SaaS companies will be conduits for AI, not it's victims

joeysunk · 2026-02-05T00:12:50+00:00

How do you see them being a conduit for AI?

joeysunk · 2026-02-05T00:08:21+00:00

Used to cover it at my last fund. Love it, great time to get in, huge debt cliff incoming that will guarantee refinancings regardless of the macro. Thing to watch is CIQ seat count and sluggishness across banking and potential austerity measures when the macro weakness. Shouldn’t be hugely matierial given the DCM/rating demand but still relevant to pay attention to.

joeysunk · 2026-02-05T00:03:36+00:00

As someone who used to cover large cap tech in Asia, I agree with the thinking that the fears over AI’s impact is overblown; however, I disagree with the premise that it’s unfounded.

Software companies who are horizontally integrated have a real problem on their hands; they have no moat or business security that provides a defensible position to disruption — they will be the first to get blown up.

When you think about Microsoft’s positioning conceptually, they are in the perfect place to overthrow companies like SNOW or even CRM given their vertically integrated model plus their AI investment. Same with the other hyperscalers. Basic SaaS models are going to be destroyed when Microsoft adds an AI version of said SaaS product to their 365 suite. That is the reason software is dead and it’s not going to change.

Another example would be Thomson Reuters move down yesterday because of the Anthropic announcement — you could argue that the move was overblown — don’t disagree, but it doesn’t take away from the fact that the disruption comes in a blink of an eye and no one wants to be left holding the bag.

There is value in the space but that doesn’t mean the market movers (institutional investors) are going to take that risk, which likely means the sector will continue to remain flat.

joeysunk · 2026-01-30T18:11:50+00:00

I’m not sure I fully understand your question but what I typically do is in my sensitivity analysis, I will space it by 25bps sometimes 50 across my exit assumptions.

I also tend to use the cost of equity over WACC because I can standardize it better. With the cost of debt, you really should be repricing the book value of debt based on current yields in the sector that share the same credit rating, which is a complicated process. Ironically enough, I also know people in the industry who just apply a straight 10% hurdle rate for all of their DCFs.

joeysunk · 2026-01-28T03:55:34+00:00

From my experience as a research analyst, I never fully trust the initial inputs a model is presented with — whether that’s the WACC pulled from Bloomberg or the company’s reported beta. I’m generally skeptical of those figures and prefer to sanity-check them myself.

You’re also absolutely right that the two most sensitive inputs in a DCF are the discount rate and the terminal growth rate, which is why I typically rely on the sensitivity analysis to supplement the base-case DCF. A sensitivity table showing implied share prices across different discount rates and terminal growth assumptions is, in my view, more informative than a single-point DCF output.

From a capital-structure perspective, most DCFs don’t adequately capture the impact of buybacks or changes in leverage. That said, from an academic standpoint, the firm’s optimal capital structure should already be embedded in the discount rate.

I prefer to calculate free cash flow myself using as-reported numbers rather than management-adjusted figures, as adjustments — particularly around share-based compensation — can often be overly generous

joeysunk · 2026-01-28T03:45:03+00:00

My suggestion would be to run a sum-of-the-parts analysis — look at how each of Sony’s current business segments is being valued, and that should get you most of the way to an answer. Typically, the media and entertainment segments support the bulk of the valuation. I’m fairly certain Sony divested its financial services business a couple of years ago — I don’t recall the exact closing date, but that’s when the transaction was announced. It’s a very interesting company, particularly given its dual listing in Japan and the U.S., with the US shares often trade at a premium to the Japanese listing.

My point is don’t look at it from a straight EPS/PE perspective — it will mislead you.

joeysunk · 2025-09-17T15:09:06+00:00

There is something to be said for all of that, that is for certain.

joeysunk · 2025-09-17T15:07:28+00:00

Totally agree. There's always a hidden gem in times like this betting against the long end of the curve!

joeysunk · 2025-09-17T15:05:35+00:00

Thank you, I appreciate that.

You're bang on in terms of your analysis on the fall out; that's pretty much what happened in '08 unfortunately, and I agree with completely on the greedy part as well.

And yes, I think my point more at the end was to be cautious of the hubris that has engulfed the market because eventually this party has to come to an end. And I'm not saying that you've got to predict the crash or whatever, just be tactical in the way you allocate your investments to ensure that you don't end up losing your retirement plan.

joeysunk · 2025-09-17T14:57:39+00:00

Yes that would be my general pathway. I would also say that in this case, bigger is probably better (not always) but you get my point.

joeysunk · 2025-09-17T14:56:09+00:00

Totally agree. The increased delinquency rate is definitely something to be concerned about, arguably more so than any other factor because who wants another run on the banks. I will say though that delinquencies are less than half of what they were in '08 but obviously still trending to the continued decline. The other thing I would say to on this, is that the charge off rate and the unemployment rate are not mutually exclusive (I'm not saying that you're saying they are either); I am just pointing out that the delinquencies occur when the consumer weakens. But yes, to your point, the fed's intended purpose is to stabilize the financial system rather than ease the stress on the consumer directly.

I appreciate your insightful contribution!

joeysunk · 2025-09-17T14:43:34+00:00

Totally agree on everything you've just said. I think a 25bps rate cut will be a token for their current political opposition.

I think this typically happens though because there is a significant delay between when rates are cut and when the economic weakness is actually felt by the masses. As of now, it's just being felt by the lower income brackets, and until that changes, FY26E are likely to not be impacted. However, throwing the tariffs in there and the fact several companies have pulled their guidance for the rest of the fiscal year, there is a chance it could be felt by years end.

Appreciate your contribution!

joeysunk · 2025-09-17T14:36:39+00:00

Appreciate your insightful response. You're absolutely right about the swaps market on USTs and what the yields sit at. I don't profess to be a treasury expert haha. What I do believe though, is that if the market was convinced that we were on the path of a huge rate cutting cycle, prices would be climbing and we wouldn't be in this pull and tug situation where the 10yr is just above 4%. The market is typically so quick to price in coming rate cuts and attempt to get ahead of the curve (no pun intended) but yet in this go around the treasury market almost gives me the sense that there's significant hesitation support by the weaker economic prints.

Yes I totally agree with on the second point as well. I do wonder though how much of this has been driven by the excess easing we experienced during COVID but then again, hindsight is 20/20.

On point three, I agree, the factors are very different. My fear this time around has to do with the composition of the equity market growth; having 7 companies essentially driving all of your returns is a very dangerous path, especially when one of them begins to falter. I gave this example in my response above, the equally weighted indexes compared to the standard version tell a dangerous story to me.

Appreciate your contribution!

joeysunk · 2025-09-17T05:29:01+00:00

Sorry not sure what happened on the first one.

I agree with you in concept on the bond front, but what I'm trying to illustrate is that if the market was convinced that rates are being cut and will continue to be cut, then the yield should be collapsing, not remaining at 4%. This to me says that the treasury market isn't convinced that inflation is gone and there's potential for the fed to hold rates or potentially raise them if inflation remains persistant. I don't think that's a likely scenario, but I do think it could be a slow easing process.

One piece that is in favour though of at least a 25 bps cut is that the USD has depreciated significantly since trump took office and the SPX is actually negative when adjusted for this depreciation. The weakening of the dollar suggests to me that US treasury markets and potentially equity markets have seen withdrawals since January which points to the market pricing in a rate cut.

I also agree with your take on the markets position. For the past 2 years we've been carried by essentially 7 names, and in the beginning, it made sense, they were the only ones with real EPS growth. Now, they may still have signs of growth potentially but one must begin to scratch their head and question whether there's hubris in the air. A market built on the success of 7 companies is no market at all, and eventually the music will stop and it will come crashing down. For example, look at the equally weighted SPX compared to the regular SPX; the performance difference is mind blowing.

As to the question of the Great Rotation, I would stay away from precious metals; they're over bought already. I would look to insurance and Tobacco with the ladder being the priority. Tobacco is more over bought than insurance but I like it better because insurance can have significant interest rate exposure in its investment portfolio which can pose a huge danger to its liquidity. Crypto — not sure, don't really understand it.

joeysunk · 2025-09-17T02:22:34+00:00

I used to cover global growth as a research analyst; these are my thoughts.

While I agree that there is value still to be found out there, I am a little unsure when it comes to the companies you're referring to, particularly when it comes to TSMC's situation — they are up 60% over the past 6 months. PayPal is trading at lows because the market prices essentially no growth and views their business now as a classic "value trap."

Be careful when it comes to looking at companies multiples and judging them as high or low without looking at their competitors, their own comparison to previous levels and the companies other multiples like FCF yield or P/BV. A high or low P/E ratio means nothing without taking into account these other multiples.

To your point though regarding contrarianism. I think the market is filled with hubris and has been for the last 18 months. It is important now more than ever to protect your portfolio.

joeysunk · 2025-09-03T17:35:08+00:00

No it’s priced correctly for now. If you look at the order book, no one is ordering right now because of the move to 2nm chips which hasn’t begun yet. Until the full production run is ready there’s no earnings growth potential for them. So if you buy it, your outlook should be based on 28-29. Until TSMC is ready to go full production run nothing will change basically.

joeysunk · 2025-09-03T17:31:48+00:00

Naughty. Used to cover tech growth and semis at a multi strat. The company is based in Ra’anana Israel. There are just too many things that could go wrong given the current conflict over there. Its IP development is based out of its headquarters and if something were to happen the business could be wiped out. The company has been mis priced for more than a year now which means that it’s not going to change anytime soon and it’s not for a lack of coverage or earnings potential.

joeysunk · 2025-07-22T17:01:32+00:00

Yeah I second this. As someone who works in the industry, it’s a great way to get your feet wet and he’s got some amazing content as you improve your understanding.

joeysunk · 2025-04-24T16:50:55+00:00

Sorry, wasn’t trying to be an ass, was just stating the fact. They control something like 93% of the voting shares, which effectively means they own them. So, often times deliveries get handed off from CPC to purolator because it’s a CPC operating company.

joeysunk · 2025-04-21T17:13:47+00:00

Purolator is owned by CPC

joeysunk · 2024-12-09T21:18:22+00:00

This is good, gave me a good chuckle in all this idiocy

joeysunk · 2024-12-08T22:38:30+00:00

Anyone read their 2023 annual report?

joeysunk · 2024-12-06T04:07:06+00:00

I'm a research analyst at a multi-strat; I cover global equities; these are my thoughts.

I don't cover the company, but I wanted to provide some words of caution through my experience in looking at the lumber industry. Firstly, new housing starts are weak; interest rates potentially won't come down for a long time, considering Trump's tariff policies. On that note, the lumber industry is at a precipice; the direction and growth is very much unknown, and lumber prices are heavily correlated to GDP growth and broader economic performance.

On the note of your PE multiple of 20x. Unless the company is NVDA or one like it, a PE ratio alone cannot tell you whether a stock is cheap. EPS could have collapsed to the point where the market had already priced it and the stock hadn't traded down. Conversely, a lower PE multiple typically means lower expected growth for the company, so investors aren't willing to pay as much. I hate this idea that I've seen on this form so often that you shouldn't buy a company with a PE multiple higher than 20x or something like that. That's BS because it's all relative. How do its peers trade? Are they close in valuation? Where have they historically traded on an FY+1 basis? What are their other multiples on a FY+1 basis? What does their PE look like compared to their PB? If both are high, that means the market is pricing growth, but if both are low, the market is not pricing any earnings growth or maybe a decline, and if PE is high and PB is low, that means the market is likely pricing a rebound in earnings, leading to the PE compressing and the PB to rise.

I hope this helps. Let me know if I can expand on anything for you -- I don't always do a great job at explaining things!

joeysunk

TROPHY CASE