Baichuan Li
Baichuan Li
United Kingdom
8mo
Hi All Happy New Year! I realise it's been a while since I have posted here. Our portfolio has had quite the tumultuous journey since I decided on my original investment thesis in 2021, and it is finally bearing the fruits of our patience. LIttle change has been made since the original long positions were established years ago, and the thesis was based on 3 important aspects. The first and the simplest is of course recovery post COVID. The once-in-a-lifetime pandemic had an extraordinary and outsized impact on many industries. Lots of businesses folded, however those with prudent leadership and strong balance sheets survived, and presented attractive investment opportunities. Our portfolio that benefited from this includes our positions in Airbus as well as IAG, where resumption in air travel restored their growth and profitability quickly. Another consideration for the investment in Airbus rests on the duopoly of Boeing and Airbus in the global aviation market, where Airbus can take advantage of Boeing woes in recent years to further gain market share. The second aspect in question, and the hottest topic right now, is of course AI. Countless tech companies have made enormous investments, whether it be narrow AI designed for specific workflows, or general purpose AIs such as large language models. Rather than investing in companies at the end of this supply chain, where there is far too much uncertainty and competition, we can work our way backwards and realise that the bedrock of AI rests on hardware including memory, storage, as well as processing power, and herein lies our thesis for investing in Micron. Demand for DRAM has exploded in the past year, and will continue to rise as hyperscalers invest further into training their AI models. As a cyclic industry dominated by only a few players, the DRAM market has for long been reluctant to invest in increasing capacity, rightfully so, as too much Capex would cause the next glut to be much worse. However, with a tailwind as strong as AI, this has resulted in an extreme shortfall in DRAM supply, with no end in sight. As such, we can expect the rapidly expanding margins of all DRAM manufacturers to be a feature that'll persist, at least for the next 1-2 years. The effective triopoly and stable DRAM supply space also makes it a much safer investment. As mentioned above, aside from DRAM, AI also needs processing power. This is fundamental to our investment in Intel. Once a stock that people frequently compared to Nokia as a sinking ship, Intel has successfully been reinventing itself as well as doing catchup. The reinvention comes in the form of Intel Foundries, where thanks to ex-CEO Pat Gelsinger, Intel doubled down on its domestic foundry ambitions despite the heavy investment needed and after years of investment it is finally bearing fruits of its labour. Since 2025 Intel Foundries has attracted multiple AI hyperscalers who are now sampling its 18A and 14A processes, a major factor in its recent stock rebound. The catchup comes in the form of the completion of Intel's "4 nodes in 5 years" plan, where its 18A node is now once again market-leading. Intel unveiled Panther Lake in CES 2026, the first mass-produced 18A CPU lineup to consumers and it is looking like a class-leading product. While in the past few years Intel has gradually lost market share to AMD both in the consumer and datacentre space, it is now looking like Intel finally has the tools to fight back and win. The third aspect behind our investment thesis has been nationalism, especially in the US. In the current political climate of the US, nationalism plays an important part of its economic strategy. The world has long relied on global supply chains that rely heavily on Asia. An iPhone would have its internal semiconductor parts fabbed at TSMC in Taiwan, before assembly in China and then shipped to the US for sale. In fact, TSMC for the past decade has been a monopoly which all US semiconductor companies have to rely on for fabrication. This is heavily prone to geopolitical tension and the lack of control has long been a problem for the US government. It is then no wonder, that the US would invest heavily into its only dosmetic choice, Intel, as an alternative to its over-reliance of Taiwan. In late 2025, Trump's government took a 10% stake in Intel after already massively doling out grants to Intel in past years as part of the CHIPS act. With Intel now looking this competitive and with the US government backing it all the way, it is difficult to see a downside to having a strong position ourselves in Intel. Looking ahead into the rest of the 2026, I don't have any immediate plans to change any investment position just yet, except taking some potential profit from our Micron position which has gained over 500% since our original investment. The crux of my investment strategy will always stay valued oriented and based in fundamentals, as this has served us well from the very beginning.
Not investment advice. The author may have financial interests in the mentioned instruments.
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