The End of American Exceptionalism

Fundamental Value returned 33.0% net of fees in 2025, significantly outperforming the S&P's 17.7% return. FV is now up 507.6% net since inception in 2016 vs 284.0% for the S&P 500, representing annual outperformance of 5.7%.1 For monthly performance, see our tearsheet. Our letter below is deeply critical of the direction the United States is heading and the implications for its capital markets. We write these words with a heavy heart. As Americans, we desire nothing more than to see our country flourish. However, as investors, our job is to find opportunities wherever they present themselves. We profited handsomely in 2025 by owning inexpensive international equities while shorting overvalued US stocks. We expect this approach will be very successful in 2026 as well.

Market commentary   The US has dominated the past century, both geopolitically and economically. As a result, the US stock market has enjoyed decades of world-leading returns. Americans, and investors in American securities, have come to assume that this is a natural law. However, American exceptionalism is not preordained. It is a function of many factors, but chief among them is institutional excellence: the rule of law, strong property rights, a competent and impartial bureaucracy, an independent judiciary, thriving academic and research institutions, fiscal prudence, deep and efficient capital markets, a stable currency, and leadership of an unparalleled network of friends, allies, and trading partners. All of these pillars are under attack, jeopardizing not only our prosperity and our way of life, but the foundations upon which market returns depend. At the same time, US equity valuations are at or near all-time highs, and speculative excess has returned with a vengeance. Investors are applying peak multiples to peak earnings in an environment of deteriorating institutions, ballooning deficits, and rising geopolitical risk. It is difficult to imagine a scenario less likely to lead to durable stock market gains. For prudent investors, the time to look elsewhere is now. In fact, it was last year: despite the US equity market dominating investor mindshare, the rest of the world returned 32.6% in dollar terms in 2025 vs the SPY's 17.7%. Vibe investing In 2021 we wrote a series of increasingly alarmist letters, culminating in Apex of a Bubble in September 2021. We said, “extreme valuations presage real returns that investors will find severely disappointing – and likely negative – for many asset classes over years to come.” The S&P 500 proceeded to plunge -18.2% in 2022 while Fundamental Value gained 34.0%. The most speculative stocks were decimated and many of our shorts cratered over 80%. We were surprised by what came next. We have a mental model of the emergence of investment bubbles: every generation needs to personally experience a bubble in order to properly discount investment risk. After a bubble pops, that cohort of investors are humbled, become more skeptical of fanciful financial projections, and pay more attention to valuation. Over time, memory fades, a new crop of investors enters the market, a new technology is invented, and the cycle repeats. We expected that experiencing the losses and disillusionment of 2022 would chasten investors and usher in an era of rational, responsible, and value-conscious investing. Yet in 2026, just a few short years later, we find ourselves back at similar extremes. Investors have not been sobered at all. In our May 2024 letter, we observed in dismay that many of the market excesses of the 2021 market – extreme valuations, meme stocks, shitcoins, zero-day options – had already returned. We wondered about this incongruence, and how to contextualize it.   Is this in essence a form of bear market rally, a "dead cat bounce," an echo of the 2021 bubble driven by AI enthusiasm, and the ultimate washout is imminent? This is our best guess, but there is an alternative: potentially, this is the beginning of a new, even more extreme, final wave of speculation. Were we to travel back in time, equities would have felt very frothy to us in 1998. Yet after a brief bear market, stocks continued climbing, reaching the most extreme valuations of all time before finally peaking in 2000. We can't rule out a similar possibility today.   We are now in the throes of that final, extreme wave of speculation. In software engineering, coders are vibe coding, giving in to the vibes and forgetting that the code even exists; in capital markets, investors are “vibe investing,” giving in to the vibes and forgetting that the financials even exist. Assets are priced based on their ability to spin a fantastical science-fiction story rather than on any plausible estimate for future cash flows. Anything that captures the public’s imagination – because it is funny, or nostalgic, or futuristic, or simply absurdly volatile – commands a valuation worth billions of dollars. Waton Financial, whose only distinguishing characteristic is that it managed to secure the ticker symbol “WTF,” soared 5x on the day of its public debut. Predictably, less than six months later, it is now trading back within $1 of its IPO price. Dogecoin – a cryptocurrency created as a joke, with no use cases – had a market cap of over $60b at its peak, which, if it were a publicly traded firm, would put it comfortably in the top 200 most valuable companies in America. MicroStrategy, or as they're calling it now, “Strategy”, spawned a host of copycat crypto treasury companies that infested the public markets, inspired by a comically nonsensical theory that a box with bitcoin in it is worth many times more than the bitcoin in the box. This “infinite money glitch” is reminiscent of the SPAC mania of 2021, when boxes with $10 of cash per share regularly traded for $50 or more. Many SPACs never merged with an operating company as promised and shortly sank back to $10; the ones that did merge dropped by -62% on average. The credulity of today’s investor knows no bounds. Tesla is a car manufacturer with typical manufacturer margins whose earnings have fallen 75% from their peak two years ago and whose brand value has been decimated. Yet it sports a preposterous $1.6 trillion valuation because Elon promises that fully autonomous driving and robotaxis are a year away (which is the same thing he’s been saying since 2016), and the vaporware Optimus humanoid robot will shortly transform society. But extreme valuations aren’t solely the preserve of “tech” companies with promotional and charismatic founders. There’s a bubble in many boring but high-quality names as well. Costco, an excellent but staid business, trades at 50x earnings despite modest growth of less than 10% annually. Leveraged ETFs are another strange example of the speculation-focused perspective of market participants, and one of our personal pet peeves. They promise double or triple the daily returns of an index or single stock. Because of the way the math works on daily leverage, volatility can quickly erode returns. A stock up 25% one day and down -20% the next will be flat. But a leveraged ETF with double those daily returns will be up 50% and down -40%, resulting in a -10% loss. For example, Apple was up 9% in 2025, but the Apple 2x levered ETF, AAPU, was down -8%. For more volatile stocks, the volatility decay can be downright absurd. MicroStrategy was up 380% in 2024, yet the 3x levered ETF, LMI3, plunged -47%. Investors have poured hundreds of billions of dollars into these speculative vehicles, and that number is growing rapidly. Sixty new leveraged ETFs were launched last October alone. Retail options trading has exploded. Options activity hit a sixth straight annual record in 2025. In the S&P specifically, 0‑days‑to‑expiry contracts made up over 50% of average daily option volume in Q3, and retail traders accounted for nearly half of total daily options flow. There has also been an eruption in the number and valuations of “story stocks.” These firms sell vague promises of world-changing technology – quantum, next-gen batteries, eVTOL aircraft, nuclear energy, space ventures, autonomous systems – each with a futuristic story but minimal revenue or cash flow to support it. We screened for publicly listed companies (excluding pharma/biotech) with market caps over $1 billion but trailing twelve-month revenue under $20 million. We found sixteen at the 1999 dotcom bubble peak. Today there are more than thirty. Academic and market research show that stocks priced at lofty sales multiples (a given when sales are near zero) dramatically underperform market returns. The 1999 story stock vintage saw exactly zero of its cohort become a sustainable business without going through a bankruptcy or debt restructuring. The 2021 vintage comprised 27 companies with a combined market capitalization of $217 billion. Four years later, the median stock in this group has plummeted an astonishing -86%. Over the past 12 months, this basket of basket cases generated $9b of revenue and an incredible -$8b of EBITDA. For five years now, starting in 2021 with the GameStop mania, crypto bubble, and SPAC craze, bouts of unhinged speculation have been so frequent and pervasive that investors have become inured to it. No one seems to be batting an eye. Do not normalize this behavior. This is madness, and can only end in disaster. We take no joy in that, but we will seek to capitalize on this obvious mispricing. We profitably shorted several of these story stocks in 2021, including Rivian (RIVN), Virgin Galactic (SPCE), Nikola (NKLA), and Blink Charging (BLNK). We are short many more today. The most obvious objection to our thesis is that the rise of artificial intelligence is on the verge of breaking the economic rules that have prevailed since the Industrial Revolution, ushering in a new era of plenty and justifying extreme capital expenditures and extreme valuations. We are strong believers in the current utility and future promise of generative AI. We use large language models constantly for work and personal tasks. LLMs are already reshaping knowledge work, scientific discovery and creativity. However, we think the oft-repeated conjecture that “this time is different” is naive and economically illiterate. Enormous value will be created by artificial intelligence. But the vast majority of that value will not be captured by producers, but instead accrue to users of the technology in the form of consumer surplus. This is not a novel insight – it is one of the oldest lessons in economics, and one that investors relearn painfully with each technological revolution. The Alchemist Fallacy In 2002, after the bursting of the internet and telecom bubbles, the economist William Nordhaus wrote his seminal paper, The Alchemist Fallacy and the New Economy. Throughout the Middle Ages, alchemists toiled in laboratories, searching for a way to transmute base metals into gold. Though in the end this proved impossible, that was not the fallacy:   Rather, the alchemist fallacy was to think that, once a process for producing gold was discovered, gold would retain its scarcity and the discoverers would be rich beyond belief. The laws of economics teach us that were anyone to find such a miraculous substance, its value would quickly fall as entry, imitation, and innovation rapidly eat away at the profits, and increased supply would lower the price of miracles. In other words, excess profits from even the most transformative technologies dissipate as competition and commoditization take hold. Nordhaus studied transformative 20th century industries and found that only around 2% of the social surplus value from technological advances was captured by producers. Instead, the vast majority of surplus value accrued to consumers in the form of new goods and services or lower prices. Today, scientists have taken the metalloid silicon and summoned a god from the machine. This feat is much more impressive and useful than transmuting metals into gold, but it is still subject to the laws of economics. Yet many people assume that because artificial intelligence is extremely valuable to its users, it will always command a premium price. For example, OpenAI recently claimed that one day they could take a share of their customers' profits if they created value. But that is not how pricing works. If it were, food would be the most expensive product in the world. Instead, pricing – and thus profit – is determined by competition. For differentiated goods in monopolistic markets, excess profits can be sustained. In competitive and commodified markets where close substitutes exist, economic returns will be more muted. Consider the railroad buildout of the 19th century and the fiber buildout of the 20th. Rail and fiber share similar characteristics with generative AI. Both industries are highly capital intensive. Projects take years to build. Both industries dramatically reshaped the economy. Railroads enabled the near-instantaneous transportation of people and goods; fiber enabled the near-instantaneous transfer of information. Both experienced a massive capex boom. And both booms ended in oversupply and dramatic investor losses, followed by more measured expansion. There’s a pattern to these capex booms. Early movers in new industries are able to extract excess profits because there is a shortage of a desirable good and little competition in providing it. Those riches attract more capital, leading to an investment boom. New investors make return projections based on prevailing market prices. However, when their supply eventually comes online, it increases competition and thus depresses pricing. At those new rates, many investments turn out to be disappointing or even uneconomic, causing the bust.2 AI is capacity constrained today due to shortages of chips, power, and data centers. This allows producers in those industries to temporarily earn monopoly-like profits. However, these capacity constraints will not be binding indefinitely. Gigawatts of new compute are coming online seemingly every day. And just measuring the raw increase in gigawatts significantly understates the increase in token supply. Each new GPU generation delivers a multiple of the prior generation’s throughput. Algorithmic improvements allow more tokens to be produced on the same hardware. While we appear to still be in the early-mover stage, we believe the AI complex is well on its way to commodification. Intense competition is evident up and down the stack. At the cloud provider layer, hyperscalers and neoclouds are in an intense race to provision servers for compute-hungry customers. However, they have largely similar offerings, and will not have long-term pricing power. Compute, currently dominated by Nvidia’s GPUs, is becoming more crowded due to internal custom silicon like Google’s TPUs, as well as more competitive offerings from peers like AMD and Huawei. Data centers, while in short supply today, in the end are merely warehouses filled with servers and are interchangeable. The models themselves are also becoming commodified. Despite the large head start that first movers like OpenAI and Anthropic had, evidence is mounting that no lead is safe. Fast-follower labs churn out LLMs that are as good as the leading foundational models from only a few months prior. Open-source models are close behind. We believe state-of-the-art models will prove to be overkill for many use cases. A surfeit of good-enough choices will depress pricing power for all model providers, including the leading labs. Our biggest concern about the fate of the AI boom is that an increase in competition will depress returns. But there are other aspects of the AI investment boom that we think are misleading investors about its profitability today. First of all, the sheer scale of capex is inflating the profitability of the market as a whole. Cloud providers and labs are investing hundreds of billions annually. This shows up as revenue for the AI picks-and-shovels complex – the makers of GPUs, memory chips, turbines, cooling systems, etc. – and it flows directly to their bottom line. However, because these costs are capitalized on the hyperscalers’ balance sheets and then depreciated over the lifetime of the asset, only a tiny fraction of these cash expenses are showing up in earnings. Typically, at the level of the equity market as a whole, depreciation roughly matches capex. But because the dollar amounts in the AI buildout are so large and growing so rapidly, depreciation is massively trailing cash expenses. At the index level, this means artificial intelligence investments show artificial profit today. We’re essentially pulling forward hypothetical earnings from future periods. When the growth rate in AI capex slows – and it will – depreciation will catch up to expenses. This will mechanically lower the profitability of the index as a whole. Also concerning is the circularity of AI spending. Most famously, Microsoft has invested heavily in OpenAI, which spends that money on Microsoft cloud services. Nvidia is also investing $100b in OpenAI, who will use the cash to lease Nvidia chips. Nvidia is guaranteeing to absorb any unused GPU capacity from CoreWeave. Microsoft and Nvidia are investing $15b in Anthropic, who has committed to buy $30b in compute capacity from Microsoft Azure. Google and Amazon have also invested in Anthropic in return for business. Nvidia has invested in neoclouds and data-center builders Crusoe and Nebius and CoreWeave, who will use the funds partially to buy Nvidia GPUs. These are just a few of the many incestuous deals in the past year. In aggregate, we find that a meaningful share of AI capex and earnings now reflects money recycling inside the same small ecosystem. This is reminiscent of Cisco’s vendor financing during the dotcom bubble, when Cisco extended loans to their customers so they could buy equipment they couldn’t afford. While these companies are subsidizing their own customers, we do not believe this is a cynical ploy to juice earnings; Microsoft, Nvidia, and their ilk believe in the promise of the technology they sell, and they believe that their customers, and the investments they make in them, will be profitable. But these circular investments are allowing unprofitable startups to spend well beyond their means on cloud services and GPUs. It remains to be seen what level of spending – and what margins – would obtain if forced to transact on their own economics. Valuations In the US, valuations are at perilous highs. Like in 2000, the S&P 500’s forward P/E is roughly 23x and the Cyclically Adjusted PE (CAPE) is near 40x. Dividend yields are just above 1%, near all-time lows. The equity risk premium is negative – the 10-year Treasury yield is higher than the earnings yield of the S&P. Outside the US, however, valuations are much more attractive. European and Japanese equities trade around 15x forward earnings, a roughly 30% discount to US multiples. And in Japan, as we have previously discussed, the true economic discount is even larger given the cash-rich nature of Japanese corporate balance sheets. Valuations in emerging markets are more compelling still. The MSCI Latin America Index trades at a mere 10x forward earnings and offers a 5%+ dividend yield, a gap from the S&P 500 that is among the widest in modern history. For the majority of the two decades prior to COVID-19, the two indices traded within 5 P/E turns of one another. Today, that difference has ballooned to nearly 15x. We have positioned our clients to take advantage of this divergence by owning high-quality international businesses that trade at a fraction of US multiples. Furthermore, the US market is built on an alarmingly narrow foundation. A handful of mega-cap stocks are responsible for nearly all of the market’s gains, masking significant weakness under the surface. According to JP Morgan, AI-related stocks accounted for a staggering 75% of the S&P 500’s total return in the three years after ChatGPT's launch. Meanwhile, the other 490 companies in the index have collectively seen negative real earnings growth since 2022. This concentration, especially among the most richly valued stocks, is more extreme than the peak of the dot-com bubble. At the end of Q3, 35% of the S&P 500's entire market weight was composed of companies trading at more than 10 times their trailing 12-month sales. At the height of the tech bubble, that figure was only 25%. The concentration is so severe that the S&P 500 now fails the SEC's own rules for diversification. To be classified as "diversified," a fund cannot have more than 25% of its assets in its top 10 holdings, and no single security can exceed 5%. The S&P 500 ETF (SPY) now has over 40% of its assets in its top 10 holdings, an all-time record. Four companies – Apple, Microsoft, Google, and Nvidia – each individually exceed the 5% limit, with Meta close behind. In a very literal sense, the fortunes of investors hinge on the success of a tiny number of companies. While enormously profitable, we think their growth heydays and best stock returns are behind them. Their valuations, while not exorbitant, are demanding. Yet they operate in markets that are more mature and saturated now than ever. They were built on monopoly profits from dominating a single vertical; they now increasingly compete with each other for consumer attention, ad spend, and cloud and AI business. Their stock prices have benefitted from one-time effects that are unrepeatable. Apple serves as an illustrative example. Bireme Capital was founded in June of 2016, and Apple was an initial portfolio holding of ours. At the time, Apple traded at a high-single-digit multiple because investors worried that it was a cyclical hardware business. We believed that iOS was the primary driver of stickiness, and instead it should be valued as a recurring revenue software business. This is now conventional wisdom. Apple remained one of our largest positions for years. Though we sold in 2019, we wrote approvingly throughout the pandemic about Apple and the other FAANG stocks. Their transcendent businesses and relatively reasonable valuations served to mask the massive growth bubble in lower-quality tech names. From Bireme's inception through year-end 2025, the total return on Apple shares has been phenomenal, up 11.8x. Disconcertingly however, the business results, while very good, have not nearly kept pace. Sales are up 2.0x, and net income is up 2.5x.3 As strong as these results are, the primary driver of the outsize return to Apple shares has been the stock market, not the business itself. There are two main reasons for the massive gap. The first is self-explanatory: Apple's valuation has soared from 10x trailing earnings in 2016 to 33x today. A higher earnings multiple means, mechanically, that price increases by more than earnings growth. The second is that share repurchases have created a positive feedback loop. Apple has bought back an astonishing $731b of its own stock over the past decade. Apple has essentially made an enormous investment in itself, functioning as a kind of de facto hedge fund. Because the stock has rerated much higher over this time, these share repurchases were effectively made at rock-bottom prices. Repurchases have been enormously accretive for the remaining shareholders, allowing earnings per share growth (3.7x since 2016) to significantly exceed net income growth. But this is a one-time event, a historical accident, and not a sustainable method to generate excess returns now that the stock is much more expensive. We are now short the stock. While we are underwater on the trade thus far, we believe it would be very difficult for Apple stock returns to repeat its previous success over the next decade. Apple is not growing rapidly anymore. iPhone sales have been stagnant for the past four years as the category has matured and lifecycles have lengthened. Apple's sheer scale means that even successful new products that would be a blockbuster for a smaller company will barely move the needle at Apple. AI may also allow new competitors to emerge, as it remains to be seen whether AI is a sustaining or disrupting technology for personal computing devices. The past 15 years have seen an incremental evolution of preexisting operating systems and form factors. Will that continue for the next 15 years, or will we eventually be using dramatically different platforms? We have no particular predictions here, but it's worth contemplating if we'll still be toting glass slabs around in our pockets come 2040. It's no coincidence that Jony Ive, who became a legend designing hardware at Apple, is now at OpenAI working on a new AI-first device. In conclusion, we believe valuations will become a headwind as the market settles back to a more appropriate multiple for this stage of Apple's life. Apple continues to repurchase shares at a prodigious pace, buying $92b in FY 2025. Will today's buybacks prove to be a good investment? In 2016, Apple traded at 10x earnings and was scaling quickly in a secular growth market. Today a mature Apple trades at 33x earnings while sales are growing at a mid-single-digit rate. We do not think Apple's investments in its own stock will contribute meaningfully to returns on a go-forward basis. In fact, they may well detract. Apple is a microcosm of the broader US market: priced for perfection in an imperfect world. But while elevated valuations are a risk, they are not the only risk. The premium investors pay for US stocks assumes a stability that is rapidly eroding. Institutional decay Stock valuations in the US are among the highest in the world. A premium has historically been warranted because the US offered something most countries couldn’t: institutional excellence. The rule of law created the stable and predictable business environment that is a prerequisite for long-term investment. An independent judiciary enforced the law fairly, and a competent and impartial bureaucracy administered the law reasonably. The peaceful transfer of power every four years ensured relative continuity between administrations. An environment of civility and shared liberal values, even among rival politicians and factions, fostered high levels of social and societal trust that greased the wheels of commerce. Independent monetary policy and fiscal prudence spared us the ravages of inflation. Our principled and steady stance on the global stage and our support of international institutions cemented America as the trusted central node of the global economy. Our leading academic institutions trained Americans as well as the best and brightest from around the world, many of whom stayed in the US and deepened our pool of human capital. Though far from perfect, these precious institutions have been strong. If you are looking for the root causes of American exceptionalism, start here. Their confluence created the conditions for America’s economic dynamism over the past century. It brings us great sadness to watch these pillars being undermined by the current administration. To be abundantly clear, none of the following is a political statement. This is a financial and economic publication, and we do not have a political agenda. Neither of us identifies as either a Democrat or Republican. In fact, we agree with many of the policies that voters elected Trump to enact. We believe that low taxes maximize economic prosperity. We believe that excessive regulation has resulted in a sclerotic economy. As firm advocates for the rule of law, we believe that our country should have a well-considered set of immigration laws and that those laws should be vigorously enforced. We believe that cancel culture had gone much too far, stifling good-faith disagreement. “Woke” identity politics created a zero-sum game for status that inevitably catalyzed a backlash. Our issue is not with any particular policy. Our issue is with the degradation of the institutions that make good policy possible. This issue runs deeper than one man or one party. Every recent administration has contributed to institutional decline. Biden, for example, pursued legally dubious executive actions on policy wishes like student loan forgiveness and eviction moratoriums, abused the pardon power for his own family despite his promises otherwise, and politicized the CFIUS national security review process to block the Nippon Steel acquisition of US Steel for naked political gain. But while neither political party is innocent, the second Trump administration is not just more of the same. The current moment is distinguished by the speed, magnitude, and brazenness of Trump’s actions. Institutional breakdown is rapidly accelerating. As investors, and as Americans, we are deeply concerned. The strength of these institutions has a direct bearing on the risk premiums and earnings trajectory that underpin US equity prices. Furthermore, we feel compelled to write this not just because of the economic implications, but also because silence can be equivalent to complicity. Below, we catalog some of the most alarming and consequential developments. You may find this list exhausting (though it is far from exhaustive). However, in this charged political climate, we believe that to lend credence to our potentially controversial views, it is necessary to chronicle just how utterly pervasive and systematic the destruction of the rules, norms, and values of our system has been under the current administration. Rule of law The Trump administration has conducted an unprecedented attack on the rule of law. For over a hundred years, courts have operated under the “presumption of regularity,” a doctrine that instructs courts to presume that the executive branch acts honestly and in good faith. This doctrine has been left in tatters. Judges across the ideological spectrum – including many appointed by Trump himself – have rebuked the administration for dozens of flagrant misrepresentations, defiance of court orders, vindictive actions, and spurious charges. There has been a mass exodus from the Justice Department as career prosecutors – including, again, many appointed by Trump himself – resign in protest or are fired, leaving the DOJ bereft of the nonpartisan career civil servants who uphold the integrity of this critical institution. Trump illegally ignored the law banning TikTok for over a year, and the final deal – with politically aligned allies and governments as the acquirors – does not seem to meet the requirements of the law. His administration has blatantly defied the law regarding the release of the Epstein files, not meeting timelines, improperly redacting names, and withholding millions of documents. Trump has conducted a purge of government watchdogs, firing two dozen inspectors general, who are tasked with seeking out fraud and mismanagement in federal agencies. And he has done so without notifying Congress, as the law demands. In 2024, the CFTC’s main enforcement office in Chicago had 20 trial lawyers and investigators and collected over $17 billion in enforcement actions. In 2025, less than $10 million was collected; today, there are no attorneys left. Our ability to combat fraud is greatly diminished. Trump’s disdain for technocratic rule of law, and our institutions in general, is perhaps best exemplified by Trump’s partisan attacks on the Federal Reserve, the critical institution charged with safeguarding the currency. In his pursuit of lower interest rates, Trump has spit hateful vitriol at Fed chairman Jerome Powell, a man whom Trump appointed in his first term. (Ironically, undermining the Fed will lead to higher long-term interest rates.) To gain control over the Fed, the administration has attempted to fire a Fed governor, demanded Powell be stripped of authority, and launched a criminal investigation into the Fed chairman under the pretext that he misrepresented a building renovation. As Powell averred, "the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President." When Powell’s term ends in May, Trump will appoint Kevin Warsh as the new chairman. Undoubtedly, he was chosen not because of his principles, but because of his pliancy. When the executive branch undermines the independence of the central bank, we are no longer in the realm of normal political disagreement. We are witnessing the rapid erosion of a critical institution that took a century to build. Corruption Trump is misusing the office of the presidency to financially benefit himself, his family, and his friends to an unprecedented degree. This corruption is not just outrageous and despicable, it endangers our prosperity. Research shows that when economic decisions are made because of access and bribery rather than merit and principle, growth, investment, and public trust suffer. Perhaps Trump’s most blatant moneygrab is his lawsuit against the IRS – an entity he controls! – for $10 billion. Trump is also using the office of the presidency to profit from his crypto company, World Liberty Financial, and various affiliated meme coins. Notably, he hosted a dinner for top $TRUMP coin holders where access to the president was directly exchanged for purchases. Subsequent to the dinner, the SEC dropped a case against Justin Sun, the largest holder of $TRUMP. Trump also pardoned Changpeng Zhao, who was convicted in 2023 for allowing sanctioned Iranian crypto exchanges, Russian drug-traffickers, and Hamas militants to launder billions of dollars through his crypto exchange, Binance. After the pardon, Binance helped launch and legitimize WLF’s stablecoin, likely earning WLF hundred of millions of dollars annually. The Trump administration is making enormously consequential decisions with an eye on Trump’s own personal enrichment. Foreign governments know it, and are using this lever to influence American policy. In the midst of US-Vietnam tariff negotiations – in fact, while Vietnamese negotiators were in Washington – Trump's sons visited Vietnam and received approval for the Trump Organization to build a $1.5b luxury resort. The terms were not made public. Vietnam had initially been slated to face one of the world’s highest tariff rates, but after these events an agreement brought them down to half the announced level. In mid-May 2025, the Trump administration agreed to give the UAE access to a large volume of much-coveted Nvidia GPUs, overcoming longstanding national security concerns. Later, the world learned that in a secret agreement in January 2025, WLF sold a stake in itself to UAE-linked investors for $500m. Much of this money went straight to Trump family entities. Cronyism is rampant. Those with access to Trump distort our economy, enriching themselves and harming ordinary Americans. Seemingly out of the blue, Trump threatened to block the opening of the new Gordie Howe Bridge. Entirely paid for by Canada but jointly owned with Michigan, the bridge is set to be the US’s largest port with Canada when it opens, easing congestion and boosting local economies. The first Trump administration heartily endorsed the bridge in 2017. Reporting later revealed that a few hours before Trump’s perplexing threats, Commerce Secretary Howard Lutnick took a meeting with the billionaire owner of the competing toll bridge whose business stands to suffer when the new bridge is opened. With every quid pro quo, with every selfish misuse of his power and influence, Trump is slowly turning the US into a kleptocratic, cronyist banana republic. Unsurprisingly, the US has fallen to its worst-ever rank in a global corruption index. Geopolitical disorder We are witnessing the end of the international rules-based order and reverting to a world where the strong prey on the weak. American hegemony, while far from perfect, has paid an enormous peace dividend to the world – and no one has benefited more than the United States. Pax Americana put the US at the center of a global web of trade, allowed America to export culture, values, and services, and consume more goods than we produce. The US has enjoyed the exorbitant privilege of being the world’s reserve currency, lowering the cost of capital in the economy, financing consumption and investment. And yet, the Trump administration has endangered our prosperity for no tangible benefit. Trump conducts business and politics with a realpolitik 19th century mindset, where every interaction is zero-sum, and mercantilist great powers carve up the world into spheres of influence from which to extract resources. But prosperity in the 21st century is rooted in networks, not territories – in trust, openness, and the free flow of goods, capital, and ideas. Trump’s farcical pursuit of Greenland and Canada serves only to enrage and alienate our allies and erode the trust that we built with them over many decades. Ironically, a geopolitical order where the great powers carve up the world into spheres of influence suits Russia and China just fine. This is especially dangerous today because to the extent there’s a single point of failure in our modern economy, it is the precarious situation in Taiwan, where China’s territorial claims loom ominously over the country that produces the vast majority of the world’s advanced semiconductors. China’s claims on Taiwan are much stronger than our claims on Greenland, and China is just as capable of beheading the regime in Taiwan as we are of deposing Maduro and Khamenei. Trading Greenland for Taiwan would be an unmitigated disaster. Trump’s capricious actions are undermining America’s position as the reliable, steady leader of the free world. Many nations, including our strongest allies like Canada, now pivot away from the US, including by fostering relations with China. Trump has sowed doubt about America’s commitment to NATO – other nations can no longer take America’s security umbrella for granted. They are now preparing for their own defense, including by pondering the pursuit of nuclear weapons. While no one will mourn Khamenei, Trump’s war in Iran is illegal under both domestic and international law. When might makes right, other pariah states will know their only salvation lies in nuclear deterrence. All this lawlessness makes the world incalculably more dangerous. The economic value of American leadership is immense but difficult to quantify. The most proximate risk to markets is the “sell America” trade: foreigners repatriate capital in response to American antagonism and institutional deterioration. Central banks may diversify reserves away from the dollar. Equity investors may sell US stocks – European investors alone own roughly $10 trillion in US equities. If even a fraction of that capital begins to migrate elsewhere, the repricing would be severe. War on science, merit, and technocracy Trump has conducted a systematic attack on science and technocracy. He has nominated sycophantic, underqualified loyalists to the judiciary and senior posts in his administration. It appears that the only necessary qualification is total fealty. This is a marked departure from his first term when Trump largely made conventional and independent appointments. There was widespread reporting that these “adults in the room” constrained many of Trump’s worst impulses. For example, we shudder to think what January 6th might have looked like without the internal resistance from his first administration. As President of the Senate, Vice President Mike Pence refused Trump’s order to reject legitimate electoral votes. Attorney General Bill Barr refused Trump’s order to lie that the DOJ discovered widespread electoral fraud. Whatever you may think of those two politically, they had a red line they would not cross. Today, lackeys occupy the offices of VP, AG and many others. We cannot imagine any members of the current administration standing up against Trump on principle. This virtually guarantees three more years of chaos and dysfunction. After Trump’s first pick for the interim US Attorney for the Eastern District of Virginia proved too principled to pursue retribution against Trump’s political enemies, Trump forced him out and appointed his former personal attorney, Lindsey Halligan. Despite being named the top federal prosecutor at one of the DOJ’s most important offices, Halligan had exactly zero prior prosecutorial experience. Unsurprisingly, she made a series of inept and profound mistakes. After her interim appointment itself was ruled unlawful, the Trump administration tried legal gymnastics to keep her in her position. Judges called this a “charade” and dismissed the indictments she brought. Whether you think Trump’s political enemies are innocent or guilty, this sordid episode has made a mockery of our justice system. Trump’s appointees to lead our health institutions show that Trump cares merely about rewarding loyalty and pandering to his base, not science and public health. He appointed RFK Jr., America’s most prominent vaccine skeptic, as HHS Secretary, marking an immediate break from decades of evidence-based policy. The real-world consequences of vaccine hesitancy are already here, with measles cases reaching a 34-year high in 2025 – twenty-five years after the disease was declared eliminated in America. These cases are overwhelmingly concentrated in the small sliver of unvaccinated children; only 7% of children with measles had a documented vaccination. Kennedy's decision to gut the childhood vaccine schedule will only accelerate the decline in vaccination rates that is fueling these outbreaks. Kennedy purged all 17 members of ACIP, the Advisory Committee on Immunization Practices, a nonpartisan expert body whose recommendations help guide the nation’s vaccine policy. He replaced the panel with grossly underqualified and unprepared anti-vaccine appointees, resulting in chaotic meetings and obvious scientific errors like citing non-existent studies and presenting biased, cherry-picked data. Unfortunately, this pattern of chaos and disregard of scientific evidence has spread to agencies such as the FDA and CDC as well. At the FDA, Vinay Prasad has removed nonpartisan senior leaders and repeatedly overruled the decisions of career scientists, creating an environment “rife with mistrust and paranoia.” Internal memos revealed he personally overrode professional FDA reviewers to restrict new COVID-19 vaccines from Moderna and Novavax. Most recently, Prasad single-handedly rejected Moderna's application for the first-ever mRNA flu vaccine, overruling staff who were ready to review it, in a decision that cited no safety or efficacy concerns and contradicted the FDA's own prior written guidance to the company. Just a few days later, after an industry backlash, the FDA reversed course and agreed to review the application – capping a pattern of erratic flip-flopping that has made the agency's regulatory process virtually unrecognizable. This unpredictability is anathema to investment. It illustrates the problem with Trump’s penchant for policy-by-deal rather than policy-by-principle. To invest and expand the economy, firms need long-term clarity about laws, regulation, and enforcement. For example, biotech and pharma firms must spend billions of dollars developing a promising new drug before they apply for FDA approval. They cannot make those investments if they do not trust that the FDA will follow the science – or will even deign to review their application. As we wrote last April following the Liberation Day tariff announcements, “Even if tariffs are rescinded shortly, one effect of all this drama will be more permanent than the tariffs themselves: heightened political and economic uncertainty.” Regrettably, that continues to prove true. Trump has also done his best to slash scientific research budgets. Since taking office, Trump has terminated nearly 8,000 funding grants. Predictably, government agencies have seen a stampede of PhD-trained scientists leaving their posts, with the National Science Foundation losing 40% of its scientists in 2025. Immigration policy is also adversely impacting the foundations of scientific progress. For decades now, the US has maintained its leadership in science and technology not just through homegrown talent, but by attracting the best and brightest from around the world to train, live, and work here. Nearly half of the Fortune 500 were founded by immigrants or their children, including Tesla, Google, and Nvidia. Today, the number of international students at US universities is falling. Talent is leaving: today, more tech workers leave the US to go to Europe than vice versa. As we said above, we support a coherent and rigorous immigration policy. However, the Trump administration’s cruelty towards foreigners and antagonism towards science, as well as specific policies like the new $100,000 fees on H1B visas, are causing a brain drain in America. Trump has conducted a war on information, impairing our ability to properly assess the state of the economy and the health of our citizens. He fired the commissioner of the Bureau of Labor Statistics hours after a weak jobs report made his administration look bad. He shut down the CIA World Factbook, a source that for decades was relied upon across the world as a trustworthy source for country-level information. The USDA deleted resources related to climate science; farmers and scientists sued, saying it prevented them from planning agricultural decisions and preventing droughts. The CDC has removed many datasets relied upon by health professionals, like those tracking HIV infections and youth risk behavior. Expert committees advising government agencies on improving the quality of economic statistics have been disbanded. The loss of these data sources is a material impediment on the ability of business leaders and individuals to plan for the future. Overall, the outlook for science in the US is bleak. A country that is hostile to science and the skilled immigrants that practice it is one that will, over time, become a less attractive destination for the human and financial capital that have underpinned the US economy and equity market. Breaking norms Trump is running roughshod over the longstanding norms that keep our system intact. With unprecedented breadth and scope, he’s gaming the rules, interfering in civil society, and politicizing the armies of low-level career public servants who make our vast administrative state run. For decades, Democratic and Republican administrations alike have had a shared consensus on how federal power should – and should not – be wielded. Today, the Trump administration is throwing that out the window and using every tool at its disposal to strongarm the country into doing its bidding. Trump is discarding political norms for easy policy wins. In 2025 the Senate majority deployed the "nuclear option" – overruling the nonpartisan parliamentarian who interprets the Senate's rules – for only the fourth time in history. (Lest you think we are picking on Republicans, we note that the first time the "nuclear option" was used was under Obama in 2013; the other three have occurred under Trump administrations.) Trump has openly urged Republicans to eliminate the filibuster so the majority can legislate with only 51 votes. The Constitution gives Congress the power of the purse. But Trump has revived an abusive loophole called “pocket rescissions” – last used by Richard Nixon – by asking Congress to cancel already appropriated funds so late in the fiscal year that the money can effectively remain frozen until it expires. Trump’s willingness to game the system is profoundly dangerous. The clearest example is his repeated and outrageous suggestion that he might seek a third term as president. Though running again at the top of the ticket is clearly barred by the text of the 22nd Amendment, cynical ploys have been floated to circumvent that limit, such as running for vice president only to have the president resign immediately upon taking office. Trump is attempting to exert novel and extensive presidential control over civil society. He demanded Intel fire its CEO, and then used previously granted CHIPS Act funding as leverage to extract a 10% stake for the government. He also used access to government funding and research grants as a lever to pressure American universities into settlements that undermine their academic independence. Our media, long largely independent from heavy-handed government interference, is under attack. After a talk show host made comments he didn’t like, Trump’s loyalist FCC chair threatened ABC’s broadcast licenses with mafia-like language such as “We can do things the easy way or the hard way.” With a merger pending that required FCC approval, Paramount paid $16m to Trump to settle a meritless lawsuit, and canceled one of its own late-night shows days after it criticized the settlement. The Pentagon issued a new access policy that news outlets say restricted their ability to deliver impartial journalism. At least thirty news organizations turned in their credentials rather than sign, including far-right outlets like Newsmax. In a fit of pique, Trump revoked the Associated Press’s access to the White House when it did not adopt Trump’s preferred terminology for the “Gulf of America.” Trump attempted to intimidate and punish many of our nation’s leading law firms for representing disfavored clients or employing disfavored attorneys. He threatened to revoke government contracts, block access to federal buildings, and suspend national security clearances – a death sentence for many firms. To their great discredit, some of these prestigious law firms caved and settled with the Trump administration; the ones that sued universally won relief for these flagrantly unconstitutional actions. Nevertheless, they must now work in fear of reprisal. Trump has overseen a major erosion of our merit-based bureaucracy, presaging a return to a spoils-based system. Trump has weakened civil-service protections for federal employees, making it easier to fire tens of thousands of the rank-and-file and replace them with loyalists. He has undertaken a mass recall of nonpartisan career diplomats. Federal government job applications for the first time now include a political litmus test. In combination with his corruption and attacks on the rule of law, the above reveals contempt for the norms that define the proper role of the federal government. Even when such conduct falls short of clear illegality, something enormously important has been lost. A constitutional system cannot survive on written rules alone. Legitimate governance depends on restraint, good faith, and respect for the spirit in which power is meant to be exercised. The law cannot anticipate every abuse, and no statute can fully protect a democracy if those entrusted with authority are determined to exploit every loophole, test every boundary, and weaponize every ambiguity for personal or political gain. When norms collapse, government becomes less trustworthy, less legitimate, and more easily bent to private interest and arbitrary power. Even those who support every policy of the current administration should be alarmed about the concentration of power in the executive and the demolition of checks and balances. The idea that the ends justify the means is myopic. There will be a new administration in four years, and it may have very different policy goals. Every norm shattered today is a weapon handed to the opposition tomorrow. The implications Markets ultimately rely on trust: in contracts, in property rights, in impartial law enforcement, and in the stability of the social fabric itself. When that trust erodes, capital seeks safer harbors. When predictability disappears, long-term investments disappear with it. This might be manageable if America were competing from a position of strength. It is not. China dominates industries central to the future of the civilian and military economy such as batteries, electric vehicles, unmanned aerial vehicles, solar panels, nuclear energy, and industrial robots. China has more than half of the world’s shipbuilding capacity; the US share is just 0.1%. According to ASPI, China leads in 66 out of 74 critical technologies, with the US leading in only eight. (Ironically, one of the eight is vaccines.) China produces twice the number of STEM PhDs as America. China is close behind in the AI model race, and could easily leap ahead: China has three times as many AI researchers, and produces many multiples more AI-related patents and academic papers than the US. Our edge was our institutions – calm, steady, predictable. Trump’s erosion of this advantage is so obvious that it has become a punchline in Beijing, where he is called the “nation builder”: “the joke is that Mr. Trump is a patriotic son of China who is diligently advancing Chinese interests by causing chaos in the United States.” What now remains of American exceptionalism? Perhaps a conventional figure will win the presidency in 2028 and promise a return to principled governance. Sadly, much is already lost. Institutions, and public trust in them, is built over decades; once degraded, they cannot be repaired overnight. Even if the next administration were to have more conventional geopolitical views, the trust of our allies is damaged; they will continue to diversify, knowing that Americans already elected an illiberal, imperialist, NATO-skeptic with no regard for international law, and another could be on the way. And finally, the next administration may find that using the powers Trump arrogated to himself may be too tempting to resist. Once a norm has been broken, the Rubicon has been crossed. Rome was not built in a day, but it was sacked in one. Conclusion Taken together, we see a US equity market priced for perfection at the very moment its foundations are weakening. Valuations assume that margins stay at record highs, that AI spending translates into durable profits, that institutions remain trustworthy, and that global capital continues to flow into US assets. We think each of those assumptions is vulnerable, and in combination they create an asymmetry that overwhelmingly favors caution. We have positioned the portfolio accordingly – buying high-quality international equities, often at half the valuation of comparable US firms, and shorting stocks whose valuations are divorced from their financials.

Portfolio commentary   A key driver of Fundamental Value’s performance in 2025 was Airtel Africa plc, which more than tripled over the course of the year. We first wrote about Airtel upon our initial investment in 2023. As a refresher, Airtel operates mobile telecommunications networks and mobile money services in 14 African countries. Since 2017, Airtel has grown subscribers at a 10.4% CAGR to 179m and EBITDA at a 12% CAGR to $2.9b (CY 2025). This is roughly double the growth rate of their primary competitor, MTN Group.   We bought the stock at around 9x forward earnings, which we thought was much too low considering their strong market share in the secular growth industry of African mobile telecom, as well as the sustained growth and profitability of their money transfer business. Then the Nigerian naira collapsed.   Nigeria is Airtel’s largest market with more than 53 million subscribers, and over the past decade Airtel has grown naira revenue rapidly. This translated into $1b of EBITDA in 2022, up from $400m in 2018, thanks to the relative stability of the naira at the official exchange rate; during this period the naira officially depreciated only from 375 to 460 per dollar, a manageable 4.1% annually. The black market, however, told a different story, with exchange rates around 700 by early 2023. To be conservative, we had underwritten our investment at the black market rate even though Airtel had historically been able to access dollars at the official rate. However, we did not foresee what happened next: after the government loosened currency controls in the second half of 2023, the naira completely unraveled, eventually falling to 1,600 per dollar.    Most businesses can offset sudden currency depreciation by simply raising prices – a classic inflationary cycle. Unfortunately for Airtel, telecom markets in Africa are heavily regulated. Price changes must be approved by regulators, and they are understandably reluctant to approve large and sudden increases.   Our valuation explicitly modeled that Airtel would not be able to raise prices commensurate with inflation. This was acceptable because telecom services are inherently deflationary: due to technological improvements, the real price of data decreases significantly over time. Thus, we reasoned that even if Airtel were unable to raise local currency prices in an inflationary environment, flat local prices per GB of data would insulate the business from currency depreciation. This principle was illustrated by Airtel’s smooth historical revenue growth in dollars despite persistent high inflation in many of their markets.    However, this salutary phenomenon is a long-term one and cannot counteract a sudden and precipitous currency slide; for that, Airtel would need to adjust prices. But in 2023 and 2024, no price increases were approved, and the Nigerian business shrank in dollar terms by more than 50%. Finally, in January 2025, the Nigerian Communications Commission approved a 50% hike across the board.   The result has been stark: revenue in Nigeria has risen about 50%, and EBITDA grew more than 70% year-over-year in the quarter ended September 2025 (FQ2 2026). Based on $247m in EBITDA in the December 2025 quarter, Airtel’s Nigeria business appears on track for $1b in EBITDA or more over the next 12 months, double the $522m in the fiscal year ended March 2025. This period has been painful, but the Nigerian business is now in a more sustainable and predictable place going forward due to the newly liberalized exchange rate regime where market rates are aligned with the official rate. We anticipate future naira depreciation will be more orderly.   Outside of Nigeria, Airtel has revealed just how quickly it can grow when not hamstrung by a collapsing currency. In the first 9 months of fiscal year 2026, overall revenue increased 25%, including 19% in Francophone Africa and 18% in East Africa. Airtel is capitalizing on multiple tailwinds at once: Population growth Rising mobile penetration Higher data usage per phone Greater mobile money penetration per phone subscriber Higher mobile money usage per active user We continue to think the stock is undervalued, especially given the growing portion of earnings that comes from their money transfer business, Airtel Money, which has grown EBITDA by more than 20% every year since 2017.   The company is pursuing an IPO of this subsidiary and currently guides to a H1 2026 listing. If Airtel Money trades at 15x 2027e EBITDA, Airtel’s 80% stake would be worth more than half of Airtel’s overall market cap.    We’ve owned Airtel since 2023 and it remains one of our largest positions.   PINFRA   After a busy 2024 focusing on Japan, we have expanded our search for inexpensive, high-quality businesses globally. One market that stood out was Mexico, where valuations remain extraordinarily low. Excluding the financials, utilities, materials, and energy industries, 43% of Mexican equities with a market cap above $100m trade below 10x EBIT, versus roughly 10% in the US.4   Among these, we find Promotora y Operadora de Infraestructura S.A.B. de C.V. (PINFRA) particularly compelling.   PINFRA is Mexico’s largest toll-road operator and concessionaire. They have a tremendous track record, growing EBIT from 2.5b MXN in 2011 to 11b last year while maintaining a high-teens return on capital. And yet the stock trades at just 7x EBITDA and 10x PE, a massive discount to the 15-25x EBITDA multiples enjoyed by global peers such as Ferrovial.   PINFRA has its roots in a company called Grupo Tribasa, a construction company that restructured following a wave of bankruptcies in the Mexican toll road industry during the late 1990s. Emerging in 2005 under current CEO David Penaloza, the company refocused on toll road concessions with conservative traffic assumptions and long durations. Today they manage 27 toll roads, many of which are crucial thoroughfares around Mexico City and offer significant time savings and fewer potholes relative to the “libre” highways which by law must run parallel to the toll roads. Thus more than 300,000 vehicles per day choose to pay tolls on PINFRA’s roads. Several road expansion and improvement projects position the company for further growth.   Even under conservative run-off scenarios in which no capital is reinvested, we think PINFRA offers around an 8% inflation-adjusted IRR (in pesos). More realistic reinvestment scenarios push the returns closer to 15% in real terms, and serious potential upside exists should the family decide to sell the business given private equity interest in similar assets at 12-15x EBITDA. As a taste of the multiples that are possible, PINFRA sold a non-core port operation for 22x EBITDA earlier this year.   We think an investment in PINFRA offers an attractive risk-adjusted opportunity in Mexico’s overlooked infrastructure sector. We made a material investment in PINFRA in Q1 2025.   RS Technologies   RS Technologies is a small-cap Japanese company that dominates an important niche in the worldwide semiconductor supply chain: reclaimed silicon wafers for testing and calibration. The company is the number one supplier worldwide, with about 30% market share.   Since 2015, EBIT in their reclaimed wafer business has increased from 1.5b yen to 10b yen, driven both by overall semiconductor industry growth as well as the increased need for test wafers at more complex process nodes. Management plans to expand capacity by 30% in Taiwan and Japan and to quadruple output in their new facility in Shandong, China, which supports our forecast of continued double-digit growth.   At an enterprise value of ¥80b, RS trades around 8-9x EBIT – a fraction of peers such as Phoenix Silicon (~30x 2025e EBIT). The valuation looks anomalously low on earnings alone, but RS also has non-core holdings that increase our estimate of fair value.   RS owns a 33% stake in GRINM Semiconductor Materials Co., a joint venture making prime wafers that IPO’d in 2022. GRINM’s current valuation implies a value of more than ¥100b for RS’s stake – roughly equal to RS’s entire market cap. We apply a steep haircut to that value, but even a two-thirds discount plus RS’s share of GRINM’s net cash would represent roughly 50% of RS’s current market capitalization.   Taken together, we see a plausible case for 2-3x upside over the next several years as the market re-rates this niche industry leader.    SoftwareOne   SoftwareOne (SWON SW) is a global software reseller and IT services marketplace headquartered in Switzerland. It manages licensing and cloud subscriptions for Microsoft and other vendors. Revenues have grown steadily from CHF 830m in 2020 to CHF 1.0b in 2024, with EBITDA margins above 20% and annual dividends exceeding CHF 50m (~5% yield).   At today’s price of around CHF 7, the stock trades at about 5x forward EBITDA and 9x PE, while peers trade at 7-10x EBITDA and 11-16x PE. The company went public on the Swiss SIX Exchange in 2019 at CHF 18 per share, more than double the price today.   Middlemen like SWON provide a valuable service to both software vendors and customers.    For vendors like Microsoft, SWON helps Microsoft avoid hiring armies of sales and support staff to perform simple software implementations for the long tail of SMBs, and instead can limit their direct client interactions to just a handful of extremely large enterprises.   For customers, SWON helps with procurement, implementation, and support, and also acts as a single point of contact. By buying most or all of their software through SWON, customers consolidate their billing through a single vendor instead of “having 30 or 40 invoices,” as one SWON client told us privately. Cost savings revealed during this consolidation can be material, as organizations realize they are paying multiple times for the same or similar products (e.g., paying for Zoom when they have access to Teams for free). SWON also gives vendor-agnostic advice, helping customers sort through the plethora of options to create the right software portfolio for their needs.   After trading between CHF 18 and 25 for several years, SoftwareOne’s shares fell to roughly CHF 11 in early 2022 when management withdrew their longstanding target of 30% EBITDA margins.   Despite this underperformance, the founders seized the opportunity, submitting an unsolicited bid of CHF 18.50 per share in conjunction with Bain Capital in May 2023. This prompted a “comprehensive strategic review,” but the board eventually rejected the bid as undervaluing the company.   Soon afterward, the founders replaced the entire board at an extraordinary general meeting. Rather than renewing their pursuit of a leveraged buyout, the new board chose to pursue a strategic merger with Crayon Group Holding ASA, a Nordic-focused competitor listed in Norway.   On December 19, 2024, the two companies jointly announced the transaction: Crayon shareholders would receive 0.8233 SWON shares plus NOK 69 in cash per share, implying no premium to Crayon’s prevailing market price. Nevertheless, both boards argued that the undervaluation of SoftwareOne’s stock and expected synergies made the exchange attractive.    Ordinarily we would avoid supporting a transaction that increases a company’s share count by roughly 50% to acquire a business trading at a higher multiple (~9x forward EBITDA). In this case, however, several mitigating factors make the transaction compelling: No cash premium for Crayon shareholders Up to CHF 100m of cost synergies (company guidance) Reported support from Microsoft Ongoing private-equity interest in taking the combined company private Crayon’s focus on SMB clients also complements Microsoft’s current channel priorities, reinforcing the strategic logic. Taken together, we view the merger as an attractive outcome relative to the ~CHF 6 average cost basis we achieved in our Q1 2025 investment in the stock.   If most of the projected synergies materialize, we believe a mid-teens share price by year-end 2026 is attainable, with additional upside should organic growth resume or a renewed take-private bidding process emerge for the combined company.   We are grateful for your business and your trust. If you know someone who may wish to allocate capital alongside us, we would welcome an introduction. - Bireme Capital Follow our content by subscribing here. __________________ 1 FV performance is shown net of a 1% management fee and a 10% performance fee. Available for Qualified Clients only as SEC rules do not permit performance fees for nonqualified investors. Fee structures and returns vary between clients. FV inception was 6/14/2016. 2 Some would object that demand for AI will never be saturated because there will be infinite demand for cheap general intelligence, and artificial general intelligence is right around the corner. We beg to differ, based on both priors and first principles. Our prior is that AGI remains further away than many believe. The history of AI development is a story of cycles, where impressive new competencies lead to over-optimistic projections of impending AGI. And, as impressive and useful as LLMs are, first principles tell us that scaling up the current architecture is unlikely to lead to AGI. We have many more thoughts on this topic but further discussion is beyond the scope of this letter. Please reach out if you’re interested in our thoughts. 3 TTM figures from 2Q16 through 4Q25. 4 Data from Bloomberg as of September 2025. Advisory fees and other important disclosures are described in Part 2 of Bireme’s Form ADV. Reported performance is a dollar-weighted average of the securities in the Fundamental Value L/S Model Portfolio maintained at Interactive Brokers from inception through October 2023. From November 2023 onward, reported performance is a dollar-weighted average of the performance of all client accounts invested solely in the Fundamental Value L/S strategy with no client-directed customizations to the portfolio composition. Performance is shown net of a 1% management fee and 10% performance fee. Available for Qualified Clients only as SEC rules do not permit performance fees for nonqualified investors. Past performance is not indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. The SPY ETF seeks to track the performance of the S&P 500 Index, and the performance described includes both fees and the reinvestment of dividends and other distributions. Registration does not constitute an endorsement of the firm, nor does it indicate that the advisor has attained a particular level of skill. See biremecapital.com/disclaimer for important disclosures. Sources: Bloomberg Finance LP, Interactive Brokers LLC, Bireme Capital LLC.