- NVIDIA
- HEIDELBERG MATERIALS
US EQUITIES
Lost in wonder lands :
Stock market disruption and creative destruction
- This week’s earning reports from two heavyweights in information technology, Salesforce, the third-largest business software company by revenue, and Nvidia, the world’s largest semiconductor seller by value, have not reversed the stock market turmoil that has been underway since last summer and has accelerated since the beginning of the year. Since October 31, 2025, the S&P 500 has risen by only 1%, with 127 stocks up more than 20%, 84 stocks down more than 10%. This wave of stock market destruction is concentrated among application software, IT systems, and consulting companies, which have fallen by 25%, 18%, and 21% since the beginning of the year. These include Adobe (-26%), Microsoft (-17%) and Accenture (-22). The Bloomberg Leverage Loan Technology Index (private credit) has also fallen by 5% since the beginning of the year.
- In our opinion, three main factors explain the current disruption:; 1- the enormous investments required to build AI data centers; 2– the phenomenon of creative destruction linked to the rapid progress made by Anthropic and OpenAI. 3- the financial leverage of private equity which have acquired software companies and funded it thanks to private loans
- Outstanding private credit exposure to the information technology sector is estimated at around $300 billion according to Bloomberg, and given leverage ratios assumed to be between 1.3x and 2x, the private technology segment was likely valued at between $600 billion and $1.2 trillion.
Besides, investment in AI infrastructure is expected to reach $3-4 trillion by 2030, according to Nvidia’s October 2025 estimate, which is six times more than the oil and gas industry in 2025, a particularly striking figure.
Finally, creative destruction seems to be well underway on Main Street. Anthropic’s annualized revenue is $14 billion and is valued at $380 billion in February 2026. OpenAI exceeded $20 billion in annualized revenue in 2025, with a future valuation of $750 billion according to the FT. These two companies have only a few thousand employees and together generate almost as much revenue as Salesforce. On February 25, 2026, Block, an S&P 500 payment technology company generating $24 billion in revenue and growing, announced that it would be laying off 4,000 employees, or 40% of its workforce, thanks to the productivity of the new intelligence tools at its disposal. - Nvidia’s revenue grew by 20% in Q4-25 compared to Q3-25, and is expected to grow again by 15% in Q1-26 to reach $78 billion. Over the course of the year, Nvidia generated nearly $100 billion in free cash flow, or 45% of its revenue. Furthermore, Nvidia’s valuation is anything but excessive: 22.5x its projected earnings for 2026. Since 2016, the data center division’s revenue has doubled every 2.5 years.
- In this context, how can we explain investors’ caution regarding Nvidia ?
First, let’s remember that Google’s rise after its IPO in 2004 and Apple’s rise after the launch of the iPhone in 2007 were also met with caution by investors. Google’s share price increased sevenfold between 2004 and 2010, its earnings increased 21-fold, and its price-to-earnings (PE) ratio fell from 50x to less than 20x. Between 2007 and 2012, while Apple’s profits increased 16-fold, its share price only increased eightfold, and its valuation fell from 30x to 10x. Investors are showing the same restraint with regard to Nvidia, which, like Apple and Google, has created a truly new market. Since 2014, Nvidia’s PE has averaged 31x, its share price has increased 492-fold, its EPS has increased 364-fold, and its PE is currently 22.5x.
Investors face two fundamental questions:
The first is whether Nvidia’s market is a winner-takes-all market or one that will be shared evenly among several players. In the computing processor market, it is mostly a winner-takes-all market: this was the case with Intel in the 1990s with the famous Pentium, then with Intel in data centers until the mid-2010s, with Arm in mobile devices, during the heyday of IBM mainframes, and with Nvidia for graphics cards. There are no signs that Nvidia has lost its technological leadership in the current or emerging IT revolutions.
The second is skepticism about the sustainability of growth in AI infrastructure investment, which is currently growing faster than the cash flow it generates. Anthropic and OpenAI, for example, still need to rely on significant capital increases (recently $30 billion for Anthropic and an estimated $100 billion soon for OpenAI) to fund their computing capacity. However, with 10x fold increase in demand in 2025, it seems normal that growth is not yet self-funding, even for a highly profitable business. - In our opinion, AI creates real value, Nvidia remains a must have. We believe their customers who insist that their investments are rational given the demand, far from the irrational exuberance of the 2000s.
EUROPEAN EQUITIES
Heidelberg Materials, cracks in the model?
- Germany’s Heidelberg Materials (one of the world’s leading producers of cement and aggregates), one of the best performers on the DAX in 2025 (+90), has fallen by more than 20% in the last month, with discussions about reforming the European Emissions Trading System (ETS, established in 2005) worrying investors. There is talk of extending the free allocation of CO2 allowances beyond 2034 and auctioning additional allowances beyond 2039. Some countries, notably Italy, are even calling for the temporary suspension of the ETS. German Chancellor F. Merz was one of the first to call for a relaxation of the quota system, and we can bet that lobbying by the German chemical industry, a ‘polluting’ sector in serious difficulty, has exerted pressure in this direction. As a direct consequence of this procrastination, CO2 prices have fallen by more than 20%. The European Commission is expected to present a reform proposal in July (with options announced at the European Council in March), in parallel with the already planned revision of the ETS from 2030.
- Heidelberg Materials is thus being battered on the stock market because its leadership in decarbonisation is central to its investment thesis. The group has a lower carbon footprint than the sector as a whole, thanks to its numerous efforts to reduce the proportion of clinker in its cements, and is a pioneer with Norway’s first industrial-scale carbon capture and storage facility. Investors are therefore concerned that Heidelberg, which is low on the carbon cost curve, will lose a key competitive advantage, and that the fall in the price of CO2 will weaken cement prices by reducing supply discipline, as the least efficient producers will be able to continue producing. In short, a return to price pressure.
- However, its management is not concerned about the delay in ETS regulation, does not expect the system to be abandoned, and says there is no indication that demand for its low-carbon products is slowing down. Taking a pragmatic approach, the group will maintain a flexible decarbonisation strategy in the face of these uncertainties, indicating that its priority remains financial discipline, evaluating project returns based on the price of CO2 (it will therefore adjust its capex if CO2 price assumptions change) and continuing to rationalize its capacity (second wave imminent) to maintain its cost leadership.
- Alongside the noise surrounding quotas, Heidelberg has published organic growth of +1% and a 50% improvement in its EBITDA margin (21.8%) for 2025. Despite the continuing difficulties in the construction markets (fourth consecutive year of declining volumes), the group once again recorded profit growth thanks to solid profitability management and its ability to invest in targeted growth opportunities. Since 2022, the group’s performance has been remarkable: operating profit has increased by more than €1 billion despite a cumulative negative volume effect of €1 billion, thanks to the spread price/cost and external growth. This clearly illustrates the strong leverage effect it will be able to benefit from when volumes rebound, especially as the group is continuing its cost-saving program and is expected to exceed its €500 million target.
- The 2026 forecasts are ‘cautious’ according to management, not explicitly factoring in any improvement in underlying markets (organic growth in operating profit of 6%, M&A contribution of 1 to 2% and negative currency effect of 3%), with contrasting outlooks depending on the region: in the United States (where volumes have been low for two years), the residential market (30% of its turnover) is expected to remain weak but offset by momentum in infrastructure (40%); in Europe, Southern and Eastern Europe should see good volume growth, with the group expecting a recovery in Germany and Northern Europe, while in Asia-Pacific it hopes for good momentum except in China and Indonesia, where volumes are expected to remain low. In terms of prices, the contribution should be positive for cement in Europe and aggregates in the United States; US cement prices, which fall in 2025 due to import pressures, should improve.
- With a solid balance sheet (DN/EBITDA 1.2x, following a period of massive debt reduction), Heidelberg Materials is expected to accelerate acquisitions in 2026 while continuing to deliver returns to shareholders (third tranche of the share buyback program, €450 million). Ideally positioned to benefit from a future recovery in volumes in Europe and the German infrastructure plan from the second half of 2026 onwards, the group now offers attractive valuation multiples, with a 2027 P/E ratio of 12.4x (19.9x currently for Holcim), with no significant change in earnings estimates. Despite short-term volatility (at least until this summer) and downside risks related to potential changes to the ETS system, long-term structural demand will remain buoyed by the need for heavy construction materials given the residential and infrastructure deficits in the key regions where the group operates.
