The Certainty Premium: What’s Driving the Tech Sector Divergence? | Jeff Keller
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In this market, long term uncertainty is so high that anything with short term certainty is trading at a huge premium. Whenever you get heavy retail involvement in any trade, that usually, in my experience, has meant that the clock is ticking for the end of that trade. There's been a maybe a disconnect between the financial analysis of this and the religious analysis that maybe comes from the West Coast. There's gonna be a lot of pain, I think, if this ever rolls over, and I just don't think it's yet.
Welcome to other people's money. I'm Max Wheatley, and I'm joined today by Jeff Keller, founder and portfolio manager of Cape Light Partners, a technology sector focused hedge fund that he's been running since 2021. Jeff, thank you so much for joining me today.
Hey. Thanks for having me, Max. Big fan of yours. So glad to be here.
I I'm a fan of yours. I've been really enjoying following along with Cape Light and everything that you've been doing. There were a lot of tech focused hedge funds that were birthed in 2021. A lot of them sort of rode the the tech sector up, and then they rode it down in 2022. And so I think, you know, just seeing how well you navigated 2022 and the the undulations that we've had in the tech sector has been something that's been a pleasure to watch and observe from the outside. That's why I wanted to bring you on today because it does feel like since the start of q three, we have had a bit of
My background's operational. So I spent some time actually working at Salesforce and MongoDB, so a bit of a software background. And I think that maybe orients me a little more towards the big themes, a longer term horizon, you know, looking for extreme dislocations in markets. I think you had in the beginning of this year, an extreme dislocation actually where the war in Iran was distracting everyone from what was just massively inflecting adoption of AI. And that's been a long running story, but you really had the takeoff moment in Q1. And, know, Q2 was, you know, I don't know that it was th
And so within software, obviously, there was the big disruption narrative, and it's hard to say whether that narrative has disproven. I mean, if you take, like, the analog of newspapers and how much the the market was able to suss out the the pain the newspapers wanna go through before it actually showed up into earnings. So if you are in the disruption of software camp, it's really easy to to point to examples like that and say, yeah. Software looks strong now. We we really haven't seen the disruption, but but the results have been extremely strong. And so when you look at this rally, is it t
It's been, you know, entertaining to see SOX and IGV basically have a negative one correlation. That does suggest that there's there's clearly a technical element to this that some bad news for AI leads Intuit and ServiceNow and Salesforce stocks to go up several percent. So, that's an odd dynamic. I think you split software kind of into application software on the one hand and sort of Infranche Cyber on the other. You know, I think the application software obviously is still under question. I think a lot of what we've seen so far is just a recalibration from that sector, trading at a premium
So so within the the infrastructure, I mean, what are you talking about? Can you give me some examples of infrastructure and why those names haven't been under the same pressure as application?
Yeah. Mean, you look at a company like MongoDB where I used to work, so I'm biased. But AI is clearly leading to a proliferation of software. People are creating either vi
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