The purpose of this weekly is to sharpen my thinking by sharing thoughts about industries and companies that fit into powerful long-term investment themes. It is also a place to share insights into decision-making, takeaways from the past week, and random thoughts that arise. Thank you for reading this piece! Feedback is welcomed. 

This week: 

• Building Long-Term Value Through Reinvestment – Big Tech and Growth • Defying Conventional Wisdom – Short Track Speed Skating 

Building Long-Term Value – Big Tech and Growth 

The so-called Magnificent 7 have dominated headlines over the last six-plus months as returns for global markets have narrowed and these companies’ stocks provided most of the market returns for 2023. In a prior post, I wrote about how these companies got to be so big, defying the old laws of large numbers and achieving scale and dominance we have never seen before. 

We are in the throes of earnings reporting season and several themes already stand out. Investments by these large tech companies are the key driver of their success and are absolutely critical if they are to remain successful and grow the revenue of an already high base. 

One case that comes to mind is Microsoft. Their investment in launching Azure cloud services in 2010 has driven demand for high-margin cloud services, which accelerated this past quarter. That investment also is key to the company’s AI strategy, which combined with the company’s investment in OpenAI in 2019, is already producing tangible growth for Microsoft. 

Jensen Huang, CEO of Nvidia, first spoke of the changing dynamic for semiconductor companies in 2016. He predicted that computing power would have to increase dramatically and invested heavily to put Nvidia in a leadership position, which is paying dividends for the company and shareholders today. They continue to reinvest heavily into the future of AI, having invested close to $1B in “non-affiliates” in the first three quarters of 2023.

Meta, renamed as such due to the company’s enthusiasm for the metaverse, has also invested heavily, but the results have been more uneven. The initial heavy spending to be a leader in the metaverse coincided with a slowdown in revenue 

growth for the company, drastically reducing profits for a company that was highly profitable. After several quarters of mediocre revenue growth, reduced profits, and declining market value, the company pivoted and pulled back on spending and reduced expenses. Results have improved and this past quarter, the company posted strong revenue growth, increased profitability, a large stock buyback, and the first-ever dividend to return cash to shareholders. Meta is now spending heavily on AI and is already seeing tangible positive results for the business. 

The value of the stock over the long term is dependent on proof in the form of growth and profitability in the form of cash flow at scale. Again, defying our prior version of what is possible, these giants continue to add strong growth to already high revenue bases, and since they already have proven business models, they generate tons of cash. The market rewards this, and as a result, these companies have earned market value increases, mostly through the proof in the business. There is enthusiasm built into the valuations, but they are also warranted if they invest the way that they have in the past. 

Reinvestment is very important to the continuation of success. This is hardly a new concept, but in this era, it has become even more important. There are lower barriers to entry, but also lower barriers to scale. The skilled re-investors will enjoy the spoils in future years, as long as their investments are chosen wisely and in keeping with the long-term vision and mission. 

Note to readers: Arrowside Capital holds positions in Nvidia and Microsoft. Defying Conventional Wisdom – Short Track Speed Skating 

I was recently sent a video posted on TikTok that was a short-track skating race. I know little about the sport, but the innovation and outside-the-box thinking of one of the participants was amazing. 

In short-track racing, the race starts out with the racers bunched together, moving around the track slowly. There is a little bit of jockeying for position, but it appears that the racers get to the position that they feel comfortable with to make their move later when everyone speeds up in the last few laps.

In this race, one of the participants decides in one of the first few laps to break ahead of the pack and go fast, essentially lapping the field. No other racers decided to follow her, they stayed the course like they always have. The breakout racer then joined the pack again, at the end of the queue. The racing pack went around the track at medium speed, then sped up in the last few laps.  

The bell goes off, signaling that it is the last lap, and everyone picks up the pace even more. There were a few passes and when the racers passed the finish line, they all pulled up as they always do at the end of the race. 

Now, keep in mind that the breakout racer had lapped the field. She triggered the last lap bell, the others still needed to finish one more lap. The breakout racer won the race, and her teammate kept skating and finished second despite being at the end of the queue for the entire race. The others were likely shocked when they learned that they had not even finished the race. 

This is the kind of behavior that is consistent with innovators and long-term value creators. They see flaws in conventional wisdom and exploit them while the competition keeps on doing what they have always done because that is the only thing that they know. 

My story 

I am an investor and entrepreneur, having started two investment companies. I am the Founder and CIO of Arrowside Capital (http://www.arrowside.com), based in Boston, MA. I have more than 30 years of experience in the investment business, investing in companies geared toward innovation and growth. The blog is named 

The Zen Innovation Investor because I believe it is so important to remain calm and focused during the rapid pace of change in the world today. I am keeping a view of the long term while also keeping abreast of developments in the world of innovative companies. I view this as a place to sharpen my thinking and provide some insights that are thought-provoking. 

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