Q4 2024

One idea at a time

Disclaimer: This blog post is not investment advice. Please do your own due diligence before making any investment decisions.

As we close out Q4 2024, I wanted to share some of the key themes: the tech cos’ aggressive AI investments amid capacity constraints, Prada’s Miu Miu, and a structural turnaround at Unilever. I’ll also update you on my research process which is now LITERALLY AI-powered, and a brief mention about cash.

Tech earnings

The latest earnings calls from Meta, Amazon, and Alphabet have reinforced one dominant theme: AI demand is outstripping available supply.

  • Meta, Amazon & Alphabet:
    Each company highlighted the need to ramp up spending on AI infrastructure to meet exploding demand. For instance, Amazon reported capex spending in Q4 that, when extrapolated, points to over $100 billion in investments for 2025—primarily dedicated to its AWS business and AI capabilities. Meanwhile, Alphabet has set its sights on $75 billion for next year, and Meta, despite posting robust Q4 numbers, faces a tougher Q1 revenue outlook partly because of its heavy AI infrastructure expenditures.
  • Getting Fit:
    Beyond the raw spend, these firms are “getting fit” – optimizing their operations, streamlining cost structures, and ensuring that their massive investments translate into long-term efficiency gains. Examples include continued declining trend in cost to serve at Amazon, 60% margin at Meta core apps, 25% of software codes are generated by AI at Alphabet, etc.
  • So what? My gut sense tells me that the demand on AI workloads are still a lot more to come. Anecdotally, I’m driving the AI adoption at my roughly 100-people team at my company (my full time role outside investing) and to my count only perhaps <10% of the team is actively using reasoning models that are the bedrock of AI agents, where future of AI compute is going to be spent on. I’m optimistic about the return of AI capital spend, which will be positive, and hence a scenario of extreme downside like one seen in the dot com bubble aftermath is unlikely, BUT the real test is whether this return will significantly exceed the much higher hurdle rate of a 5% government bond yield, and likely 10% hurdle rate for equity capital deployed.

Miu Miu

  • Miu Miu’s Dominance:
    The latest Lyst Index for 2024 confirms what many of us have suspected: Miu Miu is the world’s hottest brand this quarter. Not only is it capturing consumer imagination with its innovative designs and viral product trends, but its sales per square meter are significantly higher than those of Prada.
  • Margin Implications for Prada:
    This superior per‑sqm performance suggests that, on its own, Miu Miu should contribute very positively to the group’s margins. In fact, at current EUR per‑sqm levels, I believe Prada’s normalized EBIT margin could be as high as 30%—a level that would justify a market cap north of EUR 30 billion.

Unilever’s Margin Inflection

Unilever is showing signs of a turnaround, with margins significantly improving on the back of stronger volume growth.

  • Volume Growth & Margin Expansion:
    Recent reports indicate that Unilever’s underlying sales growth is picking up steam (2%+), and the margin expansion (closing in on 19%) we’re seeing now looks like the beginning of a longer-term inflection point.
  • Structural Shifts:
    More importantly, the company is overhauling its incentivization framework—aligning management and workforce rewards more closely with total return and key performance metrics. These structural changes not only support improved operational discipline but also build a culture focused on sustainable margin enhancement.

Investment Process Update: Automating Channel Checks

In my ongoing quest to refine my investment process, I’ve started leveraging ChatGPT to generate Python scripts that automate various research tasks—most notably, scraping data from the web.

  • Web scrapping: I was researching an online ecommerce retailer and to do this most effectively, I generated a python script using ChatGPT o3-mini that let me scrape all the reviews, dealers information from its website. This let me track the number of reviews (hopefully in real time) and therefore let me gain a tiny little edge over others in the process.

Cash

One of the more conservative moves in my portfolio this quarter has been the decision to hold cash above 20% of total assets.

  • Rationale:
    With government bond yields (5% yield) currently high relative to equity levels (20-30x P/E), I see this as a protective stance—a way to capitalize on potential market dislocations and maintain flexibility in an uncertain macro environment.


Leave a comment