Episode summary
The $1 Trillion Supercycle Hidden in Plain Sight | Joseph Shaposhnik
Excess Returns
· · 1 hr 6 min · Hosts: Matt Zeigler, Bogumil Baranowski · Guests: Joseph Shaposhnik
Summary
Joseph Shaposhnik argues that most headlines and geopolitical shocks do not matter much to great businesses over the long run, so his process starts with understanding which holdings could truly be affected and how much. He says investors should focus on durability, recurring revenue, and long-term free cash flow compounding rather than reacting to weekend news. On the current Middle East conflict, he sees a stronger case for his aerospace and defense thesis, including what he believes could be a $1 trillion increase in NATO-related defense spending over the next 10 years.
A major theme is AI as both an opportunity and a source of disruption. Shaposhnik believes semiconductors and other suppliers to multiple LLMs and hyperscalers are the cleaner way to participate, while some software businesses face real risk from rapid model improvement and lower barriers to entry. He says his team reduced software exposure after seeing both management disruption and the threat to data-driven models.
He also thinks the market is broadening beyond the Magnificent 7. In his view, higher capex at hyperscalers, concentration risk, and the shift from capital-light to capital-intensive business models make some big tech names less attractive than before, even if they still work as investments. He remains focused on managers and companies that are adapting quickly and using AI to improve customer service and productivity.
Key takeaways
- Shaposhnik says most headlines do not create lasting damage to strong businesses, so he evaluates news by its effect on long-term free cash flow.
- He believes the defense spending supercycle is intact and says NATO countries could add about $1 trillion of defense spending over the next 10 years.
- He prefers semis and other AI suppliers over hyperscalers because the supplier base is more diversified and carries less concentration risk.
- He says many software businesses face real disruption from LLMs, especially firms repackaging public or commoditized data.
- He thinks the market is broadening beyond the Magnificent 7, with more opportunity in the “493” than investors recognized a year ago.
Notable quotes
“Most headlines don't have meaningful long-term impacts on companies because most headlines by their very definition are relatively short-term in nature um and they go away”
“great businesses can power through those those dynamics. But I I think that it is important to think about what is going on in the world uh as you manage a portfolio”
“we believe that there'd be significant opportunities outside of the mag 7 because of the percentage of market cap because of the multiple differential”
“I wouldn't want to make a significant investment today on predicting exactly who will be the number one player uh 10 years from now”
How the episode opens
Most headlines don't have meaningful long-term impacts on companies because most headlines by their very definition are relatively short-term in nature um and they go away. It all comes back to um the strength of the businesses, the durability of the franchises and their ability to keep compounding. For the longest time, software was thought to be one of the highest quality business models out there in the world.
And I think that there's significant uncertainty about whether that will continue to be the case. I wouldn't want to make a significant investment today on predicting exactly who will be the number one player uh 10 years from now. Which is why I think investing behind the suppliers uh who supply multiple uh LLMs today and multiple multiple uh hyperscalers today is the better route.
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use where better questions lead to better decisions. I'm Matt Ziggler. Talking billions own Bogum Baronowski is with me as host today.
And now, by way of Fidelity, TCW, and currently the Rainwater Equity ETF portfolio manager, Joseph Shapnik. Welcome back to Access Returns.
Great to be with you guys. Good to see you.
Straight into the deep end with you, sir. Straight into the deep end. Events like the conflict that we're seeing right now in Iran, people want to start trying to predict immediately, what's this mean for markets?
What's this mean to my portfolio? What's this mean to my holdings? But you're a long-term portfolio manager.
That's why we like talking to you about these durable reoccurring revenue businesses. How do you think about something like when war breaks out over a weekend? Well, we've seen so many uh macro shocks since I started investing in the mid mid 90s or or late 90s as a kid.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- geopolitical shocks
- ai investment cycle
- defense spending supercycle
- ai infrastructure capex concentration risk
- long-term free cash flow
Watch the episode
Watch “The $1 Trillion Supercycle Hidden in Plain Sight | Joseph Shaposhnik” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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