of $45.8 billion and $46.8 billion on a "managed" basis, up about 7% year-over-year. In the context of a large bank, that's a pace you don't usually do with one trick - several things have to come together: market activity, fees, payment volumes, a stable deposit base, and the ability to monetize the client base across segments.

The revenue structure shows exactly why JPMorgan excels. Net interest income (NII) of $25.1 billion was up year-over-year, but at the same time, management explicitly acknowledges that some of the growth was driven by the lower rate environment and pressure on deposit margins. The non-interest component is all the more important: non-interest income of USD 21.7 billion grew at a similar rate to the whole, signalling that the bank is not just dependent on the interest rate curve. The most visible driver was traditionally CIB, where Markets delivered 17% growth and Equity Markets in particular +40%, exactly the type of result that comes from a combination of volatility, client activity and a good position in funding and prime services in banks.

But at the same time, the quarter showed the other side of the story: the price of growth and the price of risk. Costs (noninterest expense) of $24.0 billion were up year-over-year, not only because of "wage inflation" but also because JPMorgan has been hiring in the front office and investing in capacity to keep pace in banking, markets and wealth management for a long time. Crucially, the bank is maintaining very decent efficiency despite rising costs: an overhead ratio of around 51-52%. This is still an excellent level for a universal bank in such a broad business.

Naturally, however, credit losses and provisions attract the most attention. Credit costs USD 4.7 billion, of which net charge-offs USD 2.5 billion and net reserve build USD 2.1 billion. Need to read the numbers right here: the bulk of the "build" is not classic portfolio deterioration, but a one-time Apple Card-related provision. Even so, the signal from the credit cycle is clear - normalisation is gradually taking hold in consumer credit after strong years, although JPMorgan still comes across as an institution that has risk under control and is working ahead.

• Full presentation with results.

CEO commentary

Jamie Dimon built the quarterly story on a simple thesis: the bank finished the year strongly, he said, because "every line of business worked" and the performance was the result of long-term investment, good execution and the ability to take advantage of the market environment. What's important in the communication is that Dimon presents the results not as a "once-in-a-lifetime quarter" but as evidence that the universal bank model makes sense precisely when the economy and markets are behaving illegibly - margins are squeezed somewhere, activity is rising somewhere, credit is deteriorating somewhere, fees are flowing somewhere.

But at the same time, Dimon typically adds a caveat: markets, he says, may be underestimating risks such as geopolitics, "sticky" inflation and high asset valuations. This is consistent at JPMorgan: the bank wants to maintain its reputation as an institution that can be aggressive in growth but conservative in framing risks. And that's exactly where the Apple Card fits in: the deal is presented as a thoughtful deployment of excess capital into an attractive opportunity, but at the same time a significant cushion is built in at the very first step so that the credit profile doesn't change "blindly."

Outlook

At the operational outlook level, the key is that the bank continues to grow its balance sheet: average loans +9% YoY, deposits +6% YoY. This is a double-edged sword for 2026: on the one hand, it feeds NII and fee income (as client "monetisation" increases with volumes), on the other hand, it increases sensitivity to delinquency on some consumer portfolios later in the cycle. In Q4, you can already see this in credit costs and it's fair to expect 2026 to be more about risk management than a "free sprint".

The Apple Card will be a theme in itself in the coming quarters. It's already clear that the bank has made a $2.2 billion provision for forward purchase commitments, which has reduced EPS by about $0.60. Important: What JPMorgan is really saying is that it doesn't want to make the portfolio acquisition look like a pure growth story with no costs. So the market will be looking mainly at three things in 2026: how quickly the portfolio integrates, how the charge-off trend in the cards plays out, and whether the economics of the product can be brought to a level that makes sense after accounting for the cost of the client acquisition.

Long-term results

Over the long term, JPMorgan remains an extremely profitable machine that can grow even in an environment where banks' earnings mix typically deteriorates. According to the long-term numbers, the firm has increased "total revenue" from roughly $127.2 billion (2021) to $270.8 billion (2024), while also growing operating profit and net income. Crucially, the growth was not "paper": EPS moved from 15.39 (2021) to 19.79 (2024), according to the same series, signalling that working with capital and the share count were also reflected in the result.

More important is the stability of the profitable core. While the years vary depending on whether trading or interest margin earns more, JPMorgan has long held the ability to generate high profits in various market regimes. This is why the title often acts more like a "quality compounder" than a classic cyclical bank. In 2026, therefore, the key question will not be whether there will be one weaker quarter, but whether the structural parameters will change: capital regulation, long-term interest levels, and consumer credit losses.

Moreover, from a per-share perspective, it is important that the bank combines organic growth with return on capital. If the firm continues to maintain discipline in costs and credit reserves while continuing to buyback, it can maintain solid EPS growth even in a weaker revenue growth environment.

News

The biggest specific news story of the quarter is clearly Apple Card. Not just because it is a media prominent product, but because it changes the structure of the card portfolio and adds a new source of growth in consumer finance. But at the same time, it's a deal where JPMorgan clearly doesn't want to risk a reputational or balance sheet surprise - which is why the big provision for forward purchase commitment came right away in Q4. In practice, this means that Apple Card will be a "live" story for investors in 2026, with measurable metrics: charge-offs, delinquencies, portfolio returns, and acquisition/servicing costs.

Alongside this, the robust activity in CIB, particularly in Markets, and record numbers in Payments (Dimon mentions record revenue in this area) are also worth noting. This is typical of JPMorgan's "quiet" strength: even when it's not exactly pulling investment banking fees, it can make up for it with market activity, prime services and a payments infrastructure that grows with client volumes.

Shareholder structure

The ownership structure matches the profile of a "core" financial title: the institution holds roughly 74% of the stock, and insider holdings are low (around 0.37%). The largest institutional holders have traditionally included Vanguard (c. 9.77%), BlackRock (c. 7.68%) and State Street (c. 4.60%), which is standard for large banks - a high proportion of passive and quantitative holders increases the importance of index flows, but also typically stabilizes the ownership base.

Analysts' expectations

The analyst consensus is in "quality core holding" mode at JPMorgan, but with sensitivity to the credit cycle and to the pace of capital return higher than before after very strong years. Analysts typically value diversification of returns (CIB, AWM, Payments), the ability to hold efficiency even when investing for growth, and traditionally conservative risk management. However, they also warn that the combination of a benign market environment and high interest yields may be harder to replicate in 2026, and that investors will punish any sign of deterioration in consumer credit, particularly for cards, much more severely.

According to a consensus summary on MarketBeat, the title has a mostly positive rating and is tracked through a combination of price targets and expected EPS for the period ahead. MarketBeat lists a consensus target price of approximately $334.57, while also noting that one of the recent moves in coverage has been a target price move at Goldman Sachs to $386, for example.

Fair Price

Do you think $SPOT shares are currently cheap, or was the valuation previously too high and are now just returning to a fair value?

Oracle’s transformation from a legacy software provider into a cloud infrastructure competitor demands enormous capital commitments. Data center buildouts, fixed costs, and delayed returns place increasing strain on the balance sheet. Burry’s thesis is that the pace of investment may be outpacing Oracle’s capacity to absorb risk without eroding its financial flexibility—turning AI ambition into a balance-sheet stress test.

Top points of the analysis

• Burry's Oracle short is not an attack on AI, but a critique of capital discipline.

• High debt dramatically increases the firm's sensitivity to a slowdown in cloud growth.

• Oracle doesn't have the same ability to absorb mistakes as the largest tech firms.

• Cloud infrastructure is a market with high fixed costs and long paybacks.

• Oracle stock is becoming a test of where the AI story ends and financial reality begins.

Why Burry shorts Oracle but shuns the biggest tech firms

A crucial point in Burry's argument is the distinction between firms that have a broad, highly profitable core business and firms whose future is increasingly dependent on the success of a single capital-intensive transformation. In his view, Oracle $ORCL falls into the latter group. Its database business is stable but lacks the momentum or margin strength to absorb an aggressive expansion into cloud infrastructure without risk.

In contrast, companies like Microsoft $MSFT, Alphabet $GOOG or Meta Platforms $META have diversified sources of cash flow. Even if it turns out that some of the AI investments were overshot, these firms can write down assets, slow capex, and continue to dominate their core markets. AI is an extension for them, not an existential test.

Oracle is in a different position. Cloud expansion is not an add-on, but a core bet on future growth. It dramatically increases the company's vulnerability to errors in timing, pricing or demand. This asymmetry between ambition and financial flexibility is at the heart of Burry's short position.

• Michael Burry has confirmed that he holds put options on Oracle stock while directly shorting the company's stock over the past six months. However, he did not disclose the specific position size, nominal exposure, or option parameters, and they cannot yet be reliably calculated from publicly available data. Thus, his bet is not readable through the amount of capital, but through the structure of the argument, which points to a combination of debt, capital intensity and uncertain returns on AI investments.

Debt as a hidden risk accelerator

Oracle today carries approximately $95 billion in debt, making it the largest non-financial issuer in the investment grade according to Bloomberg indices. The sheer amount of debt would not be a problem if it were backed by steady cash flow growth and high returns on capital. The problem is that the debt is growing in parallel with investments whose economic returns are not yet fully proven.

Cloud infrastructure is a business with high fixed costs and a long payback period. Once capital is invested in a data centre, the flexibility of the business decreases dramatically. In an environment of slowing demand or pricing pressure, these costs cannot simply be "turned off". Debt thus acts not just as a financial liability but as an amplifier of operational risk.

Burry implicitly points here to a classic investment trap: a firm that maximizes expansion in good times but has little room to maneuver in bad times. If the AI investment cycle slows faster than expected today, Oracle could face a combination of high depreciation, margin pressure, and a limited ability to reduce debt quickly.

Cloud and AI: A winner-take-all market

Oracle is entering a segment that is structurally different from its historical business. Cloud infrastructure is a market where winners benefit from massive scale, price optimization and long-term contracts. Companies that don't have this edge face pressure on pricing and margins as customers have alternatives.

Unlike hyperscalers, Oracle is still building critical mass. This means that it bears the full cost of expansion in the initial phase without the full benefits of scale. This mismatch between costs and benefits is only transitory if the firm quickly achieves sufficient scale. If not, the transitional phase can become a structural problem.

This is where Burry's criticism comes in. He is not asking whether Oracle can build a cloud. He's asking whether it can build a cloud that generates numbers comparable to the leaders before the market stops tolerating rising debt and falling returns on capital.

Why Nvidia is the cleanest short on AI, but Oracle the most vulnerable

Burry calls Nvidia the purest way to express a negative view on AI euphoria because it is an extremely concentrated bet on the boom continuing. Nvidia benefits from huge expectations, high popularity and minimal skepticism, which creates attractive conditions for option strategies.

Oracle, however, is more vulnerable for another reason. While Nvidia may face a sentiment downturn, Oracle faces balance sheet risk. If expectations do not materialize, the impact will be felt not only in the share price but also in the company's long-term financial flexibility.

Burry makes this distinction between market overheating and structural risk. Nvidia is expensive, he says. Oracle, he says, is potentially poorly set up for a scenario where the AI boom slows or gets cheaper.

• Don't overlook: Michael Burry vs. AI mania: 'The Big Short' legend bets on the fall of tech stars (Nvidia, Palantir)

Oracle stock as a warning sign

Oracle's stock behavior in recent months provides important context. The sharp rise following an upbeat outlook for the cloud business was swift and emotional. The subsequent decline, which took the stock some 40% below its September highs, was gradual and rational. The market did not panic, but began to reassess the risks.

Investors gradually moved from the question of "how fast will the cloud grow" to "at what price". It is this change in optics that is key. Once the discussion shifts from growth to return on capital, companies with high debt and capital intensity lose their edge.

Burry's position is thus a bet that this reassessment process is not yet over. He's not betting on Oracle's collapse, but on a long-term valuation squeeze if the AI cloud proves not as profitable as originally thought.

Stress-test Oracle's balance sheet: How much space does the company really have

Oracle today enters the AI phase with a balance sheet that is no longer neutral. The company has approximately $95 billion in gross debt, while annual operating cash flow is roughly in the $18-20 billion range. This means that gross debt is equivalent to approximately 4.5-5 times annual operating cash flow, which is high for a software-cloud company, especially when combined with rising capex.

Oracle's annual capital spending has moved into the $10-12 billion range in recent years, with a significant portion directly tied to data center construction. If cloud revenues were to grow at the rate that management is communicating (on the order of 15%+ annually), this capex is defensible. The problem arises in a stress scenario:
if cloud growth slows to, say, 7-9%, free cash flow could fall to zero or slightly negative as depreciation and interest expense remain fixed.

At average interest costs of around 4-5%, the $95 billion debt means an annual interest bill of roughly $4-5 billion. This is an amount that begins to compete with dividends, buybacks and investment flexibility in a weaker growth environment. This is where Burry's thesis breaks down: Oracle has no room for error because the combination of high debt and high capex creates a very narrow corridor in which executions must come out.

Time factor in numbers: when AI investments must start to pay off

With cloud infrastructure, it's not true that the payback is immediate. A typical data center investment cycle means that capital is spent in years 0-1, while full economic returns come in years 3-5. This is key to understanding the temporal relevance of concerns.

If Oracle is investing around $11 billion per year today, then it will increase the capital tied up in infrastructure by more than $20 billion in two years. For this investment to be economically meaningful, it must generate a return of at least 8-10% ROIC. This means that the new cloud capacity should generate an additional USD 1.6-2.0 billion in annual operating profit at full build-out - over and above the status quo.

If this contribution doesn't materialize within 24-36 months, the pressure will begin to shift from "story" to numbers. In such a scenario, Oracle finds itself in a situation where:

• the debt does not fall

• capex cannot be reduced quickly without losing competitiveness

• return on capital remains below the cost of capital

This is exactly the time window in which Burry's bet makes sense. The question is not whether Oracle will report a good quarter in 2026, but whether by 2027-2028 the AI cloud will actually start contributing to free cash flow, not just consuming it.

Is the current stock decline relevant? A look through valuation

Oracle is trading about 40% below its September high today, but still at a valuation that implicitly assumes cloud expansion will be successful. Even after the decline, the stock is trading at roughly 20-22 times forward earnings, which is not a valuation of a company in trouble, but a company where the market still believes in long-term improvement.

However, if AI investment returns prove weaker, a realistic re-rating could mean a return to multiples closer to 15-17x forward earnings, which would imply another 20-30% downside at the same earnings. In other words: the current stock decline is not an extreme discount, but rather the first stage of a re-pricing of expectations.

Conversely, in a bull-case scenario, where the cloud business starts generating strong cash flow and debt stabilizes, today's price is defensible and can act as a long-term entry. Thus, the relevance of the concern depends solely on one factor: whether the AI cloud will start generating real economic profit, not just revenue growth, within three years.

What to take away from the article?

• Short Oracle is a bet on the return of market discipline, not the end of AI.

• Debt and capex are more important in this story than actual revenue growth.

• Not all AI investments will lead to above-average returns for shareholders.

• Oracle carries more structural risk than diversified technology leaders.

• Oracle's story shows that the AI boom will not uniformly benefit all players.

Venezuela was a completely lost market for most investors just a few years ago. A combination of political instability, sanctions, collapsing infrastructure and capital flight had virtually wiped it off the investment radar. Today, however, the situation is gradually beginning to change. Geopolitical tensions, pressure on global energy security and the West's drive to diversify its sources of raw materials are reopening the question of Venezuela's potential. And the markets are beginning to react to this possibility.

Venezuela is not just an oil-rich country. It is a country with some of the largest proven oil reserves in the world, significant mineral wealth and a huge investment deficit that, if the market were to open up, could trigger a tidal wave of foreign capital. If there were a broader easing of sanctions and a stabilisation of the political environment, there would be room for a resumption of production, infrastructure modernisation and the return of major global players.

It is this scenario that investors are now gradually beginning to factor into stock prices that could participate in the country's recovery. For some, you might not expect it.

Energy

The energy sector is the natural epicenter of the entire Venezuelan operation. The country has the largest proven oil reserves in the world, but for years it has been unable to exploit its potential. Production has fallen dramatically, infrastructure has become obsolete and foreign companies have virtually disappeared from the market. However, if the country were to open up more widely, oil would be the first sector to see renewed investment.

For global energy firms, Venezuela would present a unique combination of vast resources and relatively low extraction costs while upgrading infrastructure. The return of foreign capital could mean a gradual increase in production, new long-term contracts and a strengthening of global supply at a time when energy security is a major political and economic issue.

Chevron $CVX is particularly interesting from this perspective. It is one of the few Western oil giants that has managed to maintain historical ties to the region and has long experience of running a business in Latin America. For the company, a resurgence in the Venezuelan market would mean access to vast resources, the opportunity to expand its production portfolio and strengthen its production base over the long term.

From an investment perspective, Chevron is particularly interesting because of its combination of size, technological know-how and long-term ability to finance large-scale projects. The company is one of the most efficient global oil and gas producers, with a very strong balance sheet, high return on capital and a disciplined approach to investment.

This gives it scope to enter markets in more geopolitically complex regions where smaller players do not venture. If Venezuela were to start gradually increasing production, companies of this type would be natural partners for restarting production, upgrading oil fields and building infrastructure.

At the same time, Chevron is also attractive from a valuation perspective. Shares have reacted to the events in Venezuela with a rise, but this has sold off in recent days back to pre-coup levels. The price per share of $CVX today stands at around $162, which is 14.5% below its absolute peak, but it's also 20% below what their fair value is, according to the Fair Price Index at Bulios.

The energy sector is back in the spotlight today with its emphasis on real assets, cash flow and dividend yield. Chevron has long been one of the companies that combine stable dividends with buybacks and asset value growth. Any structural growth in the production base or access to new giant reserves could strengthen the company's long-term outlook, improve market expectations and create new upside momentum for the stock. Their price could then start to approach their real intrinsic value.

For the energy sector as a whole, Venezuela's return to the oil market would mean more than just another oil field. It would mean a structural change in supply, new investment cycles and potentially new winners among global producers.

The extractive sector

Although oil is Venezuela's main symbol, from an investment perspective it would be a mistake to ignore its mineral wealth. The country has significant reserves of iron ore, bauxite, gold, copper and other strategic metals. It is these raw materials that are key to infrastructure, energy transformation and the technology industry today. Opening up the Venezuelan market could therefore mean not only the return of oil companies, but also new projects in the field of industrial metals.

Meanwhile, the mining sector is at a stage where long-term demand is structurally strong. Decarbonisation, the development of networks, electromobility and the militarisation of the world economy are increasing the pressure on the availability of raw materials. New regions with large, hitherto under-exploited deposits are therefore gaining strategic importance.

This is where Rio Tinto $RIO fits in. It is one of the world's largest mining conglomerates, with an extensive metals portfolio and a long track record of developing major projects in geopolitically complex regions. For such a company, Venezuela would represent a potential long-term expansion of its resource base. Not necessarily immediate profit, but the opportunity to build new mining capacity in a region that would be reopened to global capital with the prospect of future profits.

Rio Tinto is of particular interest to investors as exposure to long-term megatrends. Its portfolio is built on commodities that are key to infrastructure, energy, urbanisation and technological transformation. The company has a particularly strong position in iron ore, copper and aluminium, commodities whose demand is structurally supported by grid construction, renewable energy and military and industrial investment.

The company has been able to maintain solid margins over the long term (above 21% in 2024) even though its revenues have been rather stagnant. But as we can read in a recent report summarized in Flash News, metals production accelerated last quarter signaling increased demand. And the stock price is certainly not lagging behind. It has gained 41% in the past year, breaking a string of long-term price stagnation/declines.

Moreover, from an investment perspective, Rio Tinto is attractive because of its ability to execute giant projects, optimise costs and generate strong cash flow even in less favourable cycles. The company has a long history of mine development in challenging regions and knows how to work with political risk, long permitting processes and capital intensity. Thus, a new region in the form of Venezuela would be a potential extension of the company's long-term growth efforts. For the stock, it would mean a stronger resource base and a new case for a higher long-term valuation. And that would be good for them, as they are currently overvalued after last year's growth.

If new projects get underway, the entire chain would benefit. From raw material producers to end suppliers of the latest technology and processors like Nvidia $NVDA. And it is Rio Tinto, for example, that could take a leading role in this industry by producing today's indispensable materials.

The financial sector

Venezuela's return to the investment map would not be without massive capital flows. Rebuilding the energy, mining and infrastructure sectors requires tens to hundreds of billions of dollars. This is where the financial sector comes into play. Investment funds, asset managers and institutions that link capital to projects would become key players in the process.

For global asset managers, Venezuela would present opportunities not only in equities and bonds, but also in direct investment, infrastructure and projects. Once the country's risk profile began to stabilise, capital could begin to return.

And who better to compete in this segment than BlackRock $BLK itself. As the world's largest asset manager, it has direct exposure to emerging markets, the commodities sector and sovereign bonds. Any major shift in the perception of Venezuela would quickly manifest itself in the very capital flows that similar firms manage.

BlackRock may be the least direct bet of the three firms, but it is also perhaps the most versatile. For it has an ace up its sleeve that the previous firms lack. BlackRock holds Venezuelan bonds.

• Why BlackRock holds Venezuelan bonds

BlackRock got into Venezuelan bonds primarily through funds focused on emerging markets and distressed debt when they were trading well below par. It was a long-term bet on a political turnaround, debt restructuring and a return of capital. Such an environment has traditionally favoured large asset managers with both capital and patience. And now it looks like that bet could pay off.

• How they can profit from them

If sanctions are eased and a deal with creditors is reached, bond prices could rise significantly. The yield would come primarily from capital appreciation, not coupons. Each step towards stabilisation increases the chance of further revaluation of these assets. And because they have been very significantly undervalued over the long term, they could deliver fabulous appreciation.

• Why this is important for investors

Bonds tend to be the first asset class to respond to a country's return to the investment map. Their rise often heralds broader capital inflows into equities, commodities and infrastructure. The presence of players like BlackRock suggests that giant funds are already actively considering this scenario.

For investors, BlackRock is also interesting because it combines a defensive nature with long-term growth potential. The firm benefits from a structural shift of capital into ETFs, passive funds and alternative investments. Thus, a Venezuelan recovery would not be a one-off blip, but part of a broader trend of capital returning to commodities, infrastructure and emerging markets. If this story unfolds, BlackRock stands to benefit not only through fund returns, but more importantly through the growth in the volume of capital flowing through its platforms.

Conclusion

Venezuela is re-entering the game today because global priorities are changing. Energy security, access to resources and geopolitical diversification are bringing regions that have long been written off back into the spotlight. If space is opened up for greater cooperation and investment, Venezuela could become one of the most interesting markets of the coming years. And the market, as it tends to do, will usually start reacting to such markets before their full potential or performance in the data becomes apparent.

For Google, the implications are profound. Securing Apple’s ecosystem as a distribution channel instantly elevates its AI models from products in search of monetisation to embedded infrastructure used by hundreds of millions of devices. What looks like a partnership is, in strategic terms, a reshaping of influence across the AI value chain.

Why Apple backed down and what it says about its AI strategy

Apple $AAPL has spent the last two years trying to build its own models and AI infrastructure with an emphasis on privacy and on-device computing. However, this approach has run into limits. Developing generative AI is extremely capital and computation intensive, and Apple, unlike Google $GOOGL or Microsoft $MSFT, does not have a large-scale cloud AI infrastructure trained on open data.

The delay of the new version of Siri was the first visible sign of a problem. While Apple has a huge amount of user data, it lacked a robust generative layer capable of competing with what Google's models offer today. The deal with Alphabet is therefore a pragmatic solution: Apple retains control over the interface, integration and privacy, while the "brainpower" is supplied by the partner.

Importantly, Apple emphasizes running AI either directly on devices or through its Private Cloud Compute system. This means that Google supplies the models and technology, not access to user data. Apple is thus protecting its core privacy narrative - while acquiring technology it didn't get to develop itself in time.

What Google gets out of the deal: more than just a billion a year

For Alphabet, this deal is a strategic win. With this move, Google becomes the "invisible infrastructure" of one of the largest ecosystems in the world. While Google won't be directly presenting itself to end users of iPhones, its models will be at the core of the new Siri and other AI features.

From an investment perspective, the key is that this is a repeatable, high-margin revenue stream that also increases Google's relevance in the AI race. In doing so, Alphabet is sending a clear signal to the market: its AI is not just a research project, but a commercially viable technology that even the most demanding partners are choosing.

Moreover, it is a reputational effect. If Apple - a company known for its extremely rigorous evaluation of third-party technologies - labels Google's AI as the "most capable foundation", it strengthens Alphabet's position against Microsoft and other players in enterprise AI.

Impact on Siri, iPhone and the entire ecosystem

In the short term, the goal is to improve Siri, which has long lagged behind competitors. A new version, planned for later this year, is expected to offer more advanced conversational capabilities, better context understanding and broader integration across apps.

But the long-term isn't just about the voice assistant. AI is set to become the system layer of iOS, impacting app experience, search, productivity and personalisation. This is where Apple, with Google's help, can quickly catch up to the competition - without having to build an entire stack from scratch.

The investment equation: who's the winner?

The market responded immediately. Alphabet's stock strengthened after the announcement, while Apple's reaction was initially weaker. This corresponds to the reality of the deal: for Google, it is a clear strategic plus, for Apple it is more of a necessary compromise.

In the long run, the deal is positive for both, but asymmetrically so. Alphabet gains new revenue, validation of its AI, and a stronger position in an ecosystem previously dominated by Apple. Apple, on the other hand, gains time - time to stabilize its AI strategy and gradually build up its own capabilities.

The move also shows that the AI race is not just between models, but between ecosystems and alliances. And this is where Google and Apple have formed an alliance that could fundamentally influence the next phase of AI development in consumer electronics.

For Google, this deal is a strategic win with no direct product risk.

• Apple is paying(according to Bloomberg, about USD 1 billion a year)

• Google gets a long-term customer with a huge volume of data

• Google's AI technology becomes an industry standard, not just a consumer product

From a valuation perspective, the key point is that:

• Google monetizes AI directly, not just indirectly through advertising

• the risk of Apple developing its own competing model is reduced

• Google's bargaining position with other partners is strengthened

This is a structurally positive signal for Alphabet investors - AI is moving from a cost item to a recurring revenue stream.

The significance lies not in an immediate judgment, but in exposure. With a key procedural shield removed, the lawsuit remains alive and potentially costly. For shareholders, the episode serves as a reminder that legacy legal risks can resurface unexpectedly, complicating capital planning, sentiment, and long-term valuation even when core banking operations remain stable.

The Mexican trail that haunts the bank

The case revolves around the now-bankrupt Mexican firm Oceanografia, a drilling and service contractor for state oil company Pemex. Between 2008 and 2014, Citigroup's Mexican unit, Banamex, was to provide up to $3.3 billion in financing to the firm, based on claims against Pemex.

But Oceanografia used false documents and forged signatures, according to prosecutors, and Citigroup $C should have known - or at least could not have known - that the company was overleveraged and that the financing structure was high-risk. In the process, the bank collected interest on the advances while other lenders and investors suffered significant losses.

The court documents go even further. The appeals court found that it would be "hardly believable" that a sophisticated global bank would be unaware of what was going on at Oceanograph. It is this formulation that poses one of the biggest reputational problems for Citigroup today.

Why the Supreme Court's rejection is so crucial

Citigroup tried to stop the litigation by arguing that the plaintiffs were improperly using the RICO statute - a federal standard originally designed to fight organized crime. This statute is particularly dangerous to defendants because it allows for the award of treble damages.

However, the Supreme Court declined to hear the case and upheld the lower court's verdict. In doing so, it effectively confirmed that the lawsuit could proceed in full and that Citigroup's arguments had not yet prevailed.

In other words, this is no longer a technical legal skirmish, but a full-blown dispute that could end up being very costly.

A financial risk that cannot just be "written off"

Citigroup has admitted in the past to failing internal controls. The US SEC fined it $4.75 million in 2018. At the time, it seemed to be a token punctuation to an unpleasant episode.

The current action, however, is of a different calibre. The aggrieved creditors - among them bondholders, shipping companies and European banks - claim their losses exceed $1 billion. If the court were to recognize the claims under RICO, the potential bill could multiply.

From an investment perspective, the key point is that this is not a regulatory penalty with a clear cap, but an open-ended dispute. It is this uncertainty that is usually worse for the market than the amount of the potential penalty itself.

What this means for investors in Citigroup

Citigroup is sufficiently well-capitalized to withstand a very adverse verdict. The problem, however, is not the ability to pay per se, but the long-term pressure on valuations and investor confidence. The banking sector is extremely sensitive to legal risks and markets have historically punished institutions that face protracted litigation.

Moreover, this case is not just about financials. The case reopens questions about the quality of risk management, internal controls and corporate culture - topics that are often as important to long-term investors as the numbers on a balance sheet.

What the market will be watching next (and why it matters)

From an investment perspective, the most important thing is not the fact that the Supreme Court refused to hear the case, but what will follow in the lower courts and how the bank itself will approach the matter. The market will be particularly sensitive in the coming quarters to signals that will indicate whether the dispute is close to settlement or, instead, escalating into a full-blown open-ended court case.

Three areas in particular will be key. First, any new information on the potential level of damages, as even a relatively small shift in estimates can change expectations about reserves and the impact on profitability. Second, management communication, in particular whether the bank will start to make additional provisions or adjust the legal risks in its outlook. And third, the defence strategy itself - whether Citigroup will attempt an out-of-court settlement or decide to go into a long and costly litigation.

For investors, this phase is often crucial. Markets usually do not wait for a final judgment, but appreciate probability and uncertainty. If the case starts to look manageable and time-bound, the pressure on shares may ease. But if new evidence, additional plaintiffs or tougher rhetoric from the courts emerges, the case could become a long-term drag on valuations - regardless of the fact that the bank itself remains capital strong.

In this case, the signal appears structural. The higher dividend aligns with stable operating cash flows, conservative leverage, and disciplined capital allocation. Rather than stretching the balance sheet to reward shareholders, the company is extending a policy built around sustainability across the cycle—turning dividend growth into a credibility marker rather than a marketing tool.

Top points of the analysis

• Dividend increased by 10% with no increase in financial risk

• Payout is covered by earnings and operating cash flow, not debt

• Conservative leverage leaves room for further dividend growth

• Combination of regulated business and industry stabilizes cash flow

• Valuation reflects quality, not a cyclical peak

Company profile and economic model

Otter Tail Corporation $OTTR is based on an unusual but very workable model from a dividend perspective. The foundation is a regulated energy business that generates predictable returns with relatively low volatility. This segment acts as a stabilizing element of the overall business and provides the foundation for the long-term dividend payout.

The second pillar is industrial production, which delivers higher margins and sensitivity to the economic cycle. It is here that the company is able to increase profitability in periods of strong demand without compromising the stability of the whole. From an investor's point of view, this means that dividend growth is not dependent on a single source, but relies on a diversified earnings structure.

This hybrid model is key to understanding dividend stability. The regulated segment dampens downturns in bad years, while the industry segments allow for earnings acceleration in better periods. The result is a balanced cash flow profile that is ideal for a dividend strategy.

Summary: Otter Tail Corporation is an electric power and generation company headquartered in Fergus Falls, Minnesota. Its subsidiaries include Otter Tail Power Company, BTD Manufacturing Inc, T.O. Plastics Inc, Northern Pipe Products Inc, and Vinyltech Corporation.

Financial performance: earnings as a long-term basis

Results over the past four years show a consistent ability to generate earnings across various phases of the cycle. Net income in 2024 exceeds $300 million and EPS is above $7, a significant shift from 2021. This is not a one-time jump, but a gradual increase supported by operational efficiencies.

Operating margins in excess of 26% and net margins in excess of 21% signal that the company can pass on costs, optimize its cost structure, while remaining competitive. This is crucial because dividends can only grow over the long term if the economic value of the business also grows.

The stability of share capital is also an important element. The number of shares increases only minimally, which means that EPS growth is not diluted by aggressive issuance. This increases the quality of earnings and strengthens confidence in the long-term sustainability of the dividend policy.

Cash flow and investment cycle

Operating cash flow was approximately US$453 million at the end of 2024 (up from US$404 million in the previous year), confirming the ability to generate cash even with higher investments. Investment cash flow is significantly negative, reflecting the capital intensive nature of the business, particularly in the energy sector. However, this is a structural feature, not a warning sign.

Free cash flow is volatile, which is typical of higher capex firms. But the key point is that the dividend is covered by operating cash flow, not short-term financing. In addition, the firm maintains a strong cash position, which provides flexibility during periods of higher investment.

This approach shows that management does not view the dividend as a residual item, but as a long-term commitment to shareholders that must hold up in investment-intensive years.

Dividend: history, sustainability and payout ratio

Key facts in figures

• Current quarterly dividend of $0.5775 per share

• Previous dividend $0.525 per share

• Year-on-year dividend growth +10%

• Annual dividend (forward) of approximately $2.31 per share

• Dividend yield of approximately 3.0%

• Uninterrupted dividend payment for several decades (since 1938)

• Consistent dividend growth streak of more than 5 years

• Payout to EPS ratio of approximately 32%

• Dividend covered by operating cash flow even in an investment-intensive year

Dividend growth of 10% pushes the annual payout to a level that still represents only a median portion of the firm's earnings capacity. Payout ratio to EPS remains conservative, which is key to future flexibility. The company is thus not forced to choose between investing and paying out to shareholders.

Historically, the dividend has shown gradual growth without extreme fluctuations. This is not an aristocrat-type title with an extremely long dividend history, but a firm that prioritizes the quality of growth over its speed. This is often a more advantageous approach from a sustainability perspective.

It is also crucial that the dividend is not funded by debt. The combination of earnings, operating cash flow and a strong balance sheet creates room for further increases without increasing systemic risk.

Balance sheet and financial stability

Net debt of around USD 720 million with EBITDA of over USD 500 million implies a Net Debt/EBITDA ratio of approximately 1.5 times. This is a very conservative level, especially in a capital intensive sector. The company is thus not exposed to refinancing pressure or sharp changes in the interest rate environment.

Equity has been growing over the long term and liquidity remains strong. A current ratio above 3 confirms that short-term liabilities do not pose a risk even in the event of short-term cash flow fluctuations. This significantly reduces the likelihood of the dividend being a victim of balance sheet stress.

Management

The company is led by Chuck MacFarlane, who has been CEO since 2015 and has been with the company significantly longer in previous management roles. His profile is not built on media visibility or aggressive strategic statements, but on long-term continuity, disciplined management and an emphasis on stability - exactly the type of leadership that dividend investors seek.

MacFarlane has taken the company through several economic cycles during his tenure, a period of increased investment and rapid changes in the energy sector. Under his leadership, there has been a gradual increase in profitability, strengthening the balance sheet while maintaining a conservative approach to debt. All of this has translated into the company's ability to not only pay a dividend, but to gradually increase it without undue risk.

A fundamental feature of its management is capital discipline. The firm avoids large transformational acquisitions, preferring instead to grow organically, expanding its regulated asset base and optimizing existing operations. This approach reduces the likelihood of strategic mistakes while increasing cash flow predictability - a key factor for dividend sustainability.

Valuation: how much an investor pays for stability and dividend

The stock's current valuation is around 12-13 times annual earnings, which, with earnings per share of around $7.2, implies a relatively moderate P/E given the quality of the business. In the context of regulated utilities, which often trade in the 15-18x earnings range, this is not a stretched valuation, but rather a discount to the most stable players in the sector. This difference is due to a combination of the industrial side of the business and the smaller size of the company, not the weaker economy.

From a revenue perspective, the stock trades at roughly around 2.5-3.0 times annual earnings, which is higher than pure regulated utilities but lower than firms with a strong growth profile. This multiple reflects above-average margins and the ability to generate earnings from a relatively stable market base. Importantly for the dividend investor, valuations are not based on aggressive growth expectations, but on sustainable cash flow.

A dividend yield of around 3% does not look extremely high, but combined with dividend growth of 10% and low volatility, it creates an attractive total return profile. Investors are not paying for speculative expansion here, but for a combination of yield, stability and gradual growth, exactly the type of valuation that makes sense for a long-term holding.

Comparison with competitors: where they stand against the sector

Comparisons with direct and indirect competitors in the North American utility space are key to a realistic assessment of dividend quality.

NorthWestern Energy $NWE

NorthWestern Energy is a typical representative of a pure regulated utility with a higher dividend history. Its dividend yield tends to be slightly higher, but at the cost of higher debt and slower earnings growth. In contrast, the firm analyzed here offers a lower yield today but a better long-term dividend growth profile and lower financial risk.

ALLETE $ALE

ALLETE has a similar size and regional focus, but higher exposure to energy transformation and capital projects. This brings growth potential, but also higher capex and free cash flow pressure. In comparison, the dividend policy of the analysed firm appears more conservative and predictable.

MDU Resources $MDU

MDU combines utilities with more cyclical construction activity, which increases earnings and dividend cover volatility. Advantage is greater sensitivity to economic growth, disadvantage is greater cash flow volatility. In this comparison, the analyzed firm comes out as a more balanced dividend title, less prone to recessionary fluctuations.

Future growth: where there is scope for additional value

The firm's growth potential lies not in aggressive expansion, but in the gradual expansion of its regulated asset base. Investments in transmission networks, infrastructure upgrades and higher generation efficiency increase the allowed return on capital and thus the long-term ability to generate stable profits. It is this type of growth that is ideal for the dividend model - slow, predictable and capital disciplined.

Another area is the optimization of industry segments. Here the company is not betting on volume, but on margins and efficiency. In an environment of stabilising supply chains and a gradual recovery in investment activity, this part of the business can again contribute to EPS growth above the regulated segment. This creates natural scope for further dividend increases without increasing financial risk.

From a long-term perspective, it is also important that the company has no need for major acquisitions. Growth is organic and controlled, which reduces the risk of misallocation of capital. For the investor, this means a higher likelihood that future cash flow will actually serve shareholders, rather than funding expansion with uncertain returns.

Analysts' view: conservative quality, not speculation

Analyst houses rate Otter Tail Corporation as a predominantly defensive dividend title with above-average management and balance sheet quality. For example, Morningstar has long emphasized a combination of regulated cash flow and disciplined capital allocation, viewing the stock as a vehicle for stable yield rather than dynamic price appreciation.

The analyst consensus generally does not expect explosive earnings growth, but does expect continued stability in profitability and gradual dividend growth. This predictability is the main reason why the title is often included in income-oriented and capital preservation portfolios. The market values the company not as a growth story, but as a quality "compounder" with low volatility.

Importantly, from an investment perspective, analysts do not see significant balance sheet or operational risks that would threaten the dividend policy. Expectations are realistic, not exaggerated - which reduces the risk of negative repricing in the event of slightly weaker results.

Investment scenarios: price and dividend evolution over time

Realistic scenario (baseline trajectory)

In the baseline scenario, the regulated part of the business remains a stable cash flow generator, while the industrial segments grow at a rather moderate pace. Earnings per share may move in the range of 3-6% per annum in the coming years, allowing for continued dividend growth at a rate slightly above inflation. Dividend yield will thus become the mainstay of returns.

At current multiples, the share price can be expected to grow broadly in line with earnings, i.e. rather gradually. An investor's total annual return in this scenario could be around 6-9%, a combination of dividend and modest price growth. This is a typical scenario for a long-term dividend holding, not a short-term speculation.

Optimistic scenario (re-rating quality)

In the more optimistic scenario, there will be better utilisation of industrial capacity and steady growth in the regulated base. Earnings could grow faster, for example in the 7-9% per annum range, allowing for continued higher dividend growth. At the same time, if the market begins to view the company more as a stable dividend title than as a mixed conglomerate, valuations could widen towards 15 times earnings.

In that case, the investor would benefit not only from the dividend but also from the share price growth. The total return could approach 10-13% per annum, while risk would remain relatively low due to the stable cash flow and balance sheet.

Conservative scenario (capital protection)

In a worse phase of the cycle, the industrial side of the business may slow down and free cash flow may temporarily decrease. However, due to the regulated part and low debt, the dividend should be maintained even if growth temporarily stagnates. The share price could be rather flat or slightly volatile in this scenario.

However, for a dividend investor, even this scenario would mean capital protection and stable cash flow, which is the main reason why the title has a place in the defensive part of the portfolio.

What to take away from the article

• The +10% dividend growth is grounded, not risky

• Dividend is covered by earnings, cash flow and balance sheet

• Conservative management increases the likelihood of further payout growth

• This is a quality dividend title, not a speculation

The health care sector has long been viewed as one of the most stable pillars of the stock market. Indeed, an aging population, rising health care spending and technological advances have combined to create an environment that allows companies to generate relatively predictable earnings even during economic slowdowns. But it also potentially makes this sector the sector of the future (but more on that later). This is why investor capital flows into healthcare whenever there is growing uncertainty in the markets or the threat of recession. But its defensive nature often leads to shares in these companies being readily bought at almost any price. And that, by definition, is the first warning sign.

In recent years, this effect has become even stronger. The combination of previously low interest rates, massive liquidity in the markets and the euphoria surrounding biotech, diagnostics and medical technology has pushed the valuations of many companies well above their historical averages. The market has come to view healthcare not only as a stable sector, but as a growth engine that deserves premium valuations. The result is an environment in which even very high-quality companies can become poor investments. Not because of their business, but because of the price at which they are now trading.

This is where the greatest risk arises for new and existing investors. If high expectations are fully factored into the share price, the scope for further growth is dramatically reduced. Any slowdown in revenue growth, margin pressure, a failed product or study, and regulatory intervention can then act as a trigger for a sharp correction. In a defensive sector, which is often considered safe, these downturns tend to be all the more painful for investors because most investors do not expect them.

Healthcare is thus in a paradoxical position today. Fundamentally, it is still one of the strongest sectors of the economy, but from an investment standpoint, it is increasingly divided into relatively fairly valued opportunities and titles where valuations have broken away from reality. And it is in the latter group that we find companies whose stocks may be significantly vulnerable in the coming quarters.

Abbott Laboratories $ABT

This company has long been one of the quality companies in the healthcare sector. Its business is built on a broadly diversified portfolio of products that generate steady demand across economic cycles. As a result, the company is able to grow over the long term, maintain solid margins and generate strong operating cash flow. It is this combination of stability and predictability that has made it one of the most popular healthcare stocks of the last decade. And it's also one of the titles that investors have stopped seeing as price sensitive.

In recent years, the company has repeatedly delivered solid results. Revenues and profits have steadily increased, even as the broader economy has struggled with significant swings. The company benefited from its strong position in diagnostics, medical device sales and consumer healthcare, which allowed it to partially offset weaker performance in each segment. The problem, however, is not that the business has stopped working. The problem is the rate at which the share price was rising compared to the rate of growth of the company itself.

The stock has had an exceptionally strong period where it has appreciated by tens to hundreds of percent over several years. Between 2016 and 2022, the stock added over 230% in value. After this much growth, when the stock was well above its fair price, came the downturn. Thus, in the last three years, we can observe stagnation on the $ABT chart, which is mainly due to stock valuations. Investors simply don't want to overpay for stocks anymore.

As a result, today Abbott Laboratories stock no longer trades as a defensive title, but as a premium growth asset. Implicit in the price is the market's assumption that the company will be able to maintain a high rate of revenue and earnings growth over the long term, preserving margins while facing regulatory and competitive pressures without major fluctuations. This dramatically reduces the scope for positive surprises. Conversely, the stock's sensitivity to any deterioration in the outlook or slowdown in key segments increases significantly. And even when the company's business is doing well, as you can see for yourself in the stock detail on Bulios, the price is simply too high already.

This is where the biggest risk is. If results start to fall even slightly short of expectations, the market may very quickly reassess what premium it is willing to pay for this business. Yet history shows that corrections in highly valued healthcare titles are neither short nor shallow. Often, there is an extended period of stagnation or a more pronounced decline, during which the price gradually returns closer to fundamental value.

As valued by the Fair Price Index, stocks today are well above levels that would be consistent with realistic long-term growth. In fact, it is currently 25.7% above its fair intrinsic value. That doesn't mean the company is bad. It does mean that the risk/reward potential ratio has deteriorated dramatically for new investors. And for existing holders, the question of whether the current price reflects peak optimism rather than real business is becoming increasingly important.

Thermo Fisher Scientific $TMO

Thermo Fisher Scientific has long been one of the best quality and players in the entire healthcare sector. The company's business is closely aligned with the pharmaceutical, biotechnology and research ecosystems, which has allowed it to build an exceptionally strong position across diagnostics, laboratory technologies and manufacturing support for drug development over the past decade. It is this role that has made the company one of the main channels through which investments in healthcare and biotechnology have flowed. The company has long benefited from growing research, development and testing budgets. And the market has rewarded this position handsomely.

The company's performance in recent years has been objectively very strong. Revenues and profits have grown at a rapid pace, strongly supported by both organic growth and acquisitions. The company has been able to expand margins, strengthen cash flow and build scale that few competitors can replicate. It is this combination of quality, growth and strategic relevance that has created one of the most compelling investment stories in the sector. But the problem is not the past. The problem is what the company must deliver today to justify the current price.

The stock has had an extremely strong growth cycle, during which its price has risen by hundreds of percent. Over the past 8 months, $TMO stock has appreciated 55%. Far from just reflecting improving results, this move has also reflected a massive expansion in valuation, with investors willing to pay ever higher multiples for exposure to the healthcare and biotech boom. The result is a situation where the title is now trading at levels that have been above its long term value. The company's stock chart can be viewed very similarly to that of the previous Abbott Laboratories. By 2022, the price was rising steadily and very strongly. However, we have not seen any new highs on the chart in the last three years. So the situation is the same - it is stagnation.

It is just at this time of stagnation that investment tensions begin. After an exceptionally strong period, the dynamics are gradually normalising. The rate of revenue growth slows, the comparative base is extremely high (what investors expect from the company) and some of the demand that was accelerated by extraordinary circumstances in recent years (mainly in the form of external investment in the sector) returns to longer-term trends. This in itself is not a problem for the quality of the firm. But it is a fundamental problem for valuations, which are based on very optimistic assumptions.

In an environment where markets are again more focused on capital efficiency, margin stability and sustainability of growth, this increases the risk of potential weakness. Should results fall short of high expectations, the scope for multiple compression is significant. And valuation compression is often the main source of long-term price declines for these types of titles, even if the business itself remains healthy.

The price is currently well above its intrinsic value, according to the Fair Price Index on Bulios, by exactly 31.94%. This creates a very unbalanced relationship between potential return and risk for investors thinking about investing in this company. Indeed, the stock is now at a stage where it is not a good idea to take profits rather than aim for further growth.

Medtronic $MDT

Medtronic boasts the title of one of the largest medical technology manufacturers in the world. In fact, its products are deeply ingrained in the day-to-day operations of global healthcare. The company is built on a broad portfolio of devices and solutions for cardiology, neurology, surgery and chronic disease management, which has historically provided it with stable demand and relatively predictable revenues. It is this predictability that has attracted long-term capital and built the company's reputation as a defensive title suitable for more conservative investors. And while the business remains robust, the question is beginning to be whether the current share price reflects this.

The firm's results in recent years paint a picture of stabilization rather than dynamic growth. While revenues have gradually increased, the pace of expansion has been rather low to moderate, especially when compared to how aggressively the share price has risen over a period of time. In addition, profitability growth is running into cost pressures, changing demand patterns and a regulatory environment that has been challenging for medical device manufacturers over the long term. Thus, while the company is generating solid numbers, they are not the kind that alone would justify significant valuation expansion. To put this in perspective, as of November 2023, the price per share of $MDT has risen 40%.

Still, the stock has undergone strong growth in recent years, driven largely by investors' return to defensive sectors and belief in structural growth in healthcare. However, their expansion started already in the crisis years around 2008-2009. Thus, the share price started to rise much earlier than the previous firms. But its expansion also ended earlier. Medtronic peaked in 2021. The price declined significantly the following years. It even got below where it was during the covid selloff in 2020. So why is the stock still overvalued when it is 28% away from the peak, which is significantly more than previous companies? The answer is simple. At the peak, the stock was driven by a giant hype and got to even more meaningless valuations. And the market then punished the stock soundly for it.

Today, the title is still valued as if it were on the cusp of a new growth phase. However, there is no significant breakout in the results so far that clearly confirms this thesis. That said, any weaker quarter, reduced outlook or margin pressure could have a disproportionately strong impact on the share price. The higher the expectations, the less room for error there is. In fact, sales have grown so little over the past four years that it's more likely to be described as stagnant, and net income was even $300 million lower for 2024 than 2021.

According to the Fair Price Index on Bulios, the stock's valuation is well above levels that would be consistent with current growth rates and returns on capital. Thus, the potential for further upside is limited, while room for correction remains open. For investors, this means an increased risk that the coming years may be marked by share repricing rather than new value creation.

Conclusion

All three companies analysed share a fundamental theme: exceptional business quality, a strong market position and a long-term attractive sector. But they are also united by very strong share growth in recent years, expansion in valuations and extremely high market expectations. It is this combination that creates an environment in which it is no longer enough to be a good company. For current valuations to hold, these companies must deliver near flawless performance over the long term, and continued earnings and revenue growth, not valuation growth.

If valuations begin to return closer to fundamentals, these companies can get back on a growth trajectory. Of course, this is not just true for these companies or the healthcare sector.

General Mills is one of those companies investing in its future growth, even if it means accepting pressures on profitability in the short term. These investments are focused on restoring organic growth, product innovation, and solidifying distribution channels, which are key to long-term competitiveness and margins in the packaged goods segment today.

How was the last quarter?

In the second fiscal quarter of 2026, net sales $GIS were $4.9 billion, down 7% year-over-year. However, it remains important to distinguish between organic sales and overall numbers impacted by structural changes in the portfolio: net organic sales were only 1% lower, reflecting actual market demand excluding the effects of divestitures and acquisitions.

Profitability faced significant pressure. Gross margin decreased by 210 basis points to 34.8% of sales, impacted by higher input costs and the adverse effects of market changes. Operating profit fell 32% to USD 728 million and operating margin fell 560 bps to 15.0%. Even after adjusting for one-off items (e.g. restructuring costs), adjusted earnings remained lower, with adjusted operating profit down 20% to USD 848 million and operating margin down to 17.4%.

Net profit was $413 million, down 48%, and earnings per share fell 45% to $0.78. Adjusted for one-time items, adjusted EPS declined 21% to $1.10. This decline was the result of lower operating performance, lower joint venture income and a higher effective tax rate, partially offset by fewer shares outstanding.

• Full presentation with results.

Management commentary

CEO Jeff Harmening commented that the team continued to execute its growth strategy well in a challenging environment, particularly through its investment in the "remarkability framework" - a comprehensive initiative aimed at restoring organic growth through product innovation, stronger marketing and omnichannel distribution. Management also confirmed that the investments have begun to positively translate into revenue recovery in certain categories, particularly in the North American retail channels.

Harmening also highlighted that the firm is reaffirming its full-year guidance for FY2026, which implies confidence in the strength of the strategy despite short-term declines in profitability. This stance is in line with the company's ambition to prioritise long-term performance and market positioning over short-term financial results.

Outlook

The company expects the transitional investment phase to end and the price/mix ratio to improve due to stronger performance in the second half of the year and the following fiscal. This should support improved margins and net income without the need to raise price levels above a sustainable level for consumers.

Long-term results

A longer-term view shows that General Mills is on a relatively stable, albeit slightly downward, sales trajectory. Total sales for 2025 are approximately $19.49 billion, down nearly 2% from 2024. This decline is not dramatic and is within the expected fluctuations of the packaged goods segment, which traditionally responds to changes in raw material prices, consumer behavior, and competition.

The company's gross profit declined nearly 3% over the same period, driven by higher input costs as well as changes in product mix. Operating profit fell by around 4% and net profit fell by more than 8%. Earnings per share (EPS) fell by more than 5%, partly reflecting the investment strategy and portfolio changes within the divestments.

But over the long term, the company continues to generate stable cash flow and maintain a relatively strong balance sheet. EBITDA and EBIT show minor fluctuations and indicate that despite short-term fluctuations, the business remains able to fund investments, dividends and potential share buybacks.

Shareholding structure

General Mills has a strong institutional investor base. Roughly 86% of all shares are held by institutions, with the largest stakes held by Vanguard (12.57%), BlackRock (10.21%), State Street (6.32%) and Charles Schwab Investment Management (3.60%).

This institutional concentration of ownership often means that investors evaluate a company more through the lens of long-term stability than short-term fluctuations, and prefer a strategy that can deliver stable returns and protection against cyclical fluctuations in the future.

Analyst expectations

Analysts approach Nike with cautious optimism, with consensus for FY2026 indicating that the market expects a gradual improvement in organic revenue growth and stabilization of margins as investments in the brand begin to generate results. Many ratings remain at Buy/Overweight, with average target prices above the market, indicating that the market still believes in medium-term growth. However, some analysts warn that without a clear acceleration in growth in key segments, sentiment may be cautious, especially if global economic uncertainty persists.

Fair Price

For me, it's probably the replacement of the Fed Chair. If someone close to Trump were to take over, that independence could be undermined and there would be pressure to cut rates. In that case, I'd expect significant volatility and stocks could swing sharply up and down.

There may be several such events this year and everyone is watching slightly different things. I'd be glad to read what you consider to be the key factors.

What makes the rally notable is its depth. Government support lowers execution risk, management change restores credibility, and capital inflows signal external confidence in the turnaround. The market is not simply pricing optimism—it is pricing the possibility that Intel can once again play a meaningful role at the technological frontier of semiconductor manufacturing.

Political tailwinds and state capital

A crucial factor is the entry of the US government into the shareholder structure. The United States has so far accumulated a stake of around 5.5%, with up to 10% in the long-term scenario. The move is part of a broader industrial strategy to reduce US dependence on Asian manufacturing capabilities and strengthen the domestic semiconductor ecosystem.

For investors, state participation has a twofold effect. On the one hand, it acts as an implicit guarantee of stability in a critical period of transition, while on the other it creates the expectation that Intel $INTC -will be a key beneficiary of public procurement and support under strategic programmes. It is this combination that explains why the market reacts so sensitively to policy statements.

A new CEO and a changing narrative

Since Lip-Bu Tan took the helm in March, the investment narrative has been changing. After years on the defensive, Intel is once again trying to position itself as a technology leader, not just a traditional processor maker. Management is emphasizing a return to execution, discipline in capital spending and a focus on process technology.

A key moment was Intel's confirmation that it will begin shipping its first products built on process 18A, a sub-2 nanometer manufacturing technology, in late 2025. For the market, this is proof that ambitions to catch up with - and eventually compete with - Taiwan Semiconductor Manufacturing Company are not just marketing, but have a concrete technological basis.

Strategic investors boost confidence

Another strong signal to the market is the entry of major technology players into Intel's capital. More than just a cash injection, the investments from Nvidia $NVDA and SoftBank $SFT.F. These moves suggest that Intel can play an important role in the broader ecosystem - whether as a manufacturing partner or as a strategic node in the AI and data center chip supply chain.

Importantly for investors, this is not just speculative capital, but long-term bets by entities that have deep insight into technology trends and future demand.

Why growth stocks are faster than the business itself

Despite the sharp rise in share prices, the reality of the business remains more complex. Intel is still outsourcing part of its manufacturing and the lost market share in server and high-performance chips will be regained gradually. However, the market today is not pricing in actual results, but the possibility of a structural turnaround.

Thus, the rise in the share price reflects a change in the probability of success rather than the finished success itself. In other words, investors today are betting that a combination of government support, new management, and technological advances greatly increases the chances that Intel will cease to be a troubled title and become a strategic player again.

What's in it for investors

The current rally shows that SE Intel has moved out of the "restructuring story" category and into the "strategic bet on US industrial policy" category. This carries potential, but also risks. Further developments will depend primarily on whether it succeeds:

• scale up production steadily on the 18A process

• attract significant external customers for the foundry business

• and translate political support into sustainable sales and margins