We are aware that we published a report recently expecting further gains in tanker equities, and that this change in stance is coming quicker than we would have liked. However, we said explicitly that we would be quick on our feet if new information changed the picture.

That time has come. Shipping is purely cyclical, and knowing when to get out is just as important as knowing when to get in.

4 Reasons Made us Exit Tankers:

Read more

This piece does not outline an actionable “high-conviction” idea, but instead explores what is happening in the optics sector and the key trends to watch.

We partnered with Research on this piece to bring an engineering perspective that complements our investment research.

He earned his PhD in South Korea and currently works as a semiconductor engineer in Silicon Valley, with experience across chip design, testing, advanced packaging, and yield. His engineering background brings a perspective you won’t typically find in traditional sell-side research, particularly as we look at semiconductors, AI infrastructure, and optics.

Table of Contents

1. Damnang’s Take on Optics: The Road Ahead

2. Fabrinet: Optical Manufacturing
   2.1 The Business

   2.2 In Conversation with Management
   2.3 Our Take on Fabrinet

   2.4 Damnang’s Take

3. Ciena: Optical Networking

   3.1 The Business
   3.2 In Conversation with Management
   3.3 Our Take on Ciena

   3.4 Damnang’s Take

4. Our Final Thoughts

1. Damnang’s Take on Optics: The Road Ahead

When analyzing AI infrastructure, attention tends to go to GPU performance and to memory capacity and bandwidth. Adding compute alone does not make a larger system, though.

The resources have to exchange data, and as the system grows, the network that connects them has to grow with it. I focus on optics because AI is changing not only how fast connections must be but also how far they must reach.

This change appears both inside and outside the data center. Inside, larger AI clusters need high-speed optical products to tie them together, and outside, infrastructure spread across multiple facilities needs bandwidth to connect it.

As AI models grow, the compute they need has become hard to fit within a single data center’s power, space, and cooling, so scale-across links that connect multiple data centers as one system are increasing.

The reason this article analyzes Fabrinet and Ciena is to see the growth of the same industry through different business models. Companies across the optical supply chain all belong to the same ecosystem, but they earn money in different ways. Fabrinet manufactures, on contract, the optical technologies its customers choose, so I check whether its work on new technologies turns into new program wins, higher production volumes, a wider customer base, and better margins.

Ciena is an optical networking systems company for which cloud and AI data center connections have become major sources of demand, so I check whether its technical strengths turn into market share and pricing power and whether its supply chain is ready to turn growing orders into revenue. The two companies also do business with each other, yet from the same demand a manufacturer and a systems company can earn different profits. That is why this piece analyzes them together without grouping them into a single “optical beneficiary” category.

From an engineer’s perspective, I check whether technology turns into customer adoption and reliable volume production, and this piece adds Aurelion’s company analysis and conversations with management to examine the conditions under which optical demand turns into business results.

Summary: We came away from our work on both Fabrinet (FN) and Ciena (CIEN) with a positive view of the businesses and the opportunities ahead. That said, we are not adding either company to the Aurelion Index at this time. We explain our thinking throughout the piece and why both companies are on our shortlist.

2. Fabrinet: Optical Manufacturing

The first company we look at is Fabrinet, which operates on the manufacturing side of optics, producing complex optical components used in data centers and communications equipment. This is a very different business from Ciena, which sits on the networking side. We’ll get into Ciena later in the report.

2.1 The Business

Fabrinet is a contract manufacturer that specializes in optical and electronic products. It makes things like optical components, lasers, and sensors that are used in data centers and communications networks. The company focuses on products that are difficult to manufacture and require specialized expertise.

This has helped Fabrinet build long-term relationships with major technology companies, while maintaining strong margins and a solid net cash position.

Its customers include Lumentum, Infinera, Acacia, Cisco, Intel, and NeoPhotonics. NVIDIA has also become a growing customer.

Fabrinet is headquartered in Thailand and has manufacturing facilities across several locations, including the United States, China, Malaysia, and Thailand.

Fabrinet: Geographic Footprint

Investment Thesis

Fabrinet benefits from the growing demand for optical technology as AI and data centers expand. The company makes the hardware that helps move large amounts of data between GPUs, servers, and data centers.

One of the bigger opportunities is NVIDIA. Fabrinet makes optical products for NVIDIA, including high-speed transceivers. As AI systems grow larger and more connected, we expect demand for these products to increase.

At the same time, Fabrinet has been adding other large customers, making its business more diversified. This allows NVIDIA to grow as a customer without becoming an even bigger concentration risk for Fabrinet.

FN is also building direct relationships with large technology companies, including Amazon, Cisco, and Ciena. This gives the company more opportunities to grow while also reducing its reliance on a few customers.

Its communications business is also starting to recover after several weak years, creating another potential source of growth. Changes in U.S. trade policy could provide another benefit. At the same time, Fabrinet is expanding its production capacity and preparing for newer technologies such as co-packaged optics.

Ciena could be the next major growth driver.

Fabrinet’s expanded relationship with Ciena started ramping in early 2026, just as Ciena’s optical business began to accelerate. We expect this relationship to become increasingly important and believe Ciena could account for more than 10% of its revenue over the next few quarters.

AWS and Trainium

Fabrinet is also expanding into compute. Amazon became an 11% customer in FY2026, alongside Cisco at 20%, NVIDIA at 16%, and Nokia at 11%. This shows how much more diversified Fabrinet’s customer base has become.

We think much of this growth is tied to Amazon’s Trainium chips. Fabrinet has already added production lines to support the business, and we see further upside as Trainium expands and AWS develops more of its own optical hardware.

Growth Is Accelerating

Fabrinet has grown at 15% annually over the past decade, with growth accelerating to 36% in 2026 as AI and hyperscaler spending picks up.

The key question is whether this growth can continue beyond 2026.

For us, the main things to watch are the ramp of Ciena and AWS, continued growth with NVIDIA, and whether Fabrinet can keep winning new programs with large technology companies. If these relationships continue to scale, the current growth rate could prove more durable than the market expects.

Another concern is that gross and operating margins have stayed around 11–13% since 2022. Despite the strong AI-driven growth, Fabrinet has yet to see much operating leverage. This raises a question about how much of the revenue growth will actually flow through to earnings. If margins remain stuck in the same range, the upside from faster growth could be more limited than it first appears.

Methodology: Aurelion Research independently reaches out to company management teams and does not receive compensation from any companies covered. Interview responses are based on our notes and have been edited for clarity, so they may not reflect the speakers’ exact words. We selected the sections we found most relevant.

All information discussed is believed to be publicly available. This content is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security.

2.2 In Conversation with Management

We recently had a conversation with Garo Toomajanian, Fabrinet’s VP of Investor Relations. Garo is an electrical engineer and previously covered semiconductors in equity research at a major bank, so he has a strong understanding of both the industry and the technology.

We started by asking why Fabrinet’s share price has come down so much recently. He pointed to FN’s historical exposure to communications, while noting that the company is expanding into other areas where its manufacturing expertise can be valuable. In his view, the opportunity is to focus on a few complex areas where Fabrinet can build an edge rather than trying to do everything.

He also highlighted the strength of Fabrinet’s customer relationships, which tend to be long-term and difficult to replace. From his perspective, the recent pressure is more related to costs and pricing than a fundamental change in the business.

So they clearly want to avoid staying too focused on an “old business segment” like communications, but they will need to prove it before the market trusts them and sees a clear path to more growth and less risk.

Customer Diversification

NVIDIA has been Fabrinet’s largest customer in recent years, but like we mentioned earlier, the mix is changing as the company builds more direct relationships with hyperscalers and other large technology companies.

Management was clear that it wants to avoid becoming too dependent on any single customer, while still seeing significant room to grow with NVIDIA.

FN is now getting new big customers like Amazon, Cisco, and Lumentum, but it is still reliant on a few large customers. This gives it a relatively sticky business as a manufacturer for the “big guys.” Management also pointed out that FN has the advantage of waiting for customers to decide what they want produced, without having to spend heavily on products that may never get produced.

At the same time, we think this means FN is still dependent on its customers placing orders, which gives the company less control over its own growth.

Another thing that stood out in the conversation was how early Fabrinet has been in some of the newer optical technologies. The company invested in silicon photonics roughly a decade ago and is now working on co-packaged optics.

We also asked him where he thinks we are in the broader optical cycle.

He did not want to say too much here. While the tone was optimistic, he did not seem as confident as we expected. That stood out to us, especially given how strong the AI and data-center demand story has been. This somewhat confirms what we thought: there is still uncertainty around how strong and long-lasting the optical cycle will be, which may be one reason investors have stayed away.

2.3 Our Take on Fabrinet

There are plenty of things that could happen with Fabrinet over the next few years. But when we step back, the story seems fairly simple: it looks like an undervalued company in a growing optical market.

At 21.9x NTM P/E, the valuation is reasonable, but we want to see better margins and more evidence of sustained earnings growth before getting more confident. For now, we think it makes sense to wait and see how these opportunities develop.

We also know Fabrinet is unlikely to get the same excitement or valuation as memory stocks like SK Hynix or SanDisk. Optics are becoming more important, but Fabrinet is still a manufacturing business, which also plays a role in how the market values the company.

For us, the key question is how much of today’s interest will turn into new programs, larger customers, and higher production volumes. We still do not have a clear answer, even after speaking with two of the largest optics companies in the world and doing our own work on the industry. We will have to wait for the next few quarters to get a better sense as these opportunities start to ramp.

2.4 Damnang’s Take

Fabrinet’s investment case examined above comes down to a wider customer base, rising optical demand, and readiness for new technology.

The technical question is how these opportunities connect to the company’s manufacturing capability. We should look separately at its ability to produce existing products reliably, maintain profitability, and secure a manufacturing role in the next generation of products.

Why Fabrinet’s Customer Relationships Last

The optical modules Fabrinet builds are finished only after fiber and optical components are aligned to within a fraction of a micron, and the assembled module’s optical performance is verified. A coherent pluggable for DCI, which links data centers, also has to fit a tunable laser, a modulator and receiver, and a DSP that processes the signal into one module, which makes the manufacturing process far more complex.

For products like these, the production process itself goes through customer qualification, so switching manufacturers means re-checking performance and reliability on the new process and stabilizing yield again.

That makes optical manufacturing a business in which customers cannot easily change manufacturers, and I think this gives Fabrinet, whose processes have already passed qualification with many customers, a technical moat.

Manufacturing Strength and Pricing Power Are Different

Making hard-to-make products well does not bring pricing power by itself, however. Bargaining power instead tends to arise at the supplier of a key component when that component is scarce. The laser, which I have emphasized many times in my articles, is exactly that kind of component.

So when looking at Fabrinet, a larger share of high-speed products should not be read as a structure in which margins automatically rise; what matters is how much margin it can capture from the extra alignment, assembly, and test work in new programs and from fewer defects as production stabilizes.

Fabrinet’s Role in NPO and CPO Manufacturing

Optics is also moving toward the chip in two forms:

(1) Near-packaged optics (NPO), which puts the optical engine as a separate module on the board right next to the chip, and (2) co-packaged optics (CPO), which puts it inside the same package as the switch chip.

Rather than going straight to CPO, which is harder to test and produce in volume, the industry is trying to use NPO as much as possible, and I think the current direction gives Fabrinet a bigger opportunity. That is because an NPO engine is built and tested on its own before it goes onto the board, which is closer to the module factory model Fabrinet does well.

In particular, as engines scale to 6.4T and 12.8T, I expect the ability to handle the rising manufacturing complexity and secure yield to become a technical advantage for FN. In short, I think the longer the NPO period lasts, the better the structure is for Fabrinet.

In CPO, by contrast, the optical engine is packaged together with the switch chip on a semiconductor packaging line, and the lasers move out to separate external laser source (ELS) modules, so the assembly, alignment, and testing a module factory did in one place are split among several companies.

NVIDIA listed Foxconn and Fabrinet in a 2025 technical blog as assembly and test partners for its CPO switches, but Fabrinet was not in the manufacturing chain for the 2026 production switch shown below.

The figure shows one NVIDIA design, and Fabrinet says it is already building CPO devices for a handful of customers, although not yet at full-scale volumes.

So I do not read one list as Fabrinet being pushed out of CPO for now, but it is clear that Fabrinet also needs to prepare for the CPO era. In CPO, the steps closest to the module factory work Fabrinet has done are ELS module assembly, engine testing before packaging, and fiber attach.

What Fabrinet needs now is likely wafer-level packaging, the process needed to make the optical engine itself, which builds wiring and connection points onto chips before they are cut from the wafer. This is a semiconductor process different from what module factories have done. To fill this gap, Fabrinet bought about a 14% stake in Raytek Semiconductor, a Taiwanese wafer-level packaging company, for about $32M in April 2026, and has said it plans to put this process in place in Thailand in its own lines or together with Raytek.

Fabrinet’s Manufacturing Role in Scale-Across

Scale-across routes have started to see the first orders for multi-rail systems, which lay many fiber pairs along one route. A multi-rail system packages and manages those fiber pairs as one optical system, so each deployment needs more assembly steps. Fabrinet names the dense fiber routing, fusion splicing, which joins fiber ends by melting them together, and connectorization these systems need as its strengths, and is working with several customers on multi-rail programs. This is the new work scale-across creates for Fabrinet.

In the end, I think Fabrinet’s next step depends on turning new manufacturing roles in NPO, CPO, and scale-across into real volume. It will be necessary to confirm which steps Fabrinet handles in NPO, CPO, and ELS production programs, whether multi-rail programs show up in revenue, and whether that work turns into profit.

3. Ciena: Optical Networking

The second one we look at is Ciena, which operates on the networking side of optics, building the systems that move massive amounts of data across fiber networks.

3.1 The Business

Ciena helps companies move large amounts of data through fiber-optic networks. Its equipment is used by telecom companies, cloud providers, and large businesses to connect data centers and cities.

Ciena is one of the major players in optical networking and competes with companies such as Nokia, Huawei, and Cisco. It is also expanding its presence in data centers as cloud and AI demand grows.

Investment Thesis:

We see AI as one of the main drivers of increasing demand for Ciena’s products as data centers become more connected. As computing continues to grow faster than many expect, more data will need to move between locations, driving demand for faster and higher-capacity networks.

Global Presence: Ciena has manufacturing and supply chain operations across North America and Asia, giving it the ability to support customers worldwide.

Ciena: Geographic Footprint

Revenue & Growth Outlook

Management expects Ciena to grow revenue at 30% annually from 2026 to 2029. That is a big target, especially after the recent acceleration.

The other part of the story is margins: Ciena is targeting a 50% adjusted gross margin and a 20% free cash flow margin by 2029. If both growth and margins move in that direction, the earnings and cash flow growth could be substantial.

Over 50% of Ciena’s revenue now comes from direct cloud customers. The rest is spread across service providers, cable companies, and government customers, giving it exposure to several different sources of networking demand.

Ciena has a strong position in optical line systems. The company has continued to gain share in this market, supported by its product roadmap and execution.

At the same time, Ciena has continued to grow revenue while gaining market share, which says a lot about the strength of its position in the market.

3.2 In Conversation with Management

We recently had a conversation with Gregg Lampf, Ciena’s VP of Investor Relations. Management expects data centers to become a larger part of Ciena’s business as AI infrastructure expands.

For us, the more interesting part is what this could do to the quality of Ciena’s revenue. Data-center customers typically require much higher-capacity equipment and are investing heavily in network upgrades. If the company is able to capture more of this spending, which management believes it will, we see this as something that could shift the business toward larger, higher-value programs rather than simply adding more volume to its existing customer base.

Our conversation also changed how we think about Ciena.

Even if we know it is no longer just a traditional telecom equipment maker, part of the market still seems to see it that way. If we, as generalists, are starting to see Ciena differently, maybe the rest of the market will too.

If Ciena is increasingly seen as an optical infrastructure company tied to the future of AI and data centers, we think this could help the growth story.

TAM & Market Share

We asked about Ciena’s TAM and market share.

No surprise here, since it is already in their presentation: management sees its addressable market nearly doubling from $27B today to $52B by 2029, with much of that expansion coming from new data-center opportunities.

What caught our attention is that Ciena has consistently gained market share in a fragmented and competitive market. Management credits its product roadmap and execution. If Ciena can keep taking share as the market expands, the upside could be much greater than simply growing with the market.

Supply Chain

Ciena recently appointed a new supply chain leader who reports directly to the CEO. They expect this to help the company handle higher demand and growing data-center volumes. We think it’s a smart and needed move, but Ciena is still relatively small within the broader optical supply chain. They will need to scale and move into larger, more demanding programs. Having the demand is one thing, but securing the components and capacity to deliver on time is another.

What About Pricing?

That’s one of our concerns, so we asked them about it.

Ciena has been raising prices since last year and continues to push for higher pricing with customers. Contract terms have also become less flexible, with no return or refund provisions. This suggests Ciena has some pricing power, which is encouraging, but we still need to see how long demand can stay this strong.

For now, demand is there, but Ciena was not very specific on how long it expects this to continue, even though we would have liked more clarity here.

3.3 Our Take on Ciena

Overall, we see Ciena as the more interesting setup of the two in the near term, with more direct exposure to the AI buildout and continued market share gains. That said, the main issue here is valuation.

At 35.7x NTM P/E, the market is already giving Ciena a lot of credit for the growth ahead. We like the direction of the business, but we would rather wait for either a better entry point or more evidence that the growth can continue.

3.4 Damnang’s Take

When I look at Ciena as an AI infrastructure company, I think what matters more than the share of revenue from cloud customers is how Ciena’s products and technology solve the technical limits customers run into as they connect more data centers. When that technology lowers a customer’s actual investment burden, the share gains and pricing power shown above will have a lasting basis.

Modems: Carrying More Data on One Fiber

Links between data centers carry data on a single fiber by splitting it across several colors of light, or wavelengths. Ciena’s core technology is WaveLogic, the coherent modem that puts data onto this light and reads it back.

The latest WaveLogic 6 Extreme carries 1.6T on a single wavelength, while the current products from competitors Cisco (Acacia) and Nokia are in the 1.2T class.

The more data the same fiber can carry, the less equipment and power customers need. Even when a hyperscaler designs its own equipment, Ciena has won a deal to supply WaveLogic 6 as a module. Competitors’ 1.6T products are due around 2027, though, so I see the modem lead as roughly one generation.

Line Systems: Letting Customers Use More Fiber

Because one fiber can only carry so much, capacity between data centers ultimately grows by using more fiber. Over long distances, weakened light has to be boosted at amplifier huts roughly every 80 km, and once fiber counts reach the hundreds, the huts run out of space and power first.

Ciena’s Hyper-Rail is a line system that raises the number of fiber pairs one rack can amplify from 4 to as many as 128. In Ciena’s example of a 20 Pb/s route, the number of huts needed at each amplifier site falls from 22 to one.

Amplifiers boost light using energy from pump lasers, so more fiber also means more pump lasers. This is the background to Ciena naming pump lasers first among its supply constraints and signing supply agreements through 2029.

Cisco and Nokia have announced similar multi-rail products, and Nokia cites 160 pairs per rack, but Ciena is the one that co-designed its system with hyperscalers and won the industry’s first order.

Extending Into Data Centers

The inside of the data center is a new market for Ciena. Ciena expects coherent technology to be used inside data centers from the 3.2T generation, and through the Nubis acquisition, it gained Nitro, a chip that boosts signals in copper cables inside the rack, and Vesta, a 6.4T CPO optical engine. Vesta has sample orders, with revenue expected from 2027. Competition in this market is only starting, so the point of judgment will come when customers actually adopt these products.

Technical Edge and Moat

In short, I think Ciena’s technical edge is clearest in modems and line systems for long-distance, high-capacity links. The modem gap narrows with each generation, and competitors are catching up on, or even exceeding, line system density. However, a route often runs on one company’s line system, and as shown above, Ciena has the largest installed base in this market.

So I see Ciena’s moat less in individual product specifications than in getting into cloud customers’ routes first as the standard. Whether hyperscalers standardize on Hyper-Rail by the end of 2026 will be the test.

4. Our Final Thoughts

There is no doubt that optics is becoming an increasingly important part of AI infrastructure as more data needs to move between chips, servers, and data centers. Fabrinet and Ciena give us two different ways to play this trend.

Fabrinet is focused on manufacturing the optical hardware, while Ciena builds the networks that move the data. Both are benefiting from growing demand and increasing investment across the data center ecosystem.

After speaking with both IR teams, we came away impressed by both businesses and think the opportunity in optics is still in its early stages. However, we still don’t have enough visibility on how quickly demand will translate into sustained growth, so we are not ready to take a position yet.

Valuation is the main reason. Ciena trades at around 35.7x NTM P/E, while Fabrinet is cheaper at 21.9x, but both still look quite expensive to us.

The other issue is timing. We like both companies, but we need more visibility on how the market will value their changing growth profiles. For now, we’ll wait for a clearer setup before adding either to the Index and continue to follow the optical cycle closely.

We’ll continue to follow these companies closely as the industry evolves.

Damnang and Aurelion Research

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research and/or Damnang Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research, Damnang Research, and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

We took the time to meet with Andrew Kramer, Treasurer and VP of Investor Relations. That helped us understand what the opportunity looks like today, what the large shareholders are doing, and how management thinks about growth.

While our entry point was wrong, we like the stock at current levels and would buy it today if we did not already own it. We view the valuation as very attractive relative to the quality and growth of the company.

Note that Cellebrite generates a significant amount of cash flow, converting more than 110% of EBITDA into free cash flow, driven by favorable working capital.

That means the company trades at only 12.5x the free cash flow it generates. This type of multiple is usually reserved for highly capital-intensive companies or businesses with little to no growth.

Despite the recent reset in expectations, we view Cellebrite as a high-quality company that can grow earnings by 15% or more for several years. The new guidance framework and execution over the next quarter could provide the foundation for a strong turnaround.

Table of Contents

1. Company & Thesis Recap

2. Q2 2026 Earnings

3. The Point on SaaS

4. Potential Acquisition Target

5. Our Discussion with Cellebrite

6. The Road Ahead

1. Company & Thesis Recap

Read more

Since then, VLCC spot rates, the rates paid to very large crude carriers, have skyrocketed, reaching levels far above what we were seeing at the time.

With Iran still blocking Hormuz and targeting vessels trying to transit, and now the Houthis entering the party, tanker transits are at their lowest levels.

So, what does this mean for our tanker equities?

Fewer tanker transits are tightening vessel supply and pushing spot rates higher, which is highly positive for tanker equities.

Shipping is a cyclical sector. We are staying quick on our feet for any signs that the cycle is turning and are ready to adjust our positioning. Right now, we believe the fundamentals show a clear picture: more gains in tanker equities are ahead.

We update our price targets on our tanker equities and dive into what we see as the best-positioned sectors.

Table of Contents

1. Crude Oil Tankers

   1.1 Rates Continue to Surge

   1.2 The Fleet is Getting Older

2. Dry Bulk Carriers: One to Watch

   2.1 Rates & Demand

   2.2 A Not-So-Young Fleet

3. Our Two Highest-Conviction Holdings

   3.1 Oil Tanker

   3.2 Product Tanker

4. Our Final Thoughts

Read more

The CEOs of the three largest AI companies called for a slower pace of AI development. Markets initially reacted negatively but recovered quickly.

We are not suggesting that the market has peaked. We remain optimistic and expect markets to perform well over time, although short-term downturns are becoming more likely. Earnings growth across U.S. companies is still very strong, and large investments in AI technology are likely to continue.

What has changed is the number of things that can go wrong at once. The AI trade, higher inflation, and the war in Iran are now three separate sources of risk, although inflation and the Iran conflict remain somewhat linked.

The bond market has started to price this in.

The U.S. 10-year crossed 5% today, and the odds of a September hike have increased to roughly 80%, from 30% last month.

Given that short-term risks have increased, we think this is the right time to own companies that are largely uncorrelated with them. This company has a beta of -0.01, meaning its daily movements have almost no correlation with the S&P 500.

The company we are adding today cleared our process on its own merits.

We see a high-growth business (~20% earnings growth) benefiting from the aging U.S. population, operating in a stable and profitable industry that is growing faster than usual due to a supply shortage expected to persist for years.

The company remains relatively unknown and, in our view, undervalued given the growth ahead.

We also like the timing, with earnings starting to inflect and the next quarter looking particularly strong. Management is actively pursuing very accretive acquisitions, while the balance sheet is in good shape. We like the setup and see a clear opportunity for the market to catch up as earnings continue to improve.

Table of Contents

1. Why Now?

2. Company Overview

3. Investment Thesis

4. Market Dynamics: The Widening Supply Gap

5. Valuation & Forecasts

6. Management & Governance

7. What Could Go Wrong

8. Our Final Thoughts

Read more

Our recent post-earnings discussion with NVIDIA a week ago gave us a closer look at where the company is heading and what will drive the next phase of the AI cycle.

Because NVIDIA touches so many parts of the AI ecosystem, the conversation also gave us useful insights into several areas of the industry:

• Memory. AI chips rely on a special type of high-speed memory that is in short supply. Prices have risen sharply, and we expect them to stay high into 2027–28, which is good news for the companies that make it.

• Inference. Most AI spending so far went into building models. The next wave comes from people and businesses using them, which will require more servers and power than expected.

• Robotics. Robots are starting to move from demos into real factories. The companies supplying the computing power and automation tools can benefit no matter which robot maker comes out ahead.

NVIDIA has lagged because of concerns that AI spending may not generate sufficient returns, but we do not think the stock deserves to remain a laggard.

We believe inference will drive NVIDIA’s next growth phase. Growing agentic workloads create a significant new source of compute demand.

In this piece, we will explore why NVIDIA sits at the heart of the AI ecosystem, the exponential growth opportunities ahead, and what is driving hyperscaler spending. We will also look at the memory bottleneck and the next areas of growth across inference, agentic AI, robotics, and physical AI.

Methodology: Regarding our conversation with NVIDIA’s Investor Relations team, we were not granted permission to expressly quote or identify the individuals with whom we spoke. Our analysis below was informed by this discussion, but all views and analysis expressed are those of Aurelion Research and are based on publicly disclosed information.

Nothing in this report should be construed as a direct quotation from, endorsement by, or representation of NVIDIA or its views. Aurelion Research does not receive compensation from the companies it covers.

Table of Contents

1. Why We Are Bullish on NVIDIA

   1.1 NVIDIA Is the Heart of the AI Ecosystem

   1.2 Exponential Growth Opportunities

   1.3 Hyperscaler Spending Is Durable

2. AI Computing & Infrastructure
   2.1 The Race for Compute
   2.2 How Long Can the Memory Bottleneck Last?

3. The Rise of Inference

4. The Agentic AI Opportunity

5. Physical AI: Where Are the Robots?

6. Key Risks

7. Our Final Thoughts

AI Terms Glossary

• Training: Teaching an AI model using large amounts of data.

• Inference: Using a trained AI model to produce an answer or complete a task. Every time someone asks a chatbot a question, that is inference.

• Tokens: Units of text AI processes or generates, used to measure AI usage.

• Agentic AI: AI that completes tasks and uses tools (agents).

• Physical AI: AI operating in the real world through robots, vehicles, and machines.

• Accelerated computing: Using GPUs alongside or instead of traditional CPUs to run AI faster.

• AI factories: Data centers built to train and run AI models.

1. Why We Are Bullish on NVIDIA

Our discussion with the company reinforced our view that the next phase of the AI chip race will be about making intelligence cheaper to use.

As inference becomes a larger part of AI workloads, the companies that can deliver more intelligence per dollar of compute will have the biggest opportunity. We believe NVIDIA is best positioned to lead this shift.

The AI infrastructure opportunity is expanding in two important ways: there are more applications for AI, and there are more customers spending on it.

The first phase of the AI cycle was largely driven by a handful of hyperscalers building massive amounts of infrastructure, with AI-related infrastructure commitments expected to exceed $3.1 trillion. That is still happening and continues to grow, but the next phase will be much broader, with spending coming from enterprises, AI-native companies, and cloud providers.

In the past, NVIDIA was obviously an attractive company, but we felt the story was still heavily driven by its chips and a relatively concentrated group of hyperscaler customers. Today, we see a much wider opportunity.

Demand is still being driven by hyperscalers, but our recent discussion with NVIDIA’s Investor Relations team reinforced our view that the customer base is expanding well beyond the largest cloud providers. We see this broader demand as an important source of growth for NVIDIA in the years ahead.

1.1 NVIDIA Is the Heart of the AI Ecosystem

The next AI phase will be less concentrated, with spending spreading across a much wider range of companies and applications. This should create new sources of compute demand beyond the infrastructure buildout we have seen so far.

The key with NVIDIA is that the market often seems to be questioning whether the change happening right now is sustainable. If it isn’t, the concern is that the large investments being made in AI infrastructure may not generate the returns expected, or that some of that capacity could ultimately go unused.

What stands out from our conversation with NVIDIA is how broad the platform has become. Its exposure across so many parts of the value chain means that even smaller opportunities can add meaningfully to growth.

The other side of that is execution risk. It is difficult to be the best at everything, and NVIDIA is expanding into more areas where it will face strong competition. If it cannot maintain a leading position across the different workloads and markets it is targeting, that broad exposure could become a problem.

We think this is one of the reasons NVIDIA has lagged in 2026.

It has been one of the biggest under-performers among U.S. chip stocks, while Micron, Marvell, Intel, and AMD have all outperformed. The performance gap is substantial, but the market is already pricing in many of these concerns.

As we said earlier, we think those concerns are overdone. The disconnect between NVIDIA’s fundamentals and its stock performance is where we see the opportunity. The company continues to grow at an exceptional pace, generate significant free cash flow, and expand into new areas of AI computing.

The key for us is that NVIDIA has several years of growth ahead, while the market is already debating when that growth will slow. If AI infrastructure spending continues to rise, we see a clear path to much higher earnings and cash flow from here. That is what makes the current setup so attractive to us.

1.2 Exponential Growth Opportunities

NVIDIA needs to sustain a very high rate of growth, and we think it can. Valuation is one of the biggest challenges in AI today, with some companies trading at 50x or even 100x earnings despite generating little or no free cash flow. We find those valuations difficult to justify. NVIDIA looks very different.

At 18.1x NTM P/E and 14.8x NTM EV/EBITDA, the valuation looks reasonable given its growth, profitability, and cash generation. Management will rarely say outright that its shares are cheap, but NVIDIA’s aggressive buyback activity suggests that it sees its stock as an attractive use of capital at current levels.

But where will the growth come from? That is the key debate around NVIDIA today. Some investors believe it can continue growing at the pace needed to support a higher valuation, while others think growth will slow much sooner.

In a recent earnings call, NVIDIA’s CFO said the company expects revenue to grow by 70% in FY2028, adding that this is a supply-constrained outlook.

She also highlighted the pressure from memory costs, describing the current environment as ‘‘extreme pricing conditions in memory.’’

Both comments point to the same thing: demand for NVIDIA’s products remains ahead of available supply. NVIDIA expects these supply constraints to persist through at least the end of FY2028, which should continue to support strong demand for its computing products as more capacity comes online.

What makes NVIDIA particularly interesting to us is the number of different areas that can drive growth from here. Training, inference, enterprise AI, agentic AI, physical AI, and accelerated computing are all at different stages of adoption, giving NVIDIA multiple ways to grow as the AI market develops.

Some of these areas are still in their early stages, while others are already scaling quickly. CPUs are a good example. The CPU market is often seen as mature or slowing, but NVIDIA’s Vera CPU could open up another meaningful source of growth as more data centers adopt accelerated computing.

Another opportunity comes from NVIDIA’s complete computing systems.

TrendForce expects the output value of NVIDIA NVL72-class rack systems to grow from $226B in 2026 to $711B in 2027.

As AI systems become more complex, customers are buying complete computing systems instead of individual GPUs. This will give NVIDIA more opportunities to grow revenue within its existing computing business and capture more value from each deployment.

1.3 Hyperscaler Spending Is Durable

One of the biggest concerns around NVIDIA is what happens if hyperscalers slow down their spending. If capex growth fades, it would clearly be a material headwind for NVIDIA given how much of its business is tied to AI infrastructure.

Could that happen? Yes. Do we expect it to? Not really. The hyperscalers have been clear that continued investment in AI infrastructure is necessary to support their growth. Amazon, Microsoft, Google, Meta, and Oracle are all committing significant amounts of capital, and their earnings calls and industry conferences continue to reinforce that message. If these companies were to suddenly cut capex, it would be negative for both their own growth and NVIDIA.

For context, projected hyperscaler capex in 2026 is equivalent to around 87% of the annual U.S. defense discretionary budget.

The spending estimates also point in the same direction, with plenty of room for hyperscaler capex to continue growing from current levels. And even if we are partly wrong about the pace of spending, NVIDIA still has significant room to grow. It’s generating massive amounts of cash, expanding its business, and benefiting from a market where computing demand continues to increase.

One thing that also gives us confidence that hyperscalers can continue spending heavily is that their EBITDA and EBIT margins are still rising.

They are generating strong profits and cash flow, giving them plenty of capacity to keep investing in AI infrastructure while continuing to grow their businesses.

2. AI Computing & Infrastructure

NVIDIA is far more than a GPU company. The company has shown this clearly through its recent events and product launches, but we think the market still underestimates how broad its business has become.

The company is present across edge computing, data centers, hyperscalers, AI clouds, industrials, and enterprises, while its platform spans GPUs, CPUs, networking, memory, software, and complete computing systems. Very few companies are positioned across as many parts of the AI ecosystem.

2.1 The Race for Compute

The $1 trillion installed base of general-purpose CPU data center infrastructure is being upgraded to accelerated computing. NVIDIA sees this as a much broader shift in computing, with GPUs, networking, software, and complete systems all becoming part of the new AI infrastructure stack.

This is also expanding the size of the data center opportunity.

NVIDIA estimates that AI factories could push the data center market to $2 trillion and beyond in the coming years, as companies across industries begin building infrastructure to train and run AI models.

AI Clouds, Industrial, and Enterprise customers now account for roughly 50% of NVIDIA’s Data Center revenue, and the company expects this group to outgrow hyperscalers over the long term. It also has visibility into more than $1 trillion of cumulative Blackwell & Rubin revenue from 2025 through 2027, before factoring in additional opportunities across CPUs, networking, and other products.

The customer base is expanding as well, with companies such as Anthropic, Meta, and OpenAI, as well as models such as Gemini and multiple open-source models, driving additional demand. This is why NVIDIA should be seen as more than a semiconductor company. That said, the broader platform also creates risks.

Bears could argue that NVIDIA is expanding into too many areas, increasing execution risk and giving competitors more opportunities to challenge its position.

The company’s advantage comes from bringing together the hardware, software, and developer ecosystem required to build AI systems. As customers become more deeply integrated into its ecosystem, moving to an alternative becomes more difficult, helping it defend its position as AI adoption expands.

2.2 How Long Can the Memory Bottleneck Last?

One of the most important comments from NVIDIA’s earnings call was around memory. CFO Colette Kress said the company is experiencing “extreme pricing conditions in memory,” with price increases exceeding previous expectations and likely to move even higher into next year.

This is putting pressure on NVIDIA’s margins, with Q4 gross margins now expected at around 71% to 72%, compared with the previous expectation of roughly 74%. We view this as a headwind that could become more significant over time, but for now, it remains manageable given NVIDIA’s overall profitability.

But how long will these memory pricing conditions last?

NVIDIA believes the current memory shortage is being driven largely by the AI buildout, as AI systems require large amounts of high-bandwidth memory (HBM). In other words, higher memory costs are partly a consequence of the same infrastructure spending that is driving demand for NVIDIA’s products.

The HBM market is expected to keep expanding rapidly through 2028. Total HBM bit demand is forecast to grow at a 37% CAGR, while HBM’s share of total DRAM demand is expected to rise from around 7% in 2025 to 10% by 2028.

NVIDIA’s share of HBM demand is expected to fall from roughly 58% this year to 41% next year as competing AI accelerators gain ground. While the decline in share is worth monitoring, we do not view it as a material concern on its own.

The key is the size of the overall market: NVIDIA can lose share while still increasing its HBM consumption as total demand continues to grow.

3. The Rise of Inference

An interesting takeaway from our conversation is that, for now, inference gets much less attention than training, but this is about to change. Training gets the headlines because building capable models requires enormous amounts of compute. But once a model is trained, it has to run every time someone uses it.

As AI moves from occasional use to everyday software, business workflows, and increasingly autonomous agents, a shift we are already seeing, inference demand should grow rapidly.

We think inference will become one of the biggest drivers of NVIDIA’s next phase of growth. NVIDIA said on its latest earnings call that inference is now larger than training, after the two were roughly balanced only 18 months ago.

It also said its revenue could grow by more than 100% YoY on an unconstrained basis, but ultimately guided to nearly 70% growth because supply is limiting how much it can deliver. To us, that is an important distinction: the constraint is increasingly how much NVIDIA can supply, rather than a lack of demand.

The economics of inference are also changing quickly.

SemiAnalysis () estimates that inference infrastructure can generate extremely high revenue per megawatt, with some API workloads potentially generating around $100 billion per GW annually at more than 90% gross margins.

In that environment, paying more for compute or accepting lower efficiency in exchange for faster deployment can make economic sense. The value of getting inference capacity online quickly is becoming extremely high.

The bigger opportunity, in our view, is how quickly AI usage is growing.

Dell estimated late last year that AI inference would reach 1 quadrillion tokens per month by the end of 2028. Its latest estimate is now 57 quadrillion tokens per month for the same period. That means Dell’s estimate increased by 57x in less than a year. Goldman Sachs has since published an estimate that is even higher, at roughly 10x Dell’s revised forecast. That is a massive change in expectations, and it shows just how quickly the amount of AI being used is growing.

If token generation continues to grow at anything close to these rates, the amount of compute required to serve AI workloads could expand far beyond what current infrastructure spending suggests. For NVIDIA, this creates an important opportunity: inference does not end when a model is trained.

For NVIDIA, the key point is that if AI usage grows anywhere close to these forecasts, the amount of compute required to serve that usage could be far higher than today’s infrastructure spending suggests.

4. The Agentic AI Opportunity

Another standout from our conversation and research is how agentic AI could become one of the most important catalyst for the next phase of AI adoption.

AI is moving beyond answering questions toward completing tasks, using tools, and interacting with existing workflows. As these systems become more capable, companies should have more incentive to deploy them at scale, creating another source of demand for AI compute.

Enterprise AI is already an area where NVIDIA has a very strong position, with more than 90% market share today and a similar share expected over the next five years. The competitive picture is different in hyperscaler and consumer internet workloads, where NVIDIA currently holds roughly 70–90% share but is expected to fall toward 50–70% as custom chips and alternative accelerators gain ground.

NVIDIA may lose share in hyperscaler and consumer internet workloads while maintaining a strong position in enterprise AI and continuing to grow. The market should keep this in perspective when assessing the competitive risks.

5. Physical AI: Where Are the Robots?

Beyond digital AI, physical AI and robotics could become another meaningful growth driver for NVIDIA over the next decade. We are bullish on the long-term potential, but we also think adoption will vary significantly across industries. Autonomous vehicles, and humanoids are moving toward broader commercial use, while many traditional industries are likely to adopt robotics more slowly.

NVIDIA is positioning itself as the computing and software platform behind the robotics industry, providing the technology needed to train, simulate, and operate these machines. CEO Jensen Huang has been vocal about the opportunity.

At CES 2026, he said: “Physical AI has arrived. Every industrial company will become a robotics company.”

While we are very bullish on robotics, we disagree with Jensen on one point, We have a hard time seeing a world where every of companies become robotics companies. Some industries do not change that quickly, and many traditional businesses will continue to operate in ways that have worked for decades.

Take an aluminum plant or an oil refinery. Both can benefit from robotics and automation, but that does not mean they will suddenly become robotics companies. The important point for the AI community is that some industries are inherently slower to change, and many of these businesses will continue to have a strong human element even as they adopt more AI and automation.

An oil refinery may use more robots, AI, and autonomous systems over time, but we doubt the people running these traditional industries will suddenly become AI evangelists. Many of these companies are run by operators who have spent decades building businesses around processes they know and trust.

They tend to value control, reliability, and proven technology, and they may have little interest in replacing people with robots simply because the technology exists.

We can already imagine a landman in the Texas Permian Basin saying: “So they really think we’re going to let robots replace us? They’ve probably never been to Texas. This is an oil field, not a robotic daycare.”

Technology adoption is very different across industries, and some of the world’s oldest businesses will remain much more resistant to change than Silicon Valley expects. But that doesn’t mean we don’t see robotics growing massively.

Our take: After inference, we see robotics as NVIDIA’s second-largest growth opportunity in the years ahead, with potential to generate substantial revenue.

The opportunity is enormous. The computing giant estimates that physical AI could eventually be 10x greater than digital AI, given that roughly 90% of the world’s actions happen in the physical world.

NVIDIA estimates that its physical AI business is already running at $10B in annual revenue, with Huang seeing a path toward $100B within the next decade.

What makes NVIDIA particularly interesting is that it can participate across several stages of the robotics ecosystem.

First comes training. Robots need to learn how to see, understand their surroundings, and perform tasks in the real world. NVIDIA’s GPUs provide the computing power needed to train the models that make this possible.

Then comes simulation.

Before putting a robot into a factory or warehouse, developers can train and test it in virtual environments. NVIDIA’s Isaac platform, Omniverse and other simulation tools allow developers to generate synthetic data and test robots in different environments without having to collect all of that data in the real world.

Finally comes deployment.

Once the robot is operating in the real world, it needs enough computing power to process information and make decisions in real time. NVIDIA’s Jetson Thor is designed for this, bringing powerful AI computing directly into the robot and enabling it to understand its surroundings and respond with very low latency.

“We have built three key computers for robotic systems: training computers, synthetic data generation and simulation computers, and robotic body embedded computers.” — Jensen Huang, GTC 2026

This is an important part of the investment case. It can benefit from the growth of robotics without having to predict which company will build the winning robot. Its technology can be used across different types of robots and applications.

NVIDIA is also building the software ecosystem around this hardware.

Its Isaac GR00T platform provides foundation models and tools for humanoid robots, while the company is working with robotics companies including Figure, Agility, Boston Dynamics, FANUC, KUKA, ABB and Yaskawa.

“NVIDIA’s full-stack platform — spanning computing, open models and software frameworks — is the foundation for the robotics industry.”
— Jensen Huang, GTC 2026

The opportunity also goes well beyond humanoids.

NVIDIA is targeting industrial automation, warehouses, logistics, autonomous vehicles and other physical AI applications. This gives the company several ways to benefit even if humanoid adoption takes longer than expected.

We are already seeing early signs of commercialization. TrendForce expects China’s humanoid robot output to increase by up to 94% in 2026, with Unitree Robotics & AgiBot together accounting for 80% of shipments.

The market is still small compared with AI infrastructure today, but the pace of development is what stands out to us. Robotics is moving from research and demonstrations toward real deployments across manufacturing, logistics and other industries. If that adoption continues, we think robotics could become a meaningful new source of AI compute demand over the next decade.

“Robotics is a once-in-a-generation opportunity for the European nations.”
— Jensen Huang, World Economic Forum, Davos 2026

The opportunity is still very early, and there are clear questions around the cost, reliability, and economics of humanoid robots. For us, the key thing to remember is that robotics could open another large market for NVIDIA’s existing technology as AI moves further into the physical world.

6. Key Risks

Many risks exist around anything related to AI, and NVIDIA is no different.

We see four main risks for the company.

1. AI Spending & Returns

NVIDIA’s growth depends heavily on continued AI infrastructure spending, particularly from the hyperscalers. The key risk is that these investments fail to generate the expected returns, eventually causing customers to slow or reconsider their spending. That said, this does not mean hyperscalers are unprofitable or unable to keep investing. Most of the largest players continue to generate strong profits and operating cash flow, giving them capacity to fund AI infrastructure. The risk is whether the returns are high enough to justify the pace of spending.

2. Custom Silicon & Competition

There is significant attention today on custom silicon and new AI accelerators. Another company may be able to build a competitive chip for a specific workload, but replicating NVIDIA’s broader platform is much harder.

This includes its software, developer ecosystem, networking, and complete systems. For us, the real competitive risk is therefore whether another company can replicate the full NVIDIA ecosystem, instead of simply matching its chips.

For example, OpenAI is developing its own custom AI chip with Broadcom, designed specifically for inference. Early testing suggests it can outperform NVIDIA and AMD solutions on certain inference workloads.

OpenAI plans to begin using the chips internally in late 2026, with broader production expected in 2027. This shows that some of NVIDIA’s largest customers are increasingly looking to develop their own alternatives.

3. Supply Chain Constraints

The AI buildout requires the entire supply chain to expand at the same time. Advanced memory, semiconductor manufacturing, packaging, power generation, and data-center capacity all need to increase alongside demand.

This creates the risk of not securing enough components or having to pay more to secure supply, something we have already seen in the past. At the same time, we would not interpret supply constraints as a sign that AI demand is weakening. The industry may simply be growing faster than the supply chain can keep up.

4. Pace of Technological Change

AI is moving extremely fast, with new architectures, accelerators, and models emerging constantly. It will need to keep innovating across its platform while maintaining strong profitability and defending its position against competitors.

7. Our Final Thoughts

After spending time with NVIDIA and looking at the different areas of the AI ecosystem, we came away more confident in the long-term opportunity.

The market is increasingly broadening beyond training and hyperscalers, with inference, agentic AI, robotics, and physical AI creating new sources of demand. This gives the company several ways to continue growing as AI adoption expands.

At the same time, we understand why the market remains cautious.

NVIDIA needs to maintain a very high rate of growth, AI infrastructure requires enormous amounts of capital, competition is increasing, and supply constraints remain a real challenge. We also cannot assume that every area of AI will develop as quickly as the most optimistic forecasts suggest. These are important risks, but they are already well priced in by the market.

Our view is that NVIDIA is one of the best-positioned companies to benefit from the next phase of AI. It has multiple growth opportunities, a strong ecosystem, and exposure to most areas of AI computing. We think the market still underestimates how much room the company has to grow from here.

View how the portfolio is positioned here: Aurelion Index Link.

Below is our latest stock addition to the portfolio.

The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

What attracted us to company is the combination of world class management, high grade gold assets, production already underway, and substantial production growth ahead, all in mining-friendly jurisdictions.

We have also heard very positive feedback about the company through our conversations with people familiar with the business. That combination is difficult to find, especially in a company where we still see meaningful upside.

We also think the timing is attractive.

Earnings could inflect higher over the next two quarters as production ramps up, providing a potential near-term catalyst for the stock.

Table of Contents

1. Why Now?

   1.1 An Attractive Entry Point

   1.2 The Gold Bull Case

2. Company Overview

3. Investment Thesis

4. The Path to Sustainable Growth

5. How We Value the Company

6. What Could Go Wrong

7. Our Final Thoughts

Read more

In this piece, we walk through the commodities that we are currently most bullish and bearish on and explain the reasoning behind each forecast. We focus on where we see the biggest disconnect between what the market expects and what we think will actually happen, putting numbers behind our views.

Simply put, our current stance:

• Gold: Bullish

• Copper: Bullish

• Uranium: Bullish

• Crude Oil: Bearish

• Fertilizers: Bearish

Gold started to decouple from oil prices, and that is exactly what we had been waiting to see before becoming bullish on gold again.

We also provide ways to express these views through well-positioned companies with strong fundamentals and attractive growth prospects, giving investors a way to benefit from the themes we believe are likely to play out.

Table of Contents

1. Bullish Commodities

   1.1 The Case for Higher Gold Prices

   1.2 A Growing Copper Supply Deficit

   1.3 The Uranium Spot Price Rally

2. Bearish Commodities

   2.1 Fertilizer Prices Won’t Rally

   2.2 Don’t Fall for the Oil Bulls

3. Final Thoughts

1. Bullish Commodities

In the following section, we go through the three commodities we are most bullish on: gold, copper, and uranium.

We could have covered other commodities, such as steel, aluminium, and silver, but we chose to focus on the ones we consider most relevant and have the highest conviction in. For each commodity, we outline our thesis and price target.

1.1 The Case for Higher Gold Prices

In times of uncertainty, gold has historically been one of the most effective hedges against geopolitical and financial risks. That remains true today. When gold pulled back from its highs a few months ago, mainly due to changes in the economic outlook, interest rates, and the US dollar, we never turned bearish on the metal. We simply saw it as an opportunity to wait for a better entry point.

We think that opportunity has arrived.

Gold is now positioned to make new all-time highs, with central bank buying remaining strong, interest rate expectations becoming more supportive, and plenty of room for private investor demand to grow.

Gold also is still one of the simplest ways to diversify away from the US dollar, which is rarely a bad idea. More importantly, we think the worst of the recent correction is behind us. Real rates and the dollar remain important for gold, but we expect both to become more favorable for the metal going forward.

So, what is keeping the rally going?

We think central bank demand is one of the biggest reasons.

Central Banks Are Still Buying

They have been accumulating gold at a high rate, and we think this is more than a short-term trend. Governments are increasingly using gold to diversify their reserves and hedge against geopolitical and financial risks. Unlike foreign currency reserves, gold is much harder for another country to freeze or restrict.

This shift accelerated after 2022, when G7 countries froze Russian central bank assets following the invasion of Ukraine. Since then, central banks have continued to increase their gold purchases, turning what was once a smaller part of the market into an increasingly important source of demand.

China is an important part of this story. Central bank purchases accelerated to around 100 tonnes per month in June 2026 on a three-month seasonally adjusted basis, up from roughly 66 tonnes the previous month. China’s central bank was also the largest identifiable buyer in the market that month.

We think this creates an important floor for gold prices. Investment flows can change quickly, but central bank buying has become a much more consistent source of demand than in previous gold cycles.

Investors Are Coming Back

Central bank demand is only part of the story. Investment flows are starting to show that private investors are also becoming more interested in gold.

The latest data showed the largest inflow into gold funds since October 2025. Gold is getting hot again, and investors do not want to be the ones watching from the sidelines while everyone else gets in. Gold ownership remains relatively small in most portfolios. If even a modest amount of capital is reallocated toward the metal, the impact on prices can be significant given the size of the market.

Gold Could Become More Volatile

The increase in investor interest is also showing up in the options market.

Demand for gold call options has been rising as investors look for protection against large changes in government policy and geopolitical risks. This can increase volatility in both directions, but we think the current setup creates more potential for upside acceleration than a sustained reversal.

The reason is simple. As gold approaches important strike prices, dealers who have sold call options may need to buy more gold to hedge their exposure.

This can create additional demand and reinforce the rally. Of course, the same mechanism can work in reverse if gold falls sharply, which can amplify downside moves. But when investor positioning, demand, and the underlying fundamentals are all pointing higher, the options market can add fuel to the rally.

Rates Are Turning More Supportive

Interest rate expectations are another reason we think gold can move higher. After a slower first half of the year, demand is starting to pick up as markets see less risk of the Fed keeping rates high through 2026. Gold tends to struggle when yields rise because higher-yielding assets become more attractive. With markets now expecting rates to move lower, that headwind is starting to fade.

At the same time, geopolitical tensions and growing concerns around Western debt and fiscal spending could push more private capital toward gold. Gold still represents a relatively small allocation in most portfolios, leaving significant room for ownership to increase. If investors begin to follow central banks and increase their exposure, it could create another meaningful source of demand.

Positioning Still Has Room to Move

One of the more interesting things to watch is the difference between realized flows and conditional expected flows in one-month gold projections.

The data shows that positioning can shift quickly in either direction. Investors can add significant net length when they become more bullish, but that positioning can also unwind just as quickly when sentiment turns.

We do not view this as a reason to become bearish. Instead, it highlights an important characteristic of the current market: gold has become a crowded trade at times, but positioning can still change dramatically as expectations evolve.

Our Gold Price Forecast

With central banks still buying, investment flows picking up, and rates becoming more favorable, we think the setup for gold remains strong. Private investors are also still underexposed to the metal, leaving plenty of room for more demand. Gold is already moving higher, but we think the rally is still in its early stages.

We expect gold to reach $5,000/oz before the end of 2026.

1.2 A Growing Copper Supply Deficit

The copper bull case is pretty simple. Demand continues to grow, while supply is struggling to keep up, which ultimately leads to a deficit. And when a commodity is in a deficit, prices tend to rise. That is exactly what we are seeing with copper.

As data centers, power grids, and energy infrastructure expand, copper demand continues to rise. Electrification is adding another major source of demand, while the rapid buildout of AI infrastructure is putting even more pressure on the metal.

The problem is that copper supply cannot respond nearly as quickly. New mines can take more than a decade to develop, ore grades are declining across many existing operations, and major discoveries are becoming increasingly difficult to find. Even higher copper prices cannot bring new supply online overnight.

Our Copper Price Forecast

We think significant investment will be needed to close the copper supply gap, but new production takes years to come online. This should keep the market tight and support higher copper prices over the long term.

Given these factors, we have set a copper price target of $7.00/lb for 2027.

We see this company as one of the most attractive ways to gain exposure to the long-term growth in copper demand, as the market moves toward a tighter supply environment.

1.3 The Uranium Spot Price Rally

Uranium spot prices have been rallying recently, and we think the main driver is a combination of timing, market sentiment, and a growing realization that the uranium market could be heading toward a shortage. More and more people are starting to reach the same conclusion we have had for some time: there simply will not be enough uranium supply to meet future demand.

But why won’t supply be able to keep up?

The answer starts with electricity. Global power demand is rising rapidly, while nuclear is becoming increasingly important as countries look for reliable, low-carbon energy. AI is adding another layer to this trend, with data centers requiring enormous amounts of power and running around the clock.

Data center power consumption alone is expected to rise 165% by 2030.

Nuclear is one of the few low-carbon sources that can provide reliable power around the clock. This is creating more demand for uranium, but supply takes much longer to increase. New mines can take years to develop, making it difficult for supply to keep up. Even if hyperscalers slow their spending, we still expect uranium demand to exceed supply in the coming years.

The issue is simple: we do not yet have enough energy capacity, especially clean and reliable power, to support what is coming. Uranium production also cannot ramp up quickly, so even relatively small increases in consumption can have a meaningful impact on prices.

Even if hyperscalers eventually scale back their spending plans, we still expect nuclear demand to outpace available uranium supply over the coming years.

The AI boom is only one part of the story, and the broader push for reliable, low-carbon power is unlikely to disappear. With new mines taking years to develop, we think the market remains set up for higher uranium prices.

Our Uranium Price Forecast

The key question now is how high uranium prices can go from here.

We believe uranium prices can reach $100/lb in 2026.

The longer-term picture is even more compelling. Analysts expect the uranium market to face a growing supply gap over the next two decades, meaning prices will likely need to move higher to incentivize the new production required to keep up with demand. This is also why we have a $120/lb price target for 2027.

This is one of our highest-conviction nuclear holdings, and we think the company is well positioned to benefit from the next phase of growth in uranium demand.

2. Bearish Commodities

In the following section, we go through the two commodities we are most bearish on: fertilizers and crude oil.

We could have covered other commodities, such as coal, lithium, and natural gas, but we chose to focus on the ones we consider most relevant and have the highest conviction in. For each commodity, we outline our thesis and price target.

2.1 Fertilizer Prices Won’t Rally

What is happening in fertilizer markets is interesting, but we do not think it means fertilizer prices are about to rally, at least not in the short term. Agricultural commodities are clearly facing higher supply risks following the closure of the Strait of Hormuz, but so far, these risks have not meaningfully reached Western markets. In our view, there is no reason to panic yet.

There is certainly plenty of uncertainty.

The timing of the Strait of Hormuz reopening remains unclear, while concerns around a strong El Niño are adding to fears of an agricultural supply shock. El Niño is a climate pattern that disrupts normal weather conditions, potentially causing drought in some regions and excessive rainfall in others. While a strong event could hurt crop production, we think it is still too early to assume it will have a meaningful effect on global agricultural markets.

China is also helping ease some of the pressure. The recent reopening of its urea export channel has brought additional supply back into the international market and removed part of the risk premium that had built up around the Hormuz situation. This is one of the reasons urea prices have fallen sharply recently.

The impact is already visible in fertilizer affordability. After rising earlier in the year, fertilizer costs for farmers have started to ease, reducing some of the pressure on agricultural producers. Finally, inventories provide an important cushion. Several years of strong harvests have helped rebuild global grain inventories and improved crop balances. This gives the market more room to absorb potential disruptions without immediately creating a shortage.

For now, we think the market has more than enough inventory to absorb the risks being discussed. Until that changes, we see limited upside for fertilizer prices in the short term, which is why we remain bearish on the commodity.

2.2 Don’t Fall for the Oil Bulls

The Strait of Hormuz is one, if not the most, important transit route in the world. It moves a huge amount of our daily goods, with crude oil being the most important one. When WTI prices went above $110 a couple of months ago, we were very vocal about the fact that we expected oil prices to go much lower and that the rally was exaggerated and overdone. Why? Because of China.

It seems like most investors forget about China, just like they did a couple of months ago, and that is why they were wrong on oil prices while we were right. With Hormuz, China’s vulnerability in the petrochemical value chain has now been exposed to those who were not paying attention.

We expect the Chinese government to be more careful about this going forward. They will likely secure more coal-to-olefins capacity, which should further reduce their reliance on crude oil and put pressure on oil prices over the long term.

There are many reasons why oil prices eventually faded. China was the one most investors did not see coming. We did, and we were vocal about it, saying that higher oil prices would eventually lead to demand destruction. We received a lot of hate for that view, but well, sometimes being right can make people jealous.

Trump and the US SPR release also played a role, although we think their impact was smaller than China. More importantly, it is about staying objective and following the data. Oil prices can change quickly, so we think it is better to stay flexible and adjust when the facts change.

China is importing much less oil than it has in the past, and unlike some other market participants, we do not expect this to change anytime soon.

One reason is that China is relying more on coal, but it is also because its consumer remains weak and the economy is not particularly strong. China has also been using its strategic oil reserves, further reducing its need for imports.

Now, we think Iran is probably approaching peak leverage over the Strait of Hormuz. More oil appears to be getting through than the headline data suggests, which is something most investors are forgetting.

This is very important for oil prices because there is ALWAYS more oil and more tankers moving than what you can see on your screen. Physical oil flows are difficult to track in real time, especially when vessels change routes, delay reporting, or operate outside the most visible shipping data.

Another piece of evidence that Hormuz traffic is simply higher than reported, and we do not see how any oil bull can argue with that fact. Rising oil inventories tell us that there is actually more oil and more ships moving than the data shows.

For those saying, “Okay, but the Houthis can still disrupt trade through the Strait even if there is a deal between the US and Iran.” Really? Let’s be real.

The Houthis are simply a non-factor. They always have been. Sure, they can play a role in higher insurance rates for ships, but that is pretty much it. They account for just over 2% of total global trade volume through the Bab el-Mandeb Strait.

Finally, we think oil crack spreads are set to move lower. Asian crude imports are falling, while Middle East and North Africa crude exports are moving higher again. More crude reaching Asia, combined with weaker demand, should put further pressure on refining margins and eventually oil prices.

Before looking at our oil price forecast, the main risk we see is a much longer closure of the Strait of Hormuz. We are not expecting China to suddenly start importing much more oil again, so the biggest risk to our bearish view would be a prolonged disruption that pushes US SPR inventories into dangerous territory, which is obviously not something anyone wants.

That said, we think this risk is becoming less likely as more oil gets through the Strait of Hormuz and inventories start to rebuild. If this continues, we think the risk premium in oil prices should gradually fade. We therefore remain bearish on oil and think the market is underestimating how quickly supply can recover once more barrels start moving.

Our WTI Price Forecast

Based on all the reasons outlined above, we expect oil prices to move back lower, with WTI reaching around $80 before the end of 2026.

As the Strait of Hormuz reopens and the crude oil disruption becomes less severe than many expect, we think the risk premium will gradually fade. Countries and companies are already adapting, and we expect this to become increasingly visible in the months ahead.

3. Final Thoughts

Commodities are always difficult to forecast, but that is exactly what makes them interesting. We have put numbers behind our views and laid out the reasons why we are bullish on gold, copper, and uranium, while taking the other side on fertilizer and oil. We will see how these calls play out.

We think there is still plenty of upside in some commodities, while others are being priced far too optimistically. But one thing is clear: many commodities are still misunderstood, while others are simply getting too much attention for the wrong reasons. We aim to take advantage of those mispricings.

As analysts, our job is to cut through the noise, identify the inflection points that can actually change the outlook, and decide where we think the market is right or wrong. That is exactly what we did in this piece.

View how the portfolio is positioned here: Aurelion Index Link.

Below is our latest thematic research piece on the UK.

The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

Most of its operations are exactly where we live, in Montreal, Canada.

We know quite a few engineers who have recently joined the company.

In Montréal, there is a real effervescence around MDA. Talent is joining, and developments are starting to get discussed frequently in the news.

Yet, we think its bright future is not fully reflected in the current share price. We see the recent pullback as an attractive opportunity to invest in a high-growth company benefiting from the long-term expansion of the space industry.

This piece analyze the company per our usual framework but also provides differentiated research not covered anywhere else in certain areas:

• Our discussions with MDA engineers and recruiters. Top engineering talent is actively joining the company. While this may weigh on profitability in the short term, given the cost of hiring top talent, we see it as a strong positive for long-term innovation and execution.

• Our understanding of Canadian politics and the Carney government. When a company becomes a source of national pride, the government tends to support it through policy, promote it internationally, and stand behind it during periods of difficulty. MDA was recently described as a “Canadian champion” by Carney’s office.

MDA has been executing very well recently, signing several large contracts and expanding its facilities while leveraging its growing US footprint.

We expect more announcements of this kind in the months ahead.

If MDA continues to execute, we think the stock is trading at a very attractive valuation. It’s rare to find a high-growth space company with this level of defense exposure at such a low multiple.

The market either hasn’t fully recognized the growth ahead or isn’t willing to give the company credit for it yet. Some peers have more scale and deserve a higher multiple, but the difference in valuation is still significant.

We are adding MDA Space (NYSE: MDA) to our portfolio, the “Aurelion Index”. It also trades under the MDA ticker in Canada on the TSX.

Table of Contents

1. The Space Industry Is Taking Off

2. MDA Space: At a Glance

3. The Investment Thesis

4. Customers & Revenue Mix

5. The Canadian Government Advantage

6. Talent Acquisition & Hiring Trends

7. The Path to Free Cash Flow

8. Drivers of Value Creation

9. Valuation & Price Target

10. More Thoughts on the Space Industry

11. What Could Go Wrong

12. Our Final Thoughts

1. The Space Industry Is Taking Off

Read more

UK equities trade at their widest valuation discount to developed-market peers in decades. We believe the tide is already turning, and highlight the stocks best positioned to benefit from this shift.

With the UK macro backdrop central to the thesis, this piece was developed in collaboration with , an independent UK-based research publication focused on macroeconomics. Having published research on their home market for years, they bring extensive knowledge of the local economy and markets.

We also include our discussion with ARM Holdings (NASDAQ: ARM), one of the UK’s largest companies and a global leader in semiconductors.

UK equities lack the AI exposure that has driven valuations in the S&P 500, which has clearly contributed to the valuation gap. But there is more to the story, including shifting investor sentiment, domestic capital reform, and a sector mix that could be better suited to the next cycle.

Table of Contents

1. The State of the UK Market

2. Why We Are Bullish on the UK

3. Growth Driver 1: Legacy Investor Ignorance

4. Growth Driver 2: Political Capital

5. Growth Driver 3: Index Composition For The Next Cycle

   5.1 Financials

   5.2 Energy & Materials

   5.3 Healthcare

6. In Conversation: Arm Holdings

7. UK Equities: Pool of Ideas

8. Key Risks

9. Concluding Thoughts

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1. The State of the UK Market

Over the past decade, UK assets have significantly underperformed their global peers. The clearest example is the FTSE 100, the UK’s flagship stock index, which has gained 62% over this period, compared with a 254% gain for the S&P 500.

However, FTSE 100 performance has started to turn over the past year. With almost no tech exposure, the UK market’s gains have been driven mainly by financials, defense, and expectations of lower interest rates.

We then turn to the British pound (GBP), which was trading at 1.39 against the US dollar in August 2021 and remains at a similar level today, at 1.36. Notably, GBP/USD fell to a low of 1.0359 in September 2022 amid growing political concerns in the UK.

Next, we turn to the bond market. The long end of the Gilt curve has risen significantly in recent years, with both 10-Year and 30-Year UK government bond yields reaching their highest levels in decades. Loose fiscal policy, weak economic growth, and persistent inflation have pushed yields higher as investors demand greater compensation for holding UK government debt.

The UK’s move has been partly driven by a global selloff in long-term bonds. 30-year US Treasury yields reached their highest level since 2007, while German 30-year yields reached levels last seen in 2011. However, the UK stands out for both its higher absolute yields and the large increase in the extra return required to hold longer-term UK debt. This reflects concerns over government spending, weaker demand for UK bonds, and persistent inflation, all of which have been more pronounced in the UK than in most other G7 economies.

Taken together, these three asset classes paint a consistent picture. Over the past five years, the market has demanded a higher risk premium to own UK assets.

Equities have been held back by weak earnings expectations, political uncertainty, and continued capital outflows. Sterling has struggled as weak productivity growth, a current account deficit, and inconsistent government policies have weighed on international confidence.

Meanwhile, Gilt yields have risen significantly as the market has demanded more compensation for lending to a government facing higher debt, large borrowing needs, and an economy struggling to generate sustained growth.

In our view, there is some irony here: these same headwinds have also created the foundations for an opportunity. The UK is starting from a much lower base, while some of the factors that held the market back are beginning to improve.

2. Why We Are Bullish on the UK

We split our reasoning into three growth drivers.

The first is what we call legacy investor ignorance.

Despite many of the UK’s largest companies generating the majority of their revenues overseas, they continue to trade at a sizeable valuation discount to peers in the US and other developed markets. This discount may have been justified in the years immediately following Brexit, but six years later, it increasingly looks disconnected from the fundamentals. We see this as our first growth driver because the market is already starting to recognize this valuation gap.

Takeover activity has also picked up significantly, as overseas buyers and private equity firms continue to take advantage of depressed UK valuations. UK public M&A reached £35.3B in the first half of this year, compared with £22B in H1 2025 and £18.5B in H2 2025. Overseas bidders accounted for 94% of total deal value.

Inbound cross-border M&A activity tells a similar story, with foreign buyers showing a growing appetite for UK companies.

Meanwhile, the FT recently reported that takeover activity involving UK-listed companies has surged 188% year-to-date, marking the strongest pace since 2007.

A second pillar of our bullish view is the political capital being spent by new PM Andy Burnham to kick-start the UK economy. He may have been in office for only a few weeks, but the market’s initial reaction has been broadly positive.

More importantly, the government’s early priorities have focused on unlocking long-term investment rather than short-term fiscal giveaways. Alongside an ambitious programme of planning reform and housebuilding, Burnham has repeatedly emphasized the need to “mobilize British savings to back British growth.” Ministers are also exploring reforms to ISAs and pension funds that could encourage more domestic capital to flow into UK-listed companies.

Even a modest shift in domestic capital allocation could have a meaningful impact on UK equities. We explore how even a partial reversal of pension fund outflows from domestic markets could bring billions of pounds of additional demand into the FTSE 100 and FTSE 250.

Finally, at the index level, the UK market is dominated by large companies in healthcare, commodities, and financial services.

These are three areas where we are currently overweight and expect to remain so in the next cycle, with each benefiting from different tailwinds. As a growth driver, we believe the market is underestimating the potential upside in these sectors as we enter a period of higher infrastructure spending, larger defence budgets, strong commodity demand, and fundamentally higher interest rates.

3. Growth Driver 1: Legacy Investor Ignorance

The shrug of the shoulders when some overseas investors are told about UK equities tells the broad story here. Even though ignorance might be too strong a word, investor indifference and persistent under-allocation certainly help explain the valuation gap between the UK and its developed-market peers.

The scale of the discrepancy is being arbitraged away, but still remains striking. As of the end of July, the MSCI UK traded at 12.85x forward earnings, against 20.37x for MSCI USA and around 15.5x for MSCI EAFE, while offering a 3.05% dividend yield, versus just 1.13% in the US.

In other words, investors are currently paying roughly 37% less for a pound of forecast UK earnings than for the equivalent dollar of US earnings, while simultaneously receiving almost three times the dividend yield.

Of course, some discount is justified. The US market contains many of the world’s highest-growth and highest-margin technology businesses, and those companies deserve higher multiples than mature banks, miners or oil majors.

But we believe the valuation gap is still too large.

We don’t need the valuation gap to disappear entirely for the return implications to become meaningful. If UK forward valuations moved from 12.85x to 14x, for example, that alone would represent roughly 9% multiple expansion.

UK vs. US Equity Valuation Gap (2023–2026)

Signs of this process are already emerging. The FTSE 100 has lagged the S&P 500 by only around 250bps over the past year, an impressive result when considering the radically different sector compositions of the two indices (more on that later).

Arguably, the most compelling evidence that the UK discount is becoming excessive comes from ongoing corporate arbitrage. Financial and strategic buyers appear increasingly willing to exploit a valuation discrepancy that public-market investors have been slower to recognize.

By July 1, 2026, announced M&A involving UK targets had exceeded $231bn, 210% above the same point in 2025. Even more strikingly, foreign bidders represented around $197bn and a record 86% of UK-targeted deal value.

It’s not hard to sniff out that when overseas corporations and private-equity firms repeatedly conclude that UK-listed businesses are worth substantially more than their prevailing market capitalization, there’s money to be made.

Companies themselves are reaching much the same conclusion.

UK companies had announced £34.6bn of share buybacks by April 24, 2026. Management teams are opportunistically retiring capital for shares.

This creates an interesting dynamic. Foreign buyers are removing undervalued UK companies from the market, while listed companies are simultaneously shrinking their own share counts through buybacks. Both reduce the available supply of UK equity. Then if we see a continued demand increase from other marginal buyers for UK stocks, it creates a rising tide.

Just as there is some ignorance around ignoring the UK, we also don’t want to be seen as ignorant in simply saying “UK stocks are cheap”.

Cheap markets can definitely remain cheap indefinitely.

The more compelling argument is that identifiable shifts are now starting to close this valuation gap, creating opportunities for investors to generate meaningful alpha through stock selection. Rather than simply buying the cheapest UK stocks, we favour companies where the valuation discount looks hardest to justify.

For example, international businesses still trading on UK multiples, companies with strong free cash flow and significant buyback capacity, and businesses whose strategic value appears materially higher than their public-market valuation, making them potential M&A targets.

Mid-caps are particularly interesting in this respect, as lower analyst coverage and weaker domestic flows can create more pronounced valuation gaps.

Now, let’s take a look at two ideas we find interesting.

4. Growth Driver 2: Political Capital

Andy Burnham entered Downing Street on July 20, 2026, promising a “new political model and a new economic model” after replacing Keir Starmer as Labour leader. The UK has become something of a political laughing stock in recent years, with Burnham becoming the country’s seventh PM in a decade.

Andy Burnham’s First Speech as Prime Minister

The consequences extended well beyond politics, with repeated fiscal missteps triggering serious market turmoil. The clearest example came in September 2022, when Liz Truss’s government, with Chancellor Kwasi Kwarteng, unveiled a mini-budget containing around £45bn in unfunded tax cuts.

Markets reacted badly, with gilt yields surging and severe pressure building across pension funds, particularly those using liability-driven investment strategies. To prevent the stress from turning into a broader financial crisis, the Bank of England stepped in with a temporary programme to buy long-dated gilts, initially offering up to £65B in purchases. In the end, it bought £19.3B of gilts before gradually unwinding the entire position once market conditions stabilised.

Even though this shows the damage that can be done, the opposite is also true. Burnham does not need to transform productivity overnight.

He needs to convince companies and investors that the direction of travel has changed, that approved projects will actually be delivered, and that domestic capital will no longer be encouraged to bypass UK assets.

In a market priced for disappointment, simply reducing policy uncertainty can be almost as valuable as an immediate improvement in earnings. Before we even get to the policies, there are already some positive signs. Labour is now polling ahead of Reform UK, the right-wing alternative in the UK’s increasingly fragmented political landscape. The recent improvement largely reflects growing confidence that Burnham can deliver the change he has promised.

What has been more constructive is the absence of a sustained fiscal-risk spiral. The 10-year Gilt yield is now 4.85%, below its level when Burnham took office.

Of course, yields remain high in absolute terms, but the market has so far treated Burnham’s programme as a conventional fiscal debate rather than a broader credibility issue. So, what policies could drive this change, and which sectors should we watch? One of the most interesting levers is savings reform.

UK workplace defined-contribution (DC) pensions held roughly £600bn in assets in 2023, but only 6% was invested in UK equities, compared with 70% in overseas equities. The domestic share of DC assets has also fallen from just over 50% in 2012 to just over 20% today.

The government’s own analysis estimates that a five-percentage-point increase in domestic DC allocation would add £30bn of investment into UK markets. At the same time, ISA reform will reduce the under-65 Cash ISA allowance to £12,000 from April 2027, while keeping the overall £20,000 ISA allowance unchanged. The goal is clear: encourage more savings to flow into investment products.

Given how little the current ISA and pension system supports UK equities, this growth driver does not require a dramatic change. From our calculations, a one-percentage-point increase in DC home bias, a modest shift in ISA cash savings, and a half-percentage-point increase in LGPS listed-equity allocation could generate roughly £6.7bn of incremental demand for UK-listed equities. The impact could be particularly meaningful for the much smaller FTSE 250.

Pinpointing exactly which stocks would benefit is harder. These funds would act as marginal buyers, making the impact difficult to trace directly.

However, we see two clear points.

First, money is likely to flow toward companies seen as undervalued. This supports the first growth driver we discussed above and could help close some of the valuation gap.

Second, it matters less where all the money ultimately ends up, as much of it will pass through UK asset managers, brokerage platforms, insurers, and other financial institutions. These businesses should benefit from higher AUM, greater trading activity, and increased demand for actively managed products.

There are, of course, other ways to play these reforms, such as homebuilders benefiting from potential housing reform or retail and leisure companies benefiting from measures aimed at easing the cost of living.

But if we want direct exposure to the financial reforms themselves, we believe UK financials offer one of the most attractive risk/reward opportunities.

5. Growth Driver 3: Index Composition For The Next Cycle

The lack of AI and broader technology companies in the UK public market is no secret. In theory, this should have caused the UK to lag the S&P 500 even more, given the huge contribution from tech and AI-related stocks.

Yet that has not been the case this year.

YTD, the FTSE 100 is up 8%, compared with 12% for the S&P 500.

Ironically, one factor supporting the UK market is its index composition. While the FTSE 100 has little exposure to technology, it has large weightings in sectors that are already performing well. Financials account for roughly 28% of the index, followed by healthcare at 11.6%, energy at 10.4%, and materials at 8.1%.

The contrast with the US is significant.

Information technology alone represents 36.8% of the S&P 500 and 28.9% of the MSCI World. This means the UK offers investors a very different mix of sector exposure, with greater weightings toward financials, healthcare, energy, and materials, all areas where we see strong potential in the next cycle.

So why does this setup look appealing going forward? Let’s focus on three sectors we are bullish on right now: financials, healthcare, and energy.

5.1 Financials

UK banks have performed strongly over the past year as the interest-rate backdrop has remained far more supportive than many investors initially expected. The Bank of England held its policy rate at 4% through much of 2025 before cutting by just 25bps to 3.75% in December, where it has remained.

This has allowed banks to maintain healthy net interest margins and deposit spreads. Looking forward, we see this continuing based on our macro outlook for monetary policy. The BoE held its policy rate at 3.75% at its July 2026 meeting, with a 6-3 vote and three MPC members voting for a hike.

Current market pricing indicates X bps of rate hikes are priced in through year-end. A “higher for longer” scenario, or even a modestly higher rate path driven by energy price inflation and Middle East tensions, would be incrementally positive for bank NIMs.

Importantly, the benefits of higher rates have increasingly been reinforced by fundamental hedges. Barclays, Lloyds, and NatWest have large hedge books that gradually roll onto higher yields, providing a delayed boost to net interest income even if the BoE cuts rates modestly. All three have guided towards year-on-year growth in fundamental hedge income over the medium term, making the earnings benefit more durable than simply relying on rates staying high.

When you put it all together, it’s clear that the full benefit of this cycle has yet to be reflected in earnings.

The next leg of this cycle could come from a further re-rating of the sector alongside supportive monetary policy. Investors are increasingly recognizing that the improvement in profitability since Covid is more fundamental and not simply the result of higher rates. With UK banks still trading within a domestic equity market that remains heavily discounted versus other developed markets, stronger returns and better earnings visibility could give investors a good reason to close at least part of that valuation gap.

5.2 Energy & Materials

Over the past 12 months, UK materials stocks (FTSE 100 members) delivered a total return of +80%, while energy stocks returned +34%. Materials were the standout sector across the entire index, comfortably ahead of even Technology (+55%) and Financials (+26%).

The main driver has been the broad rally in commodity prices over the past year, with the Iran war acting as a key catalyst. However, it would be wrong to attribute all of these gains to the oil complex.

In fact, copper has been the strongest performer across the major commodities, rising 44% on supply deficits and recovering Chinese demand.

Next is Brent crude, up 34%, driven higher by the Iran conflict and related disruptions to maritime trade. Gold is slightly behind at +32%. While it struggled for much of Q2, it remains supported by central bank buying, a weaker US dollar, and safe-haven demand. Not all commodities have performed equally, however, with natural gas (-1%) and iron ore (-7%) standing out as notable laggards.

Looking ahead, we don’t believe this is the end of the road for materials outperformance, even with precious metals having pulled back in recent months.

Copper is a good example. Physical copper markets are likely to remain in deficit in 2026, as production growth cannot keep pace with rising consumption, supporting further price increases. Copper is forecast to average $12,800/t in 2026, with demand supported by China’s power grid, renewable energy, EVs, and machinery, while supply remains constrained.

More importantly, we expect the copper deficit to persist well beyond 2026, creating a longer-term supply problem for the market.

The fundamentals are highly compelling. A decade of underinvestment, combined with the rising capital intensity of new projects, means higher prices will likely be needed to incentivize new supply. This is already reflected in the FTSE 100, with the Anglo American–Teck merger moving towards completion and expected to create the world’s leading listed copper company.

Copper isn’t the only metal expected to face a deficit over the coming year. Aluminium is another market where the supply picture looks increasingly tight. Middle East disruptions are estimated to have caused 3.5–4.0 Mtpa of outages, with around 2M tonnes of regional supply expected to be lost in 2026. If these disruptions continue, aluminium prices could move above $4,000/t.

Regarding gold and silver, we believe the recent pullback offers a good opportunity to buy the dip. More broadly, UK energy and materials stocks still trade at low valuations despite their strong performance.

The median forward P/E is 10.5x, while median forward EV/EBITDA is 4.7x. If commodity prices stay high, we believe these stocks still have room to move higher as earnings grow and valuations improve.

5.3 Healthcare

The case for UK healthcare stocks is becoming increasingly attractive following a prolonged period of neglect. The sector has faced real headwinds, both in the UK and globally, including drug-pricing reforms and reimbursement pressure.

There have also been concerns that AI could reduce rather than improve margins. These factors have led investors to use healthcare as a source of funding for more popular AI and tech names, leaving positioning in the sector unusually light.

We believe this neglect is now part of the opportunity, especially given the UK’s limited exposure to healthcare. Valuations also look reasonable relative to the broader market. The FTSE 350 trades at an average forward P/E of 15.2x, while GSK trades at 10.4x and Hikma at 9.6x. On a P/B basis, versus a 3.5x average for the FTSE 350, Smith & Nephew trades at 2.4x and Hikma at just 1.9x.

Positioning also remains far from crowded, meaning even a modest rotation away from expensive tech names could provide a meaningful boost to healthcare stocks.

The fundamentals offer another reason for optimism. Healthcare companies typically benefit from strong pricing power, high margins, and limited exposure to commodity inflation. An improving earnings environment could therefore create meaningful operating leverage as margins recover. Meanwhile, healthy balance sheets and the need for large pharmaceutical companies to replenish their drug pipelines could support further M&A, particularly across biotech.

We also think the AI angle is under-appreciated.

Investors have largely focused on AI as a threat to healthcare margins, but productivity gains in areas such as drug discovery, diagnostics, and administration could eventually create meaningful upside to earnings.

6. In Conversation: Arm Holdings

Earlier this month, we () had a really insightful discussion with ARM Holdings’ VP of Investor Relations, Ian Thornton, who has been with the company for more than 20 years. Let’s just say he knows the ARM business pretty well, and we definitely felt it during the conversation.

For context, ARM is one of the largest companies in the UK and one of the most important semiconductor companies globally.

It develops energy-efficient CPU architectures and licenses them to major technology companies around the world.

It was a great call, and we came away with much more than we typically get from larger companies. Bigger companies often stick to the same points they make on earnings calls. For us, these conversations are about getting a better sense of growth drivers, what customers and investors are saying, as well as how competitors are moving.

First, the long-term margin opportunity is much more interesting than we initially thought.

Financial Targets & A Very Different Margin Model

The IP business could become very attractive, with management targeting around a “99% gross profit margin” and potentially 60-65% operating margins.

Those numbers may sound aggressive at first, but ARM has a very different cost structure from most semiconductor companies. The reason is that “everything that goes into that chip is IP that we also license and sell.”

As management put it, “chip costs are just assembly... basically assembly costs.”

That makes the gap between gross and operating margins “a lot, lot tighter than most other semiconductor companies.” Longer term, reaching operating margins around 60% would require moving further toward customer-owned tooling, where “you own the tools that live at the test equipment factory.”

The point here is that ARM is leveraging its existing IP advantage to move further up the value chain while maintaining a relatively asset-light model.

Bringing More of the Chip Development In-House

ARM is also gradually bringing more of the chip development process in-house.

For the first chip iteration, ARM used SocioNext for the back-end processes. For the second, it moved toward a direct relationship with TSMC.

The company also recently completed its acquisition of DreamBig, giving ARM greater capabilities in high-speed interfaces. Previously, it relied on third-party tools from companies such as Synopsys.

The strategy is simple: bring more of the development stack in-house, have greater control over the product, and capture more of the economics.

This also addresses a broader issue ARM encountered when it first started approaching hyperscalers. According to management, the response was essentially: “We don’t want to design chips. We are software and service companies. Don’t make us become silicon designers.”

That is important because ARM is not necessarily asking customers to become chip designers. It can provide much more of the finished solution itself.

And there is a meaningful economic opportunity here.

Management pointed out that if “90% of the IP that goes into that chip is ours,” there is a question of why ARM should let someone else capture a 30% cut for assembling what is largely its own architecture into a finished product.

Enterprise Could Be a Much Bigger Opportunity

One of the more interesting parts of the conversation was around enterprise demand. Companies don’t want to design its own chips. Instead, the question they were asking was essentially: “Why is there no one to sell me this chip?”

That is where ARM saw an opportunity. If “90% of the IP that goes into that chip is ours,” there is “very little opportunity” for competitors to differentiate.

That creates a pretty unique position for ARM. Customers get a chip tailored to their needs, while ARM can capture a significant portion of the economics because it already owns most of the underlying IP.

We think this could become an increasingly important part of the story.

The hyperscalers have already shown that custom silicon can make sense, but there is a much larger group of enterprise customers that simply does not have the resources or desire to build an internal chip team.

Competitive Moat & Future Workloads

When it comes to competition, management was pretty direct:

“The only boulders on the runway are Intel and AMD with their x86 chips.”

ARM’s core advantage remains performance per watt. As they put it, “the primary performance metric customers care about today is performance per watt.”

That becomes increasingly important as AI infrastructure puts more pressure on power availability. The computing industry can keep adding GPUs, but eventually you run into a simple problem: there is only so much power available.

This is also where agentic AI becomes particularly interesting.

Management believes “the rise of agentic workloads” could be an important opportunity because “the agentic is pretty much 100% a CPU task.”

GPUs handle the heavy matrix computation, but the orchestration, API calls and sequential logic around those workloads are largely CPU-driven. If agentic workloads become a meaningful part of future computing demand, ARM could benefit from another structural shift toward more efficient CPU architectures.

Robotics & Physical AI

The other area we found particularly interesting was robotics and physical AI.

These applications require much more than raw computing power. They need “redundancy, safety islands, parallel processing.” As management explained, you need “safety critical systems to go into robotics and cars” because a computing failure in these environments can have very serious consequences.

That plays directly into ARM’s strengths. As more computing moves into environments where power efficiency, reliability and safety are just as important as raw performance, ARM’s architecture should become increasingly relevant.

Overall, the biggest takeaway for us was how broad ARM’s opportunity could become. AI infrastructure is only one part of the story. The company is gaining exposure to data centers, enterprise computing, agentic AI, robotics and physical AI, all of which are pushing demand toward more efficient computing. After this conversation, we came away with a much clearer view of why management is so confident in ARM’s long-term growth potential.

7. UK Equities: Pool of Ideas

We built a Pool of UK Ideas classified by the three growth drivers we identified earlier, with exposure to financials, healthcare, commodities, and other areas where we see the strongest potential for a re-rating.

ARM Holdings (ARM)

Another company we find interesting is ARM, which we discussed earlier in the piece. We think the company has a lot of room to grow in the semiconductor industry, supported by its strong competitive moat and exposure to the next generation of computing workloads. The main risks, however, are its still very high valuation and questions around whether it can maintain its moat over time.

8. Key Risks

The simplest way to explain the main risk from our primer is that UK equities are not necessarily expensive, but the catalysts needed to unlock their value may fail to materialize.

1. The Valuation Gap Could Persist

The UK discount, particularly in equities, could prove to be more fundamental than we expect. Although we believe it is cyclical and already starting to change, our thesis assumes that the valuation gap continues to close as international investors rediscover the market. Cheap, however, does not automatically mean mispriced, and investors could continue to look elsewhere for years.

2. Reforms Could Disappoint

Another risk is that Burnham fails to turn political momentum into meaningful economic reform. The early days of any government are not always a good indicator of future investment performance. A key part of our thesis is that greater political stability and policies aimed at mobilising British savings can improve domestic investment. The risk is that implementation disappoints, reforms are watered down, or political opposition prevents meaningful change.

3. Fiscal Risk

Finally, there is fiscal credibility, an area where the UK has struggled in recent years. Burnham has so far avoided a major fiscal-risk event, but the October Budget will be an important test.

Higher borrowing, unfunded spending commitments, or overly optimistic growth assumptions could push gilt yields higher and put pressure on sterling and UK equity valuations. The 2022 experience under PM Truss showed how quickly UK assets can reprice when confidence in fiscal policy is lost.

9. Concluding Thoughts

Here we fly the flag for the UK.

Expectations remain relatively low, valuations remain attractive, and for the first time in a while there are identifiable catalysts capable of changing the narrative.

Importantly, our bullish case doesn’t require Britain suddenly to become the world’s fastest-growing economy. That’s just not realistic. Rather, we need the direction of travel to improve. The signs are there that this can be the case, from credible fiscal policy and a modest redirection of Britain’s enormous savings pool.

AP and Aurelion Research

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research and/or AP Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research, AP Research, and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.”

We view this pair of equities as a compelling combination of exposure to prices and production of uranium. The producer is one of the few that is cash flow positive, with high visibility into long-term demand given its signed contracts.

Hyperscalers are rushing to get access to nuclear, signing large contracts in recent years. The large voices in the AI industry have been calling this out for some time now, for example Jensen Huang (NVIDIA’s CEO), who said that nuclear, such as small reactors, will be the solution to the “bottleneck”.

As we mentioned ourselves in our Uranium Primer:

“The issue is simple: we don’t yet have the capacity to produce enough energy, especially clean energy, to support what’s coming.” A lot of the supply is fixed, meaning incremental demand drives the price of uranium.

We think even if hyperscalers cut their spending forecasts, nuclear demand should still be larger than supply over the next years, directly benefiting uranium equities.

We’ve gone in depth on the uranium market in our previous Primer.

Here, we explain why we are getting another, and differentiated exposure.

Table of Contents

1. The Uranium Bull Case

   1.1 The Main Driver of Uranium Demand: AI

   1.2 Supply Can’t Keep Up With Demand

2. Our Highest-Conviction Uranium Stock

3. An In-Depth Look at the Business

   3.1 Overview of Business Segments

   3.2 Strategic Investments & Partnerships

4. Investment Thesis & Valuation

5. Our Uranium Price Forecast

6. What Could Go Wrong

7. Our Final Thoughts

1. The Uranium Bull Case

1.1 The Main Driver of Uranium Demand: AI

The main driver of uranium demand is the rapid growth in global electricity consumption. Nuclear demand was already increasing as countries looked for reliable, carbon-free power, but the rise of AI is pushing demand even higher.

The chart below shows just how much more energy-intensive AI can be.

This surge in AI usage is translating into much higher electricity demand.

Data center power consumption alone is expected to rise by around 165% by 2030. Nuclear is one of the few carbon-free sources that can provide consistent output, which is why the uranium supply-demand gap continues to widen.

1.2 Supply Can’t Keep Up With Demand

Nuclear power cannot simply be turned on and off.

Utilities typically secure their uranium supply years in advance, but a growing share of future demand remains uncontracted.

As utilities return to the market to secure additional volumes, competition for available uranium could increase, putting further upward pressure on spot prices.

The amount of uranium countries will need to purchase, especially the US, is growing faster than supply.

2. Our Highest-Conviction Uranium Stock

Read more

Which means: here we go again. Another trade war.

What We Know:

• The US is set to impose 50% tariffs on $20B of Canadian goods.

• Canada will respond with retaliatory tariffs starting September 8.

• Steel, aluminum, and lumber face 50% US tariffs.

• The new tariffs rely on Section 338 of the Tariff Act of 1930, which has never been used before.

• Oil, potash and critical minerals are not included in the latest tariffs. Canada sends more than 4M barrels of oil to the US every day.

• The auto sector could be next. Trump says tariffs on Canadian cars, trucks and auto parts will rise to 50% on January 1, 2027, from the current 25% tariff on the non-US portion of vehicles.

• Trump has warned that more tariffs could follow if Canada retaliates.

What Happens Next?

There is clearly important uncertainty, and it is difficult to predict what Trump will do next. However, there are clearly companies benefiting from these tariffs, as we highlight below.

We know that auto manufacturers and parts, steel, aluminum, and lumber will likely be among the most affected sectors at first, based on what has been said and our analysis.

We already have a good idea of what the new norm could look like.

US steel companies Steel Dynamics (STLD) and Nucor (NUE) were the S&P 500’s best-performing stocks this morning, rising as much as 6.6% and 5.1%, respectively. Meanwhile, Canadian steel producer Algoma Steel fell 8.2%.

Since then, all three have moved sideways, showing just how volatile the market is right now. Nobody really knows what comes next, so the market is reacting quickly to every new headline. We also saw USA Rare Earths (USAR) fall nearly 6%, even with the mention that critical minerals would not be affected by tariffs.

Now let’s look at Canada.

The impact will vary a lot by industry and province. Primary metals, fabricated metals, and forestry already face some of the highest tariff burdens, which helps explain their recent weakness. Under the new measures, apparel and textiles, non-metallic minerals, and electrical equipment could face even higher tariffs.

Companies that rely heavily on the US market will likely feel the pressure first, especially in steel, aluminum, forestry, machinery, and electrical equipment.

Quebec and Ontario are the most exposed, with average tariff rates of roughly 11% and 9%, largely because of their large manufacturing bases. British Columbia, Nova Scotia, and Manitoba could see some of the biggest increases from July levels, while Alberta and Newfoundland and Labrador should be less affected.

For companies, the biggest factor will be where they produce and where they sell. Canadian companies that rely heavily on US sales could take a major hit, while those with US production may be better positioned. US companies competing with Canadian imports could also gain market share.

This creates opportunities on both sides of the border. That’s what we’re focusing on in this piece: stocks that could benefit from the tariff war.

Table of Contents

1. The US-Canada Trade Relationship

2. One Electricity Company That Could Benefit

3. Two Aluminum Companies That Could Benefit

4. Two Steel Companies That Could Benefit

5. Our Final Thoughts

1. The US-Canada Trade Relationship

Read more

We now know what some of the biggest and most well-known hedge funds bought and sold last quarter. We went through a large number of 13F filings, looking beyond the headlines to build a broader picture of how institutional money is positioned: what funds own, which themes they are betting on, and where capital is flowing.

We present the most relevant ones below, but first, we take a look at where the AI trade stands today.

The most obvious theme of the filings was AI. A large number of funds have significant exposure to AI-related companies, many of which are trading at very high valuations and carry equally high expectations. That part did not surprise us.

What did surprise us was how little exposure many of these funds have to commodities. Maybe a copper miner just isn’t as sexy as SpaceX or Micron, but seeing so few meaningful commodity positions across these portfolios was still surprising. And that may be where things get interesting.

Let’s start by looking at where hedge funds are putting their money across sectors.

As expected, technology remains the most heavily invested sector. Consumer discretionary is also gaining traction, a sector we’ve been invested in since the start of the year.

We view this 13F exercise as a great way to gauge investor sentiment across large-cap stocks, which has a ripple effect across the entire stock market.

Table of Contents

1. Hyperscalers & Semis: The AI Trade

   1.1 Inside the KOSPI’s Volatility

   1.2 The Case for Further Upside

   1.3 The Other Side of the AI Trade

2. What Hedge Funds Are Selling

3. What Hedge Funds Are Buying

4. Our Final Thoughts

   ---

1. Hyperscalers & Semis: The AI Trade

The AI trade is the hottest trade in the stock market right now.

But the more interesting question is how far it can actually go.

There are two sides to this trade. On one side, you have the companies spending hundreds of billions of dollars building data centers and buying the chips needed to run them. On the other, you have the companies supplying the hardware, memory, networking equipment, and everything else required to make it happen.

At some point, valuations have to come back down to reality. Unless earnings growth is strong enough to justify them, the numbers simply stop making sense.

How much can the companies building this infrastructure realistically spend? How much can the suppliers earn? And, more importantly, what valuations can investors justify if expectations keep getting higher? If we eventually find that there is a ceiling to how much money can be poured into this buildout, the unwind could get ugly. We are already getting a taste of what that looks like.

1.1 Inside the KOSPI’s Volatility

South Korea, home to some of the world’s biggest memory companies, has become one of the clearest examples. Samsung and SK Hynix have been at the center of the AI boom, but the broader KOSPI stock market has been moving like a casino lately: 7% moves up, 7% moves down, huge selloffs, massive rebounds, and even circuit breakers. At this point, we simply stopped trying to count them.

Need proof the KOSPI is volatile? It’s now more volatile than Bitcoin.

Korea’s Retail Trading Phenomenon

South Koreans have always been active in the stock market, but the AI boom has taken that interest to another level, especially around Samsung and SK Hynix.

This year, local investors have put more than 110 trillion won ($77B) into KOSPI stocks, helping companies raise money and fund their expansion. The downside is that this heavy retail buying has also made the market more volatile.

Foreign investors have largely been on the other side of the trade. Many global funds have had to reduce their positions in Samsung and SK Hynix because the two stocks had become too large a part of their portfolios. Foreign investors have sold $115B of KOSPI stocks this year, including more than $40B of SK Hynix.

South Korean retail investors are known for chasing returns and moving with the crowd. Rising prices can attract even more buyers who fear missing out, while sharp declines can trigger a rush for the exits. Institutional investors tend to be more patient, paying more attention to a company’s underlying value.

Leverage Adds Fuel to the Fire

Leveraged ETFs can magnify both gains and losses, and their popularity has exploded. Goldman Sachs estimated that assets in Korean leveraged ETFs rose from around $5B at the start of the year to more than $40B by late June.

That surge eventually began to unwind. As stocks fell, some investors were forced to sell, putting further pressure on prices and reducing ETF exposure. By July 29, JPM estimated that hedge funds had completed 90% of their deleveraging, suggesting that much of the forced selling was already behind the market.

Lastly, the KOSPI is unusually concentrated.

Samsung Electronics and SK Hynix, the country’s two major memory chipmakers, account for more than half of the KOSPI. That leaves the index heavily exposed to the semiconductor cycle. When memory demand is strong, the KOSPI can benefit significantly. When the cycle turns, the impact works both ways.

That doesn’t mean the AI trade is over. Far from it. But can spending, earnings, and eventually cash flows grow fast enough to justify the expectations already priced into these companies? That is the question we will answer next.

We recently added a high-quality, undervalued company to the Aurelion Index that we believe could benefit significantly from all this volatility.

1.2 The Case for Further Upside

The main question on everyone’s mind is whether hyperscalers and other AI-related companies can continue expanding, scaling, and growing their businesses at the pace the market currently expects. So far, spending has consistently moved in one direction. Capex estimates have been raised every quarter since Q4 2023, reflecting just how quickly expectations around AI infrastructure have grown.

Hyperscaler Capex Estimates Were Raised Every Quarter

And even when we look at consensus estimates, they have consistently fallen short. Hyperscaler capex has come in more than 56% above what the market was forecasting a year ago, showing just how quickly expectations have been moving higher. More importantly, this trend does not appear to be slowing, with spending estimates continuing to be revised upward.

Hyperscaler Capex Has Come in 56% Above Consensus

We recently added a high-conviction copper company to the Aurelion Index that we believe will be one of the biggest beneficiaries of the surge in AI infrastructure spending.

1.3 The Other Side of the AI Trade

There are always two sides to the story. And yes, we see a real risk that hyperscalers and semiconductor companies could eventually struggle to keep up with the market’s expectations. That does not mean growth is coming to an end.

We believe one of the bigger issues is that EPS growth could slow while expectations continue to rise. When the bar keeps moving higher, companies can deliver great results and still disappoint investors simply because they were not “good enough” relative to what was already priced in.

This is where we think volatility could really pick up over the next few quarters.

Take Micron (MU) as an example.

In a more normal market, missing consensus might have meant a 5–10% decline. Today, with expectations and positioning so high, the same miss could easily result in a 15–20% drop. The fundamentals may not have changed dramatically, but the market’s reaction can be very different when the bar is this high.

Semiconductor EPS growth is expected to peak at around 51% in Q2 2027. That is still a long way out, especially in a market where things can change very quickly, so we would not put too much weight on a forecast that far ahead.

Semis’ Contribution to S&P EPS Growth to Peak at 51% in 2Q27

Still, it is worth keeping in mind because the market is already pricing in very strong earnings growth. If that growth starts to slow, even while earnings continue to rise, the reaction could be very different, and things could get ugly.

We think this is one reason hyperscalers could eventually start to moderate their spending plans, especially after the recent underperformance across the sector.

If the market suddenly starts questioning (if it is not already) whether all this additional capex can generate enough incremental earnings and cash flow, companies may become more cautious about the pace of future spending.

Semis Returns Are Already Pricing in Slower EPS Growth

At the same time, Return on Incremental Invested Capital (ROIIC) has fallen back to its 10-year average of around 21–22%.

Hyperscaler ROIIC: Back to the 10-Year Average

That is important because it suggests the return on each additional dollar invested is no longer improving. If that continues, it becomes harder to justify increasing capex at the same pace. They can keep spending more, but at some point, the returns need to make sense. The only question is when.

Earlier in May, we wrote a special article on SpaceX and the other big upcoming IPOs.

2. What Hedge Funds Are Selling

The first interesting finding was Gina Rinehart’s massive bet on SpaceX. Australia’s richest person invested around $1.4B in the company, making it far too significant to ignore. She does not run a hedge fund, so it technically falls outside our 13F analysis, but a bet of that size from one of Australia’s most prominent people was worth mentioning.

Oracle (ORCL)

Interestingly, while most investors have been getting out of Oracle, the Swedish Rausing family, which manages its wealth through an investment fund, has been adding massively to the position. That said, David Tepper exited it entirely.

Google, Amazon, and Nvidia

We saw the famous investors Soros and Druckenmiller trimming some of the Magnificent Seven names, including Google, Amazon, and Nvidia.

For those looking for a way to benefit from rising memory prices and the broader semiconductor buildout without taking on the same risks as the companies actually making the chips, this is our favorite way to play the trend.

3. What Hedge Funds Are Buying

Intel (INTC)

Intel is particularly being bought by some of the “big guys”, including Coatue, AQR, and Tiger Global. That is interesting to us, especially since the shares are now trading near their lowest levels in recent months.

Nebius (NBIS)

Nebius is no surprise here. Almost everyone seems to be buying it as the stock has quickly become one of the hottest momentum names in the market.

Nvidia (NVDA)

Is interesting as well. Sentiment seems pretty divided, with some big funds making significant buys while others are taking large positions off the table.

SanDisk (SNDK)

Is seeing a major selloff, which isn’t too surprising given everything that happened with Situational Awareness and its massive position in the stock.

Palantir (PLTR)

Almost a 50/50 split between buys and sells for PLTR, with some big funds getting in while others are trimming. It just shows how divided sentiment is around the stock right now.

Amazon (AMZN)

Way more buys than sells, which lines up with the bullish comments we’ve been hearing about the stock and the view that it looks undervalued at current levels.

Tesla (TSLA)

Tesla is a company that is hard to figure out right now. It almost has a cult-like following among many investors, but institutions seem to be taking a more cautious approach for now, with several big funds trimming their positions.

Microsoft (MSFT)

Many funds are getting in, similar to Amazon. The stock is being bought because it looks relatively cheap compared with the memory momentum names, especially when you look at the earnings and cash flow these companies could generate.

Alphabet (GOOGL)

Not much to say about Google. It’s a great company, but there isn’t much action around it right now, with most of the attention focused on Microsoft and Amazon.

Meta (META)

Interesting to see Bill Ackman getting into this one.

He doesn’t make many new bets, so it could be an interesting one to watch.

Arista (ANET)

Arista is a Silicon Valley company we have yet to meet with management, but it’s definitely one we want to take a closer look at. It’s a high quality business.

Micron (MU)

This one is getting punished by funds that may think it ran too far, too fast. On our end, we think it’s a business with plenty of potential over the long term.

SpaceX (SPCX)

We kept SpaceX for last because it is seeing some of the biggest inflows right now, with several major investors building massive positions over the past quarter.

Per Hedge Fund

Here, we show what almost all of the major hedge funds bought this quarter.

Viking Global bought BCE, a Canadian telecom company we know very well that has been pretty much left for dead. BCE has been under pressure for a while, so seeing Viking step in is an interesting bet on a potential turnaround.

Soros Fund has some interesting names, to say the least. The portfolio is filled with lesser-known companies rather than the usual mega-cap names, which makes it look like they are searching for more alpha and less crowded ideas.

Druckenmiller’s fund (Duquesne) has some interesting names. PURR stands out given how volatile and momentum-driven the stock is, while RKT and RIOT also fit that higher-risk profile. On the other hand, DAL and FOX were more surprising to us and are names we think could be worth looking at more closely.

For Sequoia and Coatue, two of the biggest names in tech investing, it’s interesting to see that both are betting on SpaceX. Sequoia, however, seems to be going after a less obvious group of names compared with Coatue. Snowflake is one we’re less convinced by and looks close to a dead company in our view, while CBRS is a name we find much more interesting.

Millennium has SpaceX as well, making it one of the most recurring new buys we’ve seen across the filings. More importantly, we are finally seeing some money move into commodities, with positions in GOR, NCM, and ADT.

Balyasny has a bit of everything, as usual. We’re not sure there is that much alpha in the portfolio, but PINS could be an interesting one. STUB is worth watching, especially if the IPO story starts to come back.

D.E. Shaw also has STUB, along with some interesting bets on China and Brazil. BTDR is another notable position, which Druckenmiller Fund also bought.

Point72 (Steve Cohen) has a more low profile mix of ideas, but there are still some interesting names in there. ITUB is the one that caught our attention the most, especially given our view that the Peruvian economy still has plenty of room to run and that the new president could be positive for growth.

Citadel (Ken Griffin), probably the most famous hedge fund out there, also has some interesting names. ITUB shows up here again, while MAIR is one we are currently looking at and think could be quite promising.

Finally, Atreides, Gavin Baker’s hedge fund, is once again heavily focused on AI, with the portfolio almost entirely tilted toward tech. No surprise there, given Baker’s track record in the space. They are also adding heavily to SpaceX and CBRS, two of the biggest recurring AI-related names we’ve seen across these 13Fs.

A month ago, we had a really interesting conversation with Cerebras’ Head of Investor Relations, where we learned more than we usually do from these calls. Given how many hedge funds added CBRS in their latest 13Fs, we think it’s definitely worth a read.

4. Our Final Thoughts

Overall, we feel like the stock market is giving us more hints about what could come next. The latest 13Fs do not show that interest in memory, semiconductors, or SpaceX is fading. If anything, capital is still flowing heavily into these areas, although the positioning is becoming more divided across certain names.

At the same time, some companies are starting to look more interesting from a valuation perspective. When we compare where they trade today with the earnings and free cash flow they could generate over the next few years, the numbers are starting to make more sense. That makes the current positioning even more interesting, and we think the rest of the quarter could be quite telling.

View how the portfolio is positioned here: Aurelion Index link.

Below is our most recent report on a stock we just added.

The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

However, with a chart like this, we decided to speak with the Investor Relations team at BSX. We like the entry point at these levels despite the special situation.

You’ll also see that this type of position is very similar to our prior ones in the healthcare field, like Medpace (MEDP), Stevanato (STVN), and Bruker (BRKR). Simply put, buying “high-quality” healthcare companies that are facing short-term issues can provide a very attractive risk/reward investment.

We are adding Boston Scientific (NYSE: BSX) to our portfolio, the “Aurelion Index”.

The story in short:

Boston Scientific was a Wall Street darling, with industry-leading growth and a track record of successfully developing new healthcare solutions. Since 2021, the company had been growing even faster, at around 15% organically, driven by its 2 new growth engines (Farapulse and Watchman).

However, in early 2026, both of those growth drivers started performing poorly. Farapulse is facing increased competition while Watchman has recently seen weaker demand from doctors.

With those 2 growth engines losing momentum, BSX is growing more slowly this year. Both products also had some of the highest margins in the business. Investors are clearly uncertain about the path forward and have sold the stock significantly.

3 things stand out from our call with investor relations:

1) After listening to the drivers behind their 2027 guidance, we believe it assumes close to a worst-case scenario, with plenty of potential positives that could lead to an upside surprise. New products in the pipeline are exciting and the rest of the business is generally on track.

2) BSX is making significant share buybacks, the first time since 2020.

3) Restructuring is recurring, rather than something being done simply to cut costs because they lack confidence in the two underperforming segments.

Methodology: Aurelion does not receive compensation from companies covered. We believe all information discussed is public, and answers from management are summarized and interpreted by us. They do not reflect the speakers’ exact words.

Table of Contents

1. Why Now?

2. Company Overview

3. Industry Landscape

4. In Conversation with Boston Scientific

5. Financials

6. Valuation

7. Risks

8. Conclusion

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1. Why Now?

1) Recent Insider Buying

The CEO, Michael Mahoney, bought $9M worth of shares on August 5th, 2026. This was his largest direct purchase in several years and increased his total ownership position by 15%.

Two other directors bought shares as well at the start of August.

For a healthcare company developing products that often require extensive trials and testing, this insider buying is a very positive sign for investors looking at the story. Management knows much more than the street.

2) Large Buybacks

The company made its first meaningful buyback since the pandemic, with $2B worth of shares, backing up its argument that the share price is undervalued.

3) Special situation with two product ranges that have significantly lowered the valuation.

There were three main events that caused the major slips. They are presented below in the price chart:

Farapulse treats irregular heartbeats.

A doctor threads a thin tube up to the heart and uses electricity to destroy the small area of tissue causing the problem. It is safer and about three times faster than the older method, which used heat to burn the tissue.

It went from nothing to roughly 80% of US procedures in just two years, meaning most of the market it was converting is now converted. Abbott, J&J, and Medtronic have also launched competing products. US growth has fallen to ~3% as BSX loses share. Management assumes sales stay flat through 2027 and gives no credit for winning share back before its next product generation launches.

Watchman helps prevent strokes. It is a small plug, about the size of a quarter, placed inside the heart to seal off the pocket where most dangerous blood clots form. It allows patients to stop taking blood thinners for life.

A wave of clinical studies came out in the last 9 months, some supportive and others less supportive. According to management and expert calls we have read, doctors responded by putting the decision off rather than working through the data because there was a lot and it was confusing.

Nothing changed about the device or the patients who need it. Management says physicians simply have not had time to absorb the data, assumes no improvement in 2027, and expects a new competitor to enter.

While we acknowledge the stock deserves a lower valuation given the lower growth coming from those two product ranges, which represent 25% of revenue, we think the stock has been unjustifiably punished. What we like is that there are several ways for investor sentiment to turn.

• Launches in 2027–2028: There are several new products coming onboard with billion-dollar market opportunities. These could fill the shoes of the two problem children.

• Farapulse: farawave ultra launches around mid-2027, with new heart imaging and faraflex coming in 2028. These could help growth recover in 2H27 and return to market growth in 2028.

• Watchman: Management is not counting on a recovery, but is increasing doctor education and direct-to-patient marketing. A possible label expansion and Medicare decision in 2028 could open a market where 30–40% of eligible patients are untreated.

We present a framework below of management’s expectations for Farapulse and Watchman as well as our own estimates. The key takeaway is that the impact is mostly that the company has lost these growth drivers quicker than expected, not that overall company growth is expected to turn negative.

Finally, we think that at 12x earnings versus its average of 20x earnings, we are paying very little for a high-quality business. Revenue generally grows 7–8% in the long term, plus acquisitions that they have proven to be successful with. There is also a margin expansion story, giving investors a great company to own even without those two performing well.

2. Company Overview

Boston Scientific at a Glance

Boston Scientific is a global medtech company that specializes in medical devices. It makes products that help doctors diagnose and treat serious health conditions, mainly in areas like heart disease, cancer, digestive, neurological, and urological care. BSX has a large and diverse product portfolio, which gives it exposure to several areas of healthcare.

Business Overview

Boston Scientific has two main businesses: Cardiovascular and MedSurg.

The company focuses on growing its existing businesses while also moving into new areas with growth potential. A big part of that comes from developing new products and gaining market share in procedures where demand is growing.

1. Cardiovascular Segment (67%)

The Cardiovascular segment is the larger and more diverse part of Boston Scientific’s business. It covers coronary and peripheral artery disease, blood clot removal, heart rhythm management, and electrophysiology.

One product is the AGENT, a drug-coated balloon used to treat patients whose arteries become blocked again after receiving a stent. Instead of putting in another stent, AGENT delivers the drug directly to the affected area without leaving any additional metal behind. It has been available globally since 2014 and is now the first and only coronary drug-coated balloon approved in the U.S.

BSX has products across the entire procedure, from imaging and vessel preparation to stents, thrombectomy, and other treatments.

It also has WATCHMAN, which is used to reduce stroke risk in certain patients with atrial fibrillation. BSX also has a growing presence in electrophysiology, where it has an interesting opportunity with its “FARAPULSE” platform.

FARAPULSE is one product we find particularly interesting. It’s Boston Scientific’s pulsed field ablation (PFA) system used to treat atrial fibrillation.

PFA is becoming a bigger part of AF treatment, with clinical data showing FARAPULSE can be as effective as traditional treatments while offering shorter procedure times.

As Boston Scientific’s Chief Medical Officer, Brad Sutton, put it: “We haven’t seen esophageal injury or pulmonary vein stenosis in nearly 40,000 cases.”

What also makes FARAPULSE interesting is that it covers several parts of the procedure, including access, mapping, and the actual ablation, which is the process of treating the heart tissue causing the irregular heartbeat. This gives BSX more exposure and more opportunities to sell its products.

A Look at FARAPULSE Products

As PFA continues to gain adoption, we think FARAPULSE will become an important part of Boston Scientific’s growth, especially as the company continues to expand its presence in the broader electrophysiology market.

2. MedSurg Segment (33%)

The MedSurg segment is mainly focused on Endoscopy, with products used to diagnose and treat gastrointestinal and pancreatic conditions.

The portfolio includes clips used to stop bleeding, stents used to open blocked areas, single-use scopes, and tools used in procedures such as ERCP. Boston Scientific also sells products for endoscopic surgery and weight loss, including the OverStitch suturing system and Orbera intragastric balloon.

One product we find interesting is OverStitch NXT, an endoscopic suturing system used to close tissue during certain procedures. It works with many commonly used gastroscopes, so hospitals may not need to buy new equipment to use it. It also gives doctors more control during the procedure and makes it easier to reach areas that can be difficult to access with standard scopes.

Overall, we see the MedSurg segment as another source of growth for Boston Scientific outside of cardiovascular, with a broad range of products used across different types of procedures.

China is a genuine growth market, with revenue above $1B and APAC growing 12% in Q1 2026. The main offset is VBP, which has cut device prices 50–93% and impacted parts of Vascular Therapies and Urology. Management is leaning into VBP by investing in local innovators and expanding its Chinese commercial team while competitors pull back.

3. Industry Landscape

Key named competitors:

Abbott Laboratories, Edwards Lifesciences, Medtronic plc, Stryker Corp.

Within offerings like endoscopy and urology (together 28% of 2025 sales) under the MedSurg segment, BSX is a dominant global player with stable and compounding revenues. In the Cardiovascular segment, BSX leads the market in LAAO with Watchman (though competitors are looking to enter) and they are #2 share in pulsed field ablation with Farapulse. Both of these markets (LAAO and pulsed field ablation) are becoming increasingly competitive, but BSX remains relevant or market-leading.

Outside of BSX’s dominant products where they are incumbents today, there are opportunities to expand the company’s product lineup, though not without competitive pressure.

One example: in intravascular lithotripsy (IVL), BSX launched SEISMIQ for peripheral use in January 2026 and is testing/awaiting approval for coronary use.

The key competitor in this space is Shockwave Medical (acquired by JNJ in June 2024). Shockwave’s C2 product entered the U.S. market in 2021 and has since become the 800 pound gorilla in the space, with over 600 peer reviewed publications covering 25,000+ patients. As a new entrant, that efficacy will be difficult to replace.

BSX’s offering in the space is slated to use laser and optical fibers instead of spark-gap electrodes to generate acoustic pressure waves which early data suggests produces a more uniform energy profile. In addition to Shockwave under JNJ, Abbott and Phillips Healthcare are seeking to enter the IVL market as well, with each player moving toward regulatory verification.

In coronary IVL specifically (related directly to or around the heart itself), BSX can take advantage of their broader coronary ecosystem in imaging, stents, and drug-coated balloons.

BSX essentially already offers steps 1, 3, and 4 of this procedure, whereas their coronary IVL offering would address step 2 in the chain and create a more unified ecosystem of products. Coronary IVL specifically has a $1Bn estimated TAM which would move the needle for BSX’s sales if they can penetrate the market.

There are many other segments and markets that can be entered organically or through investment and M&A. BSX has historically been an acquirer of companies with strong and complementary assets.

Examples include their Penumbra acquisition in January 2026 for $14.5B, granting assets in neurovascular and mechanical thrombectomy.

An interesting aspect of BSX’s capital allocation is their venture-capital playbook.

The Farapulse product that drove such strong growth in 2024 and 2025, BSX first invested in 2014, and in 2021 exercised an option to acquire the remaining stake in the company, bringing it fully in-house.

The acquisition-in-pieces structure allowed BSX to pay roughly $575M for 100% control over time for this asset that has now come to drive strong growth. BSX has run this playbook in other areas, with the initial VC investment approach to reduce risk, and a full acquisition once the application is proven.

Penetration vs Market Share

In medtech, penetration matters more than market share for determining growth. For example, Farapulse has reached ~80–85% of US procedures in two years, so Farapulse’s category-driven growth is largely over and further growth must come from taking share. LAAO is the opposite. BSX has >90% of the implanted device market, but penetration is still only in the mid-teens among ~5M eligible patients. The main issue is getting more patients referred.

Reimbursement is important too, since the procedure only grows when both doctors and hospitals have a good reason to do it.

To summarize, the industry is highly competitive but favors large, established players like BSX. The key is to look at each product category separately, as growth rates, market shares and competitors vary significantly. For BSX, management targets 7–8% long-term organic growth across its diversified portfolio.

4. In Conversation with Boston Scientific

We spoke with Boston Scientific’s Investor Relations team mid-August 2026. Below is our summary of what we took away in our interpretation.

1) The 2027 framework assumes a largely unchanged environment.

In the last call, management gave a framework (not “guidance”) of 2 - 4% organic growth for 2027, with formal guidance coming on the Q4 call in February.

The build behind it is simple: the other 75% of the business grows around 6%, the Watchman market declines mid-to-high single digits, and global EP sales are flat.

That’s it. There is no assumption that the medical education effort works, no assumption that referral patterns normalize, and no assumption that urology recovers from 1%.

We came away thinking the number is closer to a floor than a midpoint. It looks like they have more visibility into the problem. And it is reassuring with BSX’s history of surpassing expectations (they’ve cut guidance only 2x in 15 years).

2) The rest of the business grows at 6-7%

75% of the business has been growing at 6-7% for a number of quarters.

What we found more interesting is that the 6% of last quarter carries the urology segment growing at 1% and CRM at negative growth. There are measures in place to fix them. If either works, growth will be higher.

3) Urology looks fixable, although it has taken longer than expected.

The 2024 Axonics acquisition brought a “sacral neuromodulation” business that requires lots of human capital. Leadership and team turnover after the acquisition took reps out of the field. That hurt the selling effort and the patient funnel.

Refilling the funnel has taken longer than expected. Management expects growth to come back to the market growth rate which is 6 - 7% . This is definitely one of the most fixable of the 3 problems.

4) Watchman’s problem appears to be communication.

Nothing has changed in how the device is made or used, and it has been on the market for over a decade. What changed is that a large amount of clinical data came out at once, with some of it favorable and some less so.

According to management, physicians haven’t had time to fully absorb what it means in practice. For a busy doctor, the easiest decision is simply not to pursue it.

5) Spending on Watchman has not been cut.

The two largest cost lines are the sales force and direct-to-patient marketing and neither is being cut. Management was explicit that it does not want a short-term decision today to damage long-term growth.

We read continued investment into a shrinking franchise a proof of conviction.

6) The new products could increase growth in 2027 and 2028.

Management discloses the new products coming out in its investor relations deck. While we did not get more information, it’s safe to say these could be potential drivers. We look forward to commentary in upcoming earnings calls.

7) The restructuring is a scheduled program.

Boston Scientific runs one roughly every three years: 2019, 2023, and now. We see most of the benefit to land in 2028. The savings come from manufacturing efficiencies, supply chain optimization, and organizational structure. This would have happened regardless of how Watchman and EP performed.

8) Free cash flow guidance impacted by Watchman & Farapulse

The 2026 figure is now closer to $3.8B versus roughly $4B coming into the year, with the shortfall attributable to lower cash coming from Farapulse and Watchman. BSX targets 70–80% conversion from EBITDA. This appears to be a high target compared to historicals for us.

9) The broader demand environment is stable.

Management sees healthy procedure volumes and no evidence supporting the softer readings some analysts have published. The recurring variable is reimbursement, which splits into a physician fee and a facility fee. This year, the physician fee was relatively stable while the hospital fee was cut somewhat.

5. Financials

Because BSX makes meaningful acquisitions, we remove the acquired growth to look at the underlying business. The historical performance is consistent with management’s 7–8% CAGR target, with periods of higher growth when new solutions are coming out and lower growth when there are issues.

On the company’s margins, the trend has been clearly positive, driven by a mix of cost cuts and a better business mix.

2013–2016: BSX came out of the financial crisis with a bloated structure, a declining defibrillator business, and heavy litigation. Restructuring helped close plants, consolidate manufacturing, and reduce headcount, taking margins from 15.8% to 24.1%.

2016–2019: Management shifted toward higher-growth categories like endoscopy, urology, and interventional cardiology while moving away from slower-growth businesses. Margins reached 26.1% by 2019.

2020: COVID. Elective procedures stopped and margins fell. They recovered within two years.

2021–2025: mix and operating leverage. High-growth markets increased from 25% to 55% of revenue, while low-growth exposure declined from 30% to 20%. Farapulse and Watchman, both above corporate margin businesses, also grew rapidly.

The result is 1,220bps of margin expansion in twelve years, with roughly 80bps of annual expansion in 2023–25. For balance, 2026 is guided flat at 28.0%, as the mix tailwind that drove much of the recent expansion reversed.

BSX has made numerous acquisitions in the past, most of which have been financed with cash and debt. The company has been very successful at making these acquisitions. Share issuance has been low, which is something we like to see.

In total, combining organic growth, margin expansion, and a virtually flat share count, BSX has been able to grow at a CAGR of 12.2% over the last 14 years.

6. Valuation

Revenue Growth

We assume growth to be all organic but include announced acquisitions in our revenue numbers. We are slightly over the Street in the 2027 period because we think it will be easy to beat the 2 - 4% discussed by management. For the following periods, we assume the long-term range for BSX’s growth (7 - 8%).

Margins

Because new products coming in the 2027–2028 period should boast higher margins than the rest of the business, we give a bit of margin expansion to BSX.

Moreover, the restructuring they are doing should help lower costs for the 2027–2028 period, though we expect margins to be slightly impacted in 2027 with Farapulse and Watchman.

Because BSX has proven over time to be able to grow their margins in the last decade, we think this is the base case. Our EBITDA margin increases from 30.2% to 31.5% in 5 years.

Cash Flow Generation

Management told us 70 - 80% conversion from EBITDA as a target, though we view this as high compared to what they have historically done. Our model therefore implies more in the 62% conversion range.

Capital Allocation

We assume a +0.7% growth in diluted shares outstanding coming from normal stock compensation and the rest of cash to go towards buybacks.

Because BSX is now buying back a significant amount of shares and has proven that their acquisitions enhance the value of their share price over time, we think putting all the cash to work in buybacks is a fair projection for our long-term price targets.

Technical note: A few sell-side analysts double-count amortization in their adj. EBITDA calculation because amortization is already excluded from adj. operating income, so the result overstates true EBITDA.

We use adjusted operating income + depreciation only.

We do not argue for a comeback to the all-time high multiple, nor the average, but rather to the bottom of its historical average. 10 - 12x EBITDA is a multiple for a scenario where Farapulse and Watchman become significant detractors to growth, which has not been proven yet.

Our valuation is as follows, driven by an 8% earnings CAGR, meaningful buybacks, and a slightly higher multiple than the current one.

• Our price target for year-end 2026 is $67.

We do not think BSX is worth its previous $100 PT or that it will get there quickly, given the uncertainty and slower growth around Farapulse & Watchman.

However, even under what we consider a base case, where both Farapulse & Watchman perform poorly, our valuation still points to compelling upside.

7. Risks

1) Farapulse could lose more share than we expect. Management assumes global EP sales stay flat through 2027, which we view as conservative. However, one Abbott territory manager expects Farapulse’s US share to fall from ~70% today to 35–40% by 2027 as Affera and Volt gain traction. We would not take that estimate at face value, but if share loss is even directionally close, EP revenue could decline rather than stay flat. The main issue is that BSX’s mapping remains weaker until its new imaging product launches in 2027.

2) Watchman’s issue may be more than communication. Management believes doctors need more time to digest the recent clinical data. There may also be an economic issue, as hospitals and doctors can have different incentives around the procedure. With a new competitor coming in 2027 and no major label or coverage change expected until 2028, Watchman could remain a headwind for longer than expected.

3) Penumbra could weigh on the numbers. The $14.5B acquisition closes in 2H26 and is excluded from current guidance. Penumbra has lower margins than BSX, while integration costs and amortization will also create pressure. It also reduces the balance sheet flexibility that has supported BSX’s M&A strategy.

Overall, we think the risks are real, but importantly, we do not need Farapulse or Watchman to fully recover for the investment to work.

That is what makes the current valuation interesting to us.

8. Conclusion

Boston Scientific is going through a temporary slowdown.

Farapulse and Watchman have clearly become headwinds, and we do not expect either business to quickly return to its previous growth rate. But the rest of the company continues to grow, new products are coming, margins have a long track record of expansion, and management is still allocating capital aggressively through buybacks and M&A.

At 12x earnings versus a historical average of ~20x, we believe the market is pricing in a much worse outcome than our base case. Even assuming Farapulse and Watchman remain significant headwinds, we see attractive upside from the underlying business, new product launches, margin expansion, and buybacks.

The key for us is that we do not need everything to go right. We are buying a high-quality compounder while two of its growth engines are temporarily struggling. If either one stabilizes faster than expected, or the new product pipeline delivers, the upside could be meaningful. We believe this creates an attractive risk/reward and are adding Boston Scientific to the portfolio.

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View how the portfolio is positioned here: Aurelion Index link.

Below is our most recent report covering our previous stock addition.

The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

However, we believe it is also a strong long-term compounder with solid fundamentals, and our goal is to hold the company for 5+ years.

The company is already generating revenue with surgical robots, but it is still a small percentage, and we believe the stock can do very well without surgical robotics. Given the low valuation (11x earnings, below peers and below historical valuation), we think this is an optionality, making the situation “asymmetric.”

Outside of surgical robots, the medical technology company is an established leader in spinal implants with best-in-class margins.

Further, healthcare sentiment has been shifting. Since the pandemic, performance of healthcare equities has been poor, with almost no gain since 2019.

However, in recent months we have seen a growing interest in healthcare, given that growth is proving to be strong and investors are looking to move away from AI uncertainty.

Whether AI booms or busts, you still need surgical tools.

Earnings are inflecting, margins are expanding, and the stock still trades cheap. We also provide expert calls with executives from the company.

Table of Contents

1. Why Now?

2. Company Overview

3. Industry Landscape

4. Expert Calls

5. Financials

6. The Acquisition Strategy

7. Surgical Robots Theme

8. Valuation

9. Risks

10. Conclusion

Read more

The new stock we are adding today to the Aurelion Index is a mining company that focuses mainly on copper, but also produces gold, silver and zinc.

And importantly, we go through our thinking on why we like copper-related equities now.

What we like about this one is that it offers a mix of existing copper production, mine-life extensions, and a growing pipeline of new projects. So this isn’t a mining story where you produce for a couple of years, make some money, and then need to get out. There is a long-term growth story here.

The company is Canadian, like many mining companies, but trades on both the NYSE in the U.S. and the TSX in Canada. It also owns and operates mining assets in friendly jurisdictions.

With a market cap of over $10B and strong trading volume, it is more accessible to institutional investors and has greater potential to attract momentum as the story gains attention.

Table of Contents

1. Why Now?

   1.1 An Attractive Entry Point

   1.2 The Copper Bull Case

2. Company Overview

3. Why the Valuation Is Attractive

4. The Path to Sustainable Growth

5. How We Value the Company

6. What Could Go Wrong

7. Our Final Thoughts

Read more

It is shaped by a unique combination of culture, policy, and its position as one of the world’s largest and fastest-growing economies, expanding at a mid-teens pace each year. Compared with China, India offers a more investor-friendly environment, making it an attractive destination for global capital.

However, as always, timing remains one of the most important factors in our investment process. Through this piece, we argue that the timing is right and have built an equity basket of high-quality Indian companies set to benefit from the country’s improving fundamentals.

You will also find discussions with locals, including an investment analyst from WestBridge Capital, a firm managing $7B across private and public markets in India, and an India-based investment banker.

Today, India is entering a new phase of growth. For decades, growth was driven mainly by IT services and domestic consumption. Now, a major investment cycle is taking shape. Manufacturing, data centers, power infrastructure, and industrial capacity are set to expand significantly.

We built a framework that we explore in greater depth later in this piece.

As shown below, our estimates point to a potential 106% total return for the Indian market by 2030. This potential return would be driven by three main factors: earnings growth, valuation multiple expansion, and rupee currency.

Few large economies combine India’s demographics and long-term growth potential.

AI adds another dimension. India could be one of the major beneficiaries through data centers, technology investment, and productivity gains. However, AI also brings challenges, especially for parts of the traditional white-collar workforce that have powered India’s economy for decades.

This makes selectivity more important than ever. India’s next phase will not benefit every company or sector equally. The biggest opportunities will come from identifying the businesses best positioned to benefit from this transformation and finding them before the market does.

Table of Contents

1. Why India and Why Now?

2. How We Estimate India’s Future Returns

   2.1 India Earnings Growth History

   2.2 Our Earnings Forecast

   2.3 Currency Impact on Returns

   2.4 Current Market Valuations

   2.5 India Total Return Potential

3. The Long-Term Growth Drivers

   3.1 A More Favorable Macro Environment

   3.2 Capital Flows Return to India

   3.3 Multiple Sectors Are Booming

4. Retail Investors Keep Faith in India Equities

5. The Presence of Hedge Funds in India

6. The Rise of Remote Talent in the AI Era

7. The AI Debate in India

8. The Growing Influence of Indian CEOs

9. In Conversation: Key Insights

10. Indian Equity Basket

11. What Could Go Wrong?

12. Final Thoughts on India

1. Why India and Why Now?

The Indian stock market and economy were on a growth path before the conflict in the Middle East began in early March. Conditions were not yet as strong as they had been between 2022 and 2024, but momentum was clearly improving.

A Look at the Indian Stock Market (NIFTY 50) Since 2021

That changed abruptly when the conflict between the US and Iran pushed energy prices significantly higher. As a major importer of crude oil, India saw its energy import bill rise considerably, putting pressure on inflation and weighing on consumers and businesses. At the same time, the higher import bill contributed to a meaningful depreciation of the rupee. The weaker currency and tighter financial conditions slowed economic momentum and hurt investor sentiment, interrupting what had been a steady improvement in the economy.

Indian Stock Market: Before and After the Middle East Conflict

USD/INR: The Rupee Performance Over the Past Two Years

That was the challenging part, but the positive side is that Indian markets have historically recovered well after periods of stress, especially when supported by new government reforms and policy measures. As a result, we believe the current environment presents an attractive entry point for long-term investors in India.

At the same time, we understand that concerns around domestic growth, commodity volatility, and broader geopolitical uncertainty have pushed investors into a wait-and-see approach following the market decline earlier this year.

However, short-term macro challenges do not change the long-term factors supporting India’s growth. Continued infrastructure investment, rising domestic consumption, manufacturing expansion, and policy reforms should remain key drivers of economic growth in the years ahead.

The key drivers of Indian financial conditions give us a good understanding of where things currently stand and help us assess whether the environment is becoming more favorable than what the market currently expects.

Key Drivers of India’s Financial Conditions

As shown above, almost every indicator of Indian financial conditions is pointing in the same direction: the cycle is gradually easing as we move through the summer. Conditions reached their tightest point when the Strait of Hormuz closed, but since then, the pressure has eased significantly and the overall environment has become much more stable.

To better understand this shift, we also look across different asset classes to see where capital is flowing and which areas are starting to gain momentum.

India Market Performance Across Asset Classes (YTD % Change)

Currently, equities are moving back toward the top of the performance ranking and are closing the gap with government bonds. This relative shift is important because government bonds typically outperform during periods of uncertainty, tighter financial conditions, or weaker growth expectations.

The fact that equities are starting to regain leadership suggests that investors are becoming more confident about a potential improvement in the economic cycle.

For us, this is another signal that India may be approaching an inflection point, where improving financial conditions and stronger growth expectations could begin to translate into better equity market performance.

Indian Equity Market Reaction to the Middle East Conflict

The recent reaction in Indian markets follows a pattern we have seen during previous geopolitical shocks. Higher energy prices, a weaker rupee, and foreign capital outflows have all contributed to the correction in Indian equities.

The March quarter was one of the most difficult periods for Indian markets in recent years, with the scale of the decline comparable to some of the major market disruptions of the past, like the 2008 Financial Crisis.

Why We Think the Current Setup Is Attractive

The key point is that some of the current pressures are temporary.

Energy prices historically normalize over time, and we believe the Strait of Hormuz situation will eventually be resolved. Once energy costs decline, one of India’s biggest external pressures should begin to fade.

India is a strong long-term growth story, supported by domestic consumption, infrastructure investment, and ongoing reforms. As macro conditions improve, investor confidence and capital flows should return to Indian equities.

2. How We Estimate India’s Future Returns

Our Methodology

Investment returns in India are driven by three key factors:

1. Earnings growth of companies in India (we use EPS).

2. Change in the value of the Indian rupee.

3. Change in valuation multiple on earnings (we use P/E).

This gives us an estimated total return CAGR.

Quarterly and annual returns will inevitably be volatile, but this long-term CAGR highlights how attractive the investment opportunity could be over time.

Historical Returns of the Indian Index

Correlation with S&P 500

India has moved with the S&P 500 for a few reasons:

The same global investors own both markets.

When US stocks fall, these funds reduce risk across their portfolios, so they often sell India as well. A large part of India’s index is made up of IT companies like TCS and Infosys. Their customers are mainly US companies, so when American firms reduce spending, Indian earnings are impacted.

Emerging markets as a group are different. That index is largely driven by China, Taiwan, and Korea, where semiconductors and Chinese policy play a much bigger role. That is why the grey line behaves differently.

One thing to remember: India tends to move in the same direction as the S&P 500, but the magnitude of the moves can be very different. It can also break away for extended periods, as we have seen over the last year and a half.

We did something very similar in our Latin America Primer, where we estimated how far each country's economy could develop over the long term and what that could mean for its respective stock market. You can find the analysis below.

2.1 India Earnings Growth History

We can divide the last 25 years into three distinct periods.

2001 to 2007: 20% Per Year

India benefited from a strong global growth cycle, with rapid credit expansion, companies investing heavily in new capacity, and strong commodity demand supporting the broader economy. During those seven years, Nifty earnings per share increased from ₹65 to ₹231. By January 2008, the Nifty was trading at more than 28x earnings, marking the peak of that cycle.

2008 to 2020: 4% Per Year

The capex boom of the previous decade left the banking system exposed to loans based on assumptions that did not materialize. As these loans turned bad, lending capacity weakened and private investment remained subdued for years.

Corporate profits fell from 7.8% of GDP at the FY08 peak to 1.8% in FY20, the lowest level since at least 1999-2000. Over those thirteen years, index earnings declined four times, with EPS rising only from ₹231 to ₹375.

Note the slight difference in historical returns compared with the chart above, as this one uses the MSCI India Index, which more accurately represents the Indian economy than the Nifty 50.

2021 to 2025: 25% Per Year

Three things changed at roughly the same time.

(1) Banks finished cleaning up their bad loan books, provisioning costs fell sharply, and lenders returned to record profitability. Financials represent 37% of the Nifty, so when the largest sector shifts from absorbing losses to compounding earnings, the entire index can be re-rated. That said, this process will likely take time and will not be a straight-line move higher.

(2) The 2019 corporate tax cut reduced the headline rate from 30% to 22%, creating a permanent boost to after-tax earnings for the same underlying businesses. A decade of deleveraging also meant interest costs had declined significantly, allowing more operating profit to flow through to the bottom line.

(3) Corporate profits grew at a 34.5% CAGR between 2020 and 2024, compared with nominal GDP growth of 10.1%. This shows that earnings are gradually recovering from a lost decade and the impact of the COVID period, but there is clearly still more work to be done.

2.2 Our Earnings Forecast

Why EPS Growth Should Accelerate

Rates are coming down. The RBI has cut rates by 1.25% since February 2025 and kept the policy rate at 5.25% through June 2026 while maintaining a neutral stance. Lower rates reduce borrowing costs for companies and consumers, supporting demand in sectors such as housing, autos, and consumer durables.

India RBI Interest Rate Outlook

Taxes were cut. GST rate rationalization reduced the tax burden on consumers, putting ₹1.5 trillion back into households’ hands and supporting spending.

The base is low. FY26 was a weak year. Oil marketing companies moved into losses as crude prices rose, autos declined 17.5% versus an expected 4.9% gain, and banks grew only 3.6% compared with 7.1% expected.

Trade uncertainty also weighed on growth, although India has since reached an interim arrangement with the U.S. and a framework with the EU. With a weaker year behind it, FY27 growth should benefit from easier comparisons.

Capex is picking up. Investment currently stands at around 35.3% of GDP. Morgan Stanley expects this to reach 37.5% within five years, driven by energy, defence, semiconductors, fertilizers, and data centres.

For context, investment has averaged 33.6% of GDP since 2004 and peaked at 41.2% in 2011. Reaching 37.5% would represent a strong investment cycle.

Why We Use 17%

First, it is important to note that most reputable banks and market research firms are using a similar range. The consensus expectation is that India’s earnings growth will exceed its 20-year average.

We believe this will be the case and that India can grow faster than its historical average. We estimate earnings growth at 17%, which is close to the higher end of the sell-side range.

We also have a different view on AI. We believe it will be a net positive for India, which differs from many of the concerns raised in sell-side research.

Why we think it will grow? India is entering a period of broad-based economic development, with multiple sectors expanding at the same time. Renewable energy, grid electrification, mining production, manufacturing, defence spending, and healthcare are all areas where significant investment is taking place.

India’s scale creates a unique dynamic.

With such a large population and a rapidly developing economy, the country needs to build, produce, import, and export across multiple industries simultaneously. It is moving quickly and has a strong incentive to make this transformation successful. Both companies and the government are actively investing and working to support this next phase of economic development.

Most investors expect India to deliver EPS CAGR between 14% and 19% over the next few years. Where returns could become significantly more attractive, and where opinions differ, is on the future valuation multiple.

If earnings growth reaches the higher end of expectations while sector sentiment continues to improve, companies could benefit from both strong EPS growth and a potential P/E re-rating, creating a powerful combination for investors.

2.3 Currency Impact on Returns

India’s currency has been impacted by its inflation differential versus the US, alongside other fundamental factors such as trade balances and global capital flows. While the rupee’s devaluation versus the US dollar has not been dramatic, its gradual decline over time is still something global investors need to consider.

India Dollar Credit: More Resilient

The recent policy measures are also positive for India’s corporate credit market, although the impact will likely take time to fully appear.

The main benefit is a more stable environment for borrowers, supported by better liquidity conditions, a stronger currency outlook, and improved access to capital.

This is particularly helpful for companies with dollar debt, as global funding conditions remain uncertain. Overall, these reforms improve the resilience of India’s credit market and make Indian corporate debt more attractive.

Now, let's look at the inflation history in India.

The INR’s depreciation against the US dollar has been modest but consistent, creating a currency headwind for foreign investors over the last few years.

What Happened in 2026?

The rupee started the year at around 90 to the dollar and fell to 97 at its weakest point. It currently sits at 95.2, down 5.7% year to date.

Three things drove the decline:

(1) US tariffs of 50% on Indian goods hurt exports during the first half of the year. (2) Foreign investors pulled a record $29B from Indian equities over six months. (3) And the Hormuz conflict pushed oil prices higher, which is important because India imports roughly 88% of its crude and pays for it in dollars.

The rupee has since recovered from its lows. The RBI has been selling dollars to slow the decline, oil prices have come down from their peak, and a package of reforms has helped stabilize foreign participation in the bond market.

Where the Street Sees It

The banks are unusually aligned.

MUFG recently updated its view and expects the rupee to be slightly stronger by year end. Barclays sits at the bearish end, expecting a 1.6% further decline.

Most credible forecasts are within a three-point range. Breaking below or above these levels would likely require a major catalyst. Another oil shock or a more hawkish Fed could push the rupee past 97, while a trade resolution and stronger foreign inflows would be needed for a move back toward 90.

The Inflation Gap Has Narrowed

Between 2000 and 2025, India averaged 5.9% inflation compared with 2.6% in the US, a gap of about 3.3%. Over the same period, the rupee depreciated by 2.9% per year. The currency tracked the inflation differential closely, which is consistent with purchasing power parity. Applying the same logic today suggests the currency drag should be closer to 1% per year.

The Rupee’s Decline Beyond Inflation

Over the last five years, India averaged 4.9% inflation and the US averaged 4.5%, a gap of only 0.4 percentage points. The rupee still fell roughly 4% per year during that period. This suggests that factors beyond inflation are affecting the currency.

India runs a persistent current account deficit and imports 88% of its crude oil, meaning it relies on foreign capital inflows each year. When foreign investors sell, as they did in the first half of this year, the currency comes under pressure.

Base Case: 3% Per Year

One point of the decline comes from the inflation gap with the US, which is roughly where it is today. The RBI also expects this gap to remain stable as US inflation normalizes. The other two points come from balance of payments pressures, which tend to appear when foreign capital flows slow.

All-in, we expect earnings to grow 17%, with currency impact reducing growth by 3%, resulting in 14% total earnings growth over the next five years.

2.4 Current Market Valuations

The valuation multiple of Indian equities has historically been correlated with the country’s growth. As India entered a higher growth period, the market multiple re-rated. We expect growth to continue improving, which should support a premium valuation compared with historical averages.

To estimate our expected P/E multiple, we focus mainly on 2021 and thereafter, as this was the period when India started to perform strongly. With the P/E multiple already elevated historically and now similar to the S&P 500, we expect this premium valuation to hold at around 23x P/E over the next five years.

This assumes a valuation similar to where the market traded before IT stocks declined on AI concerns, which have so far been more about sentiment than a real impact on fundamentals. India traded above 23x P/E for most of 2024 and reached 25.2x in July.

One downside we need to keep in mind when looking at valuations is that India currently lacks the type of mega-cap technology companies seen in other markets.

There is no Indian equivalent, at least for now, of companies like NVIDIA, SanDisk, Kioxia, or SK Hynix that are benefiting from the AI, semiconductor, and memory boom cycle while trading at extremely high valuations.

This is not necessarily a negative. In fact, it means the Indian market is less exposed to speculative valuation excesses. However, it also means India does not have a few massive companies trading at very high multiples that can lift the overall market valuation average, as we have seen in the US, Japan, and Taiwan.

As a result, India’s re-rating potential will likely come from broad-based earnings growth, improving profitability, and stronger sector participation rather than from a small number of AI-driven mega-cap companies.

2.5 India Total Return Potential

The multiple is doing very little work in our return assumptions. Nearly 90% of the expected return comes from earnings growth. Over the next five years, we expect the Indian market to deliver a CAGR of around 16%.

This growth profile is different and more attractive than many other regions, including the US, where EPS growth remains strong but valuations are already at levels where multiple compression could become a headwind over time.

India is in a different position, with growth expected to accelerate while the country’s investability continues to improve.

Importantly, we believe investors can generate returns above the broader market by focusing on the right sectors and companies. This is the approach we explore further in our equity basket.

3. The Long-Term Growth Drivers

3.1 Growth Driver 1: A More Favorable Macro Environment

Two major concerns for India earlier this year were elevated oil prices and tighter domestic financial conditions. Both are now starting to move in a more favorable direction.

1. On oil, we are less concerned given our bearish outlook on crude prices, unless there is a major escalation around Hormuz. A lower oil price environment would be a meaningful positive for India given its dependence on imported crude.

2. On financial conditions, the situation has also started to improve.

In June, the government introduced a package aimed at attracting foreign capital and improving liquidity conditions, including more affordable FX swaps for banks and public sector companies, incentives for overseas Indian deposits, and broader access for foreign investors in Indian bonds.

Some analysts estimate that this package could attract as much as US$65B in foreign inflows, which would provide a significant boost to domestic liquidity. After a period of tighter conditions, this could become an important support for investment, credit growth, and the broader economy.

A recovery is now starting to appear in fuel demand and petroleum traffic.

These indicators have improved significantly since the Strait of Hormuz disruption and are now back around, or potentially above, pre-conflict levels. While full July data is not yet available, current trends suggest that physical energy flows have largely normalized.

The Recovery Is Starting to Show Up in Fuel Demand

3.2 Growth Driver 2: Capital Flows Return to India

July was India’s strongest month for foreign investor inflows since February, before the start of the Hormuz crisis.

Foreign Investors Return to Indian Markets

This shows that the environment is starting to change: oil prices have moved lower, financial conditions are improving, and other macro factors are also helping. The risks that weighed on India earlier this year are gradually fading.

On debt and equity inflows, we can also see a recovery in July, reflecting improving investor confidence and renewed interest in Indian markets.

Debt Inflows from Mutual Funds & Foreign Investors

Equity Inflows from Mutual Funds & Foreign Investors

This follows the recent measures introduced by the Indian government to attract more foreign capital and improve domestic liquidity conditions.

3.3 Growth Driver 3: Multiple Sectors Are Booming

The Indian economy is massive, and that is something everyone knows.

With a population that continues to grow, the country benefits from powerful long-term drivers creating opportunities across multiple sectors. Growth has slowed in recent months, but as discussed earlier, we believe the economy is positioned to regain momentum.

India has many sectors entering important development phases, with significant TAM expansion opportunities ahead. We decided to dedicate an entire section to highlight some of the most interesting areas where we see potential.

A) The First One Is the Defence Sector

The defence sector in India is entering a major investment cycle.

Government policies are becoming increasingly focused on strengthening the country’s domestic defence capabilities, while rising geopolitical and border tensions are accelerating the need for military modernization. This is creating a major supply opportunity that India will need to address as it looks to expand its defence manufacturing capacity and reduce its dependence on foreign suppliers.

The Ministry of Defence recently received a record allocation, representing the largest share of total Central Government Expenditure at 14.67% and around 2% of India’s GDP. This marks a significant increase in defence spending and sets the foundation for a multi-year investment cycle focused on improving military readiness, upgrading capabilities, and increasing strategic independence.

India’s Defence Capex Cycle Is Taking Off

The next phase of investment will focus on key areas such as aerospace, naval capabilities, next-generation electronic warfare systems, and advanced defence technologies. India is also pushing aggressively to expand local manufacturing and domestic R&D, with the goal of reducing strategic dependence on imports for critical components such as sensors, and also guided systems.

India Defence Exports: Growth Set to Continue Beyond FY26

Alongside higher domestic spending, India is also building a stronger export-oriented defence ecosystem. The government’s push to increase local production, support private suppliers, and develop indigenous technologies is creating the foundation for continued growth in defence exports.

This is a trend we have also seen in Canada, where a stronger focus on domestic capabilities became an important growth driver for the sector.

The 2026 defence cycle is being driven by aggressive modernization targets, ongoing border readiness, and the long-term objective of building a stronger domestic defence industry. As capital flows into defence public sector companies, private suppliers, and technology development, opportunities across the entire defence value chain are becoming increasingly attractive.

B) The Second One Is the Power Sector

This is a recurring theme we are seeing worldwide right now with the AI wave, but it is even more significant in a country growing as fast as India.

India’s power sector is entering a multi-year investment cycle, driven by a simple reality: the country needs significantly more electricity.

Demand is rising, and India will need to expand its power generation, transmission, and grid infrastructure to support its next phase of growth.

India’s electricity demand is expected to continue rising steadily, supported by fast urbanization, increasing cooling needs, industrial expansion, infrastructure development, and the growth of data centres.

More Renewables Mean More Grid Investment

At the same time, India is accelerating renewable energy additions to meet its long-term clean energy targets. This transition will require significant investment across transmission networks, grid modernization, and power equipment.

Some analysts estimate that the grid equipment opportunity could reach as much as US$85B over the 2027-2036 period. This creates a strong long-term runway for companies positioned across India’s power infrastructure buildout.

Domestic demand is already translating into stronger order books for major grid equipment manufacturers, providing better visibility on revenue growth over the next several years. Companies are expanding manufacturing capacity and upgrading capabilities to capture this demand. The race now is about increasing production capacity fast enough to meet the scale of the opportunity.

Beyond India, global demand for high-voltage equipment is also accelerating as countries invest heavily in grid upgrades and energy transition projects. With supply constraints emerging across the global market, Indian manufacturers have an opportunity to capture a larger share of demand through competitive costs, strong engineering capabilities, and expanding production capacity.

Unlike solar, where India has relied more heavily on imported inputs, the power equipment sector already has a stronger domestic manufacturing base and deeper engineering expertise. The key challenge now is scaling capacity fast enough, while securing critical inputs such as CRGO steel and expanding high-voltage testing infrastructure to compete for a larger share of the global market.

As countries around the world upgrade their power grids, India is well positioned to become an increasingly important supplier of grid equipment, benefiting from both strong domestic demand and a growing global need for reliable power.

C) The Third One Is Energy Security

India is taking steps to reinforce its domestic oil and gas industry and reduce its dependence on foreign energy supplies. Recent reforms, including the Oilfields (Regulation and Development) Amendment Act, 2025 and updated Petroleum & Natural Gas Rules, 2025, aim to make exploration and production more attractive for companies by creating a simpler and more stable regulatory environment.

Boosting Domestic Oil & Gas Production.

The new framework makes approvals easier, provides longer and more flexible petroleum leases, and reduces uncertainty for operators. These changes are expected to encourage more investment in exploration, improve the use of existing resources, and support higher domestic production over time.

This comes as India remains heavily dependent on energy imports, bringing in around 89% of its crude oil and 47% of its natural gas needs. With domestic production remaining largely unchanged over the past decade, increasing local output has become a key priority for India’s long-term energy security.

If you want to see more of our work on everything related to the oil market:

D) The Last One Is Healthcare

Making Healthcare More Accessible Through Insurance.

India’s healthcare system is becoming easier to access as insurance adoption increases. In 2025, the Insurance Regulatory and Development Authority of India (IRDAI) and the General Insurance Council (GIC) launched a common insurance empanelment initiative to simplify cashless healthcare.

Today, hospitals need separate agreements with each insurance company to provide cashless treatment. This creates additional paperwork and different processes depending on the insurer. The new system aims to create a common network where hospitals approved by one insurer can be accessed by customers from multiple insurance companies. This should make the process faster, reduce administrative work, and improve access to healthcare.

The initiative is still developing, with discussions continuing around pricing and claim processes. Some smaller hospitals have joined, but major private hospital chains have not yet adopted the framework.

Indian healthcare companies are really attractive right now, but if you are looking for something well-run, based in the US, and still overlooked:

4. Retail Investors Keep Faith in India Equities

Domestic investors continue to provide strong support to Indian equities.

After a temporary slowdown in May, equity mutual fund inflows recovered in June, with net inflows increasing 26% month-on-month to US$3.1B. This extended the streak of positive monthly inflows to 64 consecutive months.

While buying activity increased, some investors also took profits as markets recovered. However, the broader trend remains unchanged, with retail participation in Indian equities continuing to grow.

A major driver behind this has been the rapid adoption of systematic investment plans (SIPs), where investors regularly invest a fixed amount into mutual funds. Monthly SIP contributions continue to reach record levels, growing at more than 30% annually since the pandemic.

This shows that Indian households are increasingly investing their savings in financial markets, making domestic investors a larger source of support for equities. Earlier this year, foreign investors remained cautious due to weaker market momentum, limited exposure to AI-related themes, and the impact of Hormuz on energy prices and sentiment. However, we think many of these pressures are temporary. Commodity cycles tend to normalize over time, and corporate earnings should recover as economic conditions improve.

India also enters this period of market uncertainty with strong external fundamentals. The country holds around US$697B in foreign exchange reserves, providing a significant buffer against potential external shocks.

5. The Presence of Hedge Funds in India

A thriving equity market is extremely important for a growing economy.

Deep and liquid capital markets attract more investors, improve capital allocation, and create stronger conditions for long-term growth.

In our research, we came across the 1998 paper by Levine & Zervos, which found that stock market development, including liquidity and integration with global capital markets, is positively linked with future economic growth, productivity improvements, and capital accumulation.

India’s equity market has been rapidly developing, and global financial institutions are taking notice. Recent regulatory reforms, including the SWAGAT-FI framework and amendments introduced in 2021, have simplified the process for foreign investors to access the Indian market. Large institutional investors can now complete registration within 48 hours and renew their paperwork every ten years instead of every few years. Eligible participants include sovereign wealth funds, pension funds, central banks, and other major institutions.

The shift of global financial firms toward India started decades ago. D.E. Shaw was one of the first major firms to establish a presence in the country, opening its Hyderabad office in 1996. The main drivers were India’s strong engineering talent and the cost advantages available at the time. Since then, many have followed.

For years, most of these operations focused on supporting global businesses through technology, quantitative research, operations, risk management, finance, and compliance teams. However, India is increasingly becoming more important for actual investment activity, especially with the rise of quantitative trading.

Today, firms such as WorldQuant, Tower Research, Qube Research, Squarepoint, and AQR have built significant operations in India, attracted by the country’s large pool of engineering and quantitative talent. The combination of a growing equity market, improving market infrastructure, and deep technical talent is making India an increasingly important hub for global hedge funds.

This growth has also attracted more regulatory attention.

The case involving Jane Street highlighted some of the challenges that come with a rapidly expanding market ecosystem. Indian regulators alleged that the firm’s trading activity around Bank Nifty derivatives gave it an unfair advantage, leading to regulatory action and the seizure of around US$570M in assets.

Despite these challenges, the broader trend is clear: global financial firms are building a larger presence in India as the country’s equity markets deepen, regulations improve, and investment opportunities continue to expand.

6. The Rise of Remote Talent in the AI Era

India’s biggest advantage has always been its large talent base, similar to China, and the AI wave is only expanding this opportunity.

For decades, global companies have relied on India for software development, engineering, and back-office operations due to its deep pool of technical talent and competitive costs. AI is now creating new demand across areas such as AI engineering, data infrastructure, cybersecurity, and enterprise automation.

The difference today is that companies can access this talent remotely without needing to build large physical operations. Digital collaboration tools allow global firms to work directly with Indian engineers and technology professionals, expanding the opportunity beyond traditional outsourcing models.

We spoke with a software engineer who studied in the US but returned to India to apply his skills in Mumbai at a major software company:

“India has changed a lot. In the past, many engineers felt they had to move abroad to work on global technology projects. Today, you can be based in India and still work on the same high-value projects with international teams. The talent is here, and the ability to collaborate globally has improved significantly.”

With one of the world’s largest pools of developers and technical workers, India is well positioned to benefit as companies continue investing in AI adoption. Global technology firms, startups, and enterprises are already expanding their presence in the country to build AI capabilities, and this should accelerate going forward.

Over time, India has the potential to evolve from a global outsourcing hub into a major center for AI development, implementation, and innovation.

7. The AI Debate in India

The bear case is simple. AI can automate parts of coding, reducing the value of outsourced developers. Indian IT stocks have declined over the past twelve months on this concern, while foreign investors shifted capital from India toward Korean and Taiwanese semiconductor and memory companies.

The bull case rests on a different point. India’s constraint has never been the number of workers; it has been output per worker. Closing that gap traditionally required roads, ports, and power infrastructure, which can take decades. AI can improve white-collar productivity without requiring the same physical buildout.

The early data supports this view. Anthropic’s Economic Index found Indian users completing an estimated 3.8 hours of work within 15-minute AI sessions, above global averages. At scale, AI could allow Indian engineers to deliver closer to the output of higher-cost markets while maintaining India’s cost advantage.

AI is a swing factor in both directions.

We believe it will ultimately be a productivity driver over the next decade rather than compressing the low billable-hour model that built the IT sector.

Importantly, we see this as a longer-term outcome. Our FY27 and FY28 forecasts do not depend on knowing exactly how this plays out.

8. The Growing Influence of Indian CEOs

India has produced a growing number of technology leaders who are now running some of the world’s most important companies. While we could have easily named at least 20 more, these five examples highlight the increasing influence of Indian executives across global technology.

1. Satya Nadella (Microsoft CEO)

Born in Hyderabad, India, Nadella studied at the Manipal Institute of Technology, the University of Wisconsin–Milwaukee, and the University of Chicago Booth School of Business. He joined Microsoft in 1992 and played a key role in the company’s transition toward cloud computing and Azure.

Since becoming CEO in 2014, Nadella has overseen one of Microsoft’s most successful periods, including its cloud expansion and disciplined AI investment strategy. Under his leadership, Microsoft’s stock has increased 10x, representing 20% annualized growth.

2. Sundar Pichai (Google CEO)

Born in Madurai, India, Pichai studied at IIT Kharagpur before earning an MS from Stanford and an MBA from Wharton. He joined Google in 2004 and rose through the product organization, leading key products including Chrome, ChromeOS, and Android. Since becoming CEO in 2019, Pichai has overseen Google Cloud expansion and major AI infrastructure investments. Alphabet’s stock has increased 450%, representing 21% annualized growth.

3. Arvind Krishna (IBM CEO)

Born in Andhra Pradesh, India, Krishna studied at IIT Kanpur before earning a PhD in electrical engineering from the University of Illinois.

He joined IBM in 1990 and became the driving force behind IBM’s $34B acquisition of Red Hat. Since becoming CEO in 2020, Krishna has repositioned IBM around hybrid cloud and AI infrastructure. IBM’s stock has increased roughly 113% under his leadership.

4. Sanjay Mehrotra (Micron CEO)

Born in Kanpur, India, Mehrotra studied at BITS Pilani before earning engineering degrees from UC Berkeley. He co-founded SanDisk in 1988 and led the company until its acquisition by Western Digital for $19B.

He became CEO of Micron in 2017 and has positioned it as a key beneficiary of the AI-driven memory cycle. Under his leadership, Micron’s stock has increased 27x, which is 43% annualized growth.

5. Nikesh Arora (Palo Alto Networks CEO)

Born in Ghaziabad, India, Arora studied electrical engineering at IIT (BHU) Varanasi before earning an MBA and MS in finance in the US.

After senior roles at Google and SoftBank, Arora became CEO of Palo Alto Networks in 2018. His focus on platformization and cybersecurity consolidation has transformed the company’s strategy. Under his leadership, Palo Alto Networks’ stock has increased 370%, representing 21% annualized growth.

9. In Conversation: Key Insights

First, we spoke with an investment research analyst currently working in India, who previously studied finance at Princeton University in the United States.

A Massive Consumer Market That Is Becoming More Digital

“They scale very easily over there. There’s 1.2 billion people, so any good idea that’s affordable scales quickly.”

India’s population creates a unique environment for businesses that can deliver affordable products and services at scale.

“The digital population is growing more prominent, so people in their teenage years into their 30s are ordering out a lot at little to no more cost than cooking at home.”

The younger Indian consumer is increasingly prioritizing convenience. Food delivery has become a fundamental trend as digital adoption rises and delivery networks benefit from India’s population density.

“Living in India for a summer, that’s what I did. Unless I went home to my grandparents’ place, the average person could just order out and it comes out to the equivalent of $10–15 per day to eat well. What we’d consider a nice restaurant that would run you $50–100 in the US, you could get for like $20 over there.”

Affordable services are a key driver of adoption in India. The combination of low costs and improving digital infrastructure is allowing new consumer habits to develop quickly.

Consumer Behaviour: Price Over Time

“The average Indian consumer is willing to wait 30 extra minutes for an Uber rather than pay an extra $2 for one right now.”

India remains an extremely value-conscious market. Consumers are often willing to sacrifice convenience to get a better price, creating a strong advantage for companies that can operate efficiently and maintain low costs.

2. We also spoke with an investment analyst from WestBridge Capital, a major global investment firm managing over $7B and focused on private and public markets in India.

Healthcare: A Market Entering Modernization

“Big shift in health insurance, but as more Western medications and remedies are being taken up in the market, people realize it’s not inexpensive, so health insurance policies are definitely starting to increase. The insurance base is kicking up.”

Healthcare adoption is accelerating as incomes rise and consumers become more exposed to modern treatments. However, the market still has significant room for improvement.

“People are highly trusting of what a doctor tells them to do. Almost 10 out of 10 times a person will just do what the doctor tells them.”

Healthcare remains highly relationship-driven, with many consumers relying on local doctors and pharmacists for medical decisions. This creates opportunities for companies improving healthcare access, diagnostics, and treatment quality.

South vs North India: Different Economic Profiles

India’s development is not uniform across the country.

“South India is more developed, North India is more emerging.”

Southern cities such as Bengaluru have become major technology hubs, attracting global companies and highly skilled workers. Many Indians returning from overseas choose southern cities because of their stronger technology ecosystem and more developed infrastructure.

AI: Huge Opportunity, Difficult Execution

India offers significant AI opportunities due to the inefficiencies that remain across many industries. However, adoption will require careful execution. With such a large technology workforce, companies must balance automation opportunities with workforce considerations and reputation risks.

India’s Pharmaceutical Opportunity

India has become a global pharmaceutical leader, with companies such as Sun Pharma, Dr. Reddy’s Laboratories, Divi’s Labs, Biocon, and the Serum Institute of India playing major roles across generics, APIs, biosimilars, and vaccines.

The sector faces export-related risks, including potential tariff pressure, but domestic healthcare demand is becoming an increasingly important growth driver as insurance penetration rises and healthcare consumption expands.

3. We also spoke with an investment banking analyst currently working in India, who previously studied at an Ivy League university in the United States.

Policy Remains a Key Investment Factor

He pointed out a major difference between India and the US:

“The government’s influence on Indian financial markets is much larger compared to the US. If you want to have high confidence investing in India, you need to understand policy. Government decisions, regulations, and priorities can have a much bigger impact on specific sectors and companies, so understanding where policy is heading is extremely important.”

10. Indian Equity Basket

We built a diversified equity basket focused on companies that we believe offer the best combination of quality, upside potential, attractive timing, and exposure to India’s long-term growth story.

Investors can implement it on Plutus here.

The basket, including positions and weights, is available to Aurelion Research’s paid subscribers. Names are traded on liquid, well-known global exchanges (U.S., London, etc.) to provide access for global investors. The basket can be viewed or downloaded directly from this report after upgrading.

11. What Could Go Wrong?

The biggest risks to India remain external shocks and execution risks.

Geopolitical tensions are still a key risk, particularly if they lead to a renewed spike in energy prices. Given India’s dependence on imported crude, a sustained increase in oil prices could put pressure back on inflation, the current account deficit, and corporate costs. However, this is not something we expect to happen.

The second risk is policy execution. India has announced ambitious reforms and investment plans, but the ability to successfully implement them will be critical in determining how much economic growth can accelerate.

India’s young population is still a major long-term advantage, but creating enough quality employment opportunities will be increasingly important. A more protectionist global environment could make this more challenging.

Finally, the impact of the recent FX package will depend on the scale and durability of foreign inflows. While it can improve liquidity conditions in the short term, the longer-term impact will depend on whether these inflows translate into sustained investment and broader economic activity.

12. Final Thoughts on India

We believe India has many of the key ingredients needed to continue its development path as an emerging economy. A young population, rising domestic consumption, infrastructure investment, manufacturing growth, and ongoing reforms provide strong foundations for long-term growth.

Short-term challenges have created volatility, but they do not change the broader story. As energy pressures ease, financial conditions improve, and investor confidence returns, India is well positioned to recover, regain its previous momentum, and continue its long-term growth trajectory.

View how the portfolio is positioned here: Aurelion Index link.

The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.

Listed in the U.S. on the NYSE, today we are adding a new company to our portfolio, the “Aurelion Index”.

It is currently our highest-conviction name in the Aurelion LATAM Basket.

We have followed this business closely for some time, but have been waiting for the right moment. After a period of underperformance, the stock has recently regained momentum, creating what we argue is an attractive entry point.

We believe this is a company with significant growth potential, exposure to key trends across Latin America, and an attractive valuation.

It has proven its business model, being one of the largest banks in LatAm. In our view, the market is overlooking the quality & long-term potential of the business.

Table of Contents

1. Why Now?

   1.1 Long-Term Growth Runway

   1.2 Macro Environment & Market Sentiment

   1.3 Our Belief That the Business Is Undervalued

   1.4 An Attractive Entry Point

2. Investment Thesis

3. Company Overview

4. Financials

   4.1 Why We Believe the Valuation Is Attractive

   4.2 The Path to Sustainable Growth

   4.3 Outperforming Traditional Banks

   4.4 Fee Growth: Another Competitive Advantage

5. Asset Quality: Addressing the Bear Case

6. How We Value the Company

7. What Could Go Wrong

8. Our Final Thoughts

Read more

Expectations are at all-time highs for most sectors while a rate hike is looming over the markets.

We’ve recently removed and added a few companies from the portfolio (we comment regularly in the Substack chat) to be well positioned for the season.

A reminder of our philosophy; we do not hold any “old stocks” that have run up too far or where the thesis is no longer intact. If we did, we would have exited and communicated it. Every company we hold is one we would buy today, making the portfolio a collection of high-conviction ideas.

We invest in companies with long-term merits: quality business, good management, and long-term trends or themes supporting the company. However, we do enter and exit more frequently to capture short-term returns.

With 19 companies, we focus on value-add information. For stocks we added longer ago, you’ll know why we still like the stock despite an increase/decrease. Links to the full in-depth reports are included.

Our portfolio, that we called the “Aurelion Index”, is periodically updated and available to paid subscribers here.

Below is the performance of the Aurelion Index from Plutus, an SEC-registered investment advisor that allows investors to invest in our portfolio.

Performance can be viewed in real-time here

Performance in April and May was weaker than the indexes, given that our portfolio did not benefit as much from the AI rally, but it was stronger in July, with a few companies performing well.

Diversification

Our portfolio of long-only stocks is diversified across sectors and regions. Most companies are listed in the U.S., Europe and Canada.

We are playing the long game, and diversification is important to us to perform across market cycles.

Fed Rate Risk

The expectations for interest rates in the U.S. have significantly changed since the start of 2026. They went from a strong environment with expected rate cuts to a situation where rates are now expected to rise, given inflation concerns.

Percentage Chance of a Rate Cut on the July 29, 2026 U.S. Fed Meeting

The Fed is now in an increasingly tougher spot, and it’s fair to say uncertainty around policy has increased.

This is why it is worth looking at how the portfolio is exposed to an environment where interest rates rise. Below are the portfolio’s returns on the days of Fed decisions since the start of 2026.

Or, presented another way:

The portfolio is clearly in good shape if U.S. federal rates are increased, with a low reaction and high alpha generated on those days. We look at a single company name further below.

We also provide a few companies on our shortlist that we currently find interesting.

Table of Contents

1. Aurelion Index Weights & Positions

2. August Earnings Calendar

3. Evaluating U.S. Interest Rate Exposure

4. Thoughts on Each Holding

5. Current Shortlist

Read more

As you probably know, it is one of the most challenging areas of the market to analyze. You can pick the best stock, have the strongest thesis, and produce the most in-depth analysis, but if your timing is wrong, none of it matters.

Which brings us to today’s piece.

It has been a while since we last covered mining, and even longer since we took a deeper look at metals. Today, we will dive into gold, silver, and copper.

First of all, we are in the middle of a commodity race.

But what does that mean exactly?

It means we are witnessing a race between different metals, each competing for a role in the next wave of demand. Every critical mineral, along with major base metals such as gold, silver, aluminum, copper, tin, and zinc, is competing for capital, investment, and a place in the evolving industrial landscape.

There is also meaningful demand growth expected for metals like nickel and lithium, but today we are focusing on gold, silver, and copper, three metals that we believe offer some of the most interesting dynamics within the mining sector.

Each is influenced by different fundamental trends, from monetary uncertainty and investment demand to energy infrastructure, electrification, and the expansion of AI-related infrastructure.

Among them, copper has emerged as one of the metals receiving the most attention heading into the next industrial cycle, given its critical role in power generation, grid expansion, data centers, and broader electrification trends. However, the outlook remains dependent on factors such as supply growth, demand timing, and capital investment across the industry.

Copper: The Key Drivers of Future Demand

As data centers, power grids, and energy infrastructure continue to expand, copper demand is expected to benefit from these long-term trends. At the same time, supply growth remains constrained by long project timelines, declining ore grades, and a limited pipeline of major new discoveries. This combination of rising demand and constrained supply dynamics is creating a market that will likely require significant investment and new capacity over time. As a result, copper remains one of the key commodities to watch in the years ahead.

Table of Contents

1. Looking Back at What Happened in Mining

2. Gold & Silver: Time for a Comeback?

3. Copper: Does China Still Hold the Key?

4. Our Final Thoughts

1. Looking Back at What Happened in Mining

Right now, several different market dynamics are evolving at the same time, making the commodity landscape increasingly complex. But we always welcome a challenge. To make things as simple as possible, let’s start with what happened.

Before March 2026, the mining sector was performing well. Most metals were moving in the same direction, with prices trending higher across the board.

But then, a major geopolitical event emerged unexpectedly: the Iran-US conflict, which eventually led to the closure of the Strait of Hormuz.

This significantly changed the market environment. Following these developments, expectations shifted toward a more hawkish Federal Reserve outlook, with markets pricing in higher real rates and fewer potential rate cuts.

At the same time, stronger-than-expected U.S. economic data added further pressure on precious metals. A resilient economy reduced expectations for aggressive monetary easing, pushing interest rates higher and providing additional support to the U.S. dollar.

Since gold and silver do not generate cash flows or pay interest, they become relatively less attractive compared with yield-generating assets when real rates rise, increasing the opportunity cost of holding precious metals.

Together, we believe these factors explain a significant portion of the recent weakness across gold, silver, and other metals. However, it is important to distinguish between short-term price movements and longer-term fundamentals, as some of the forces weighing on metals may prove temporary.

The key question now is whether these headwinds are temporary or here to stay. That’s exactly what we aim to determine in this piece.

2. Gold & Silver: Time for a Comeback?

Right now, the dynamics in the mining space are unusual.

Gold & silver are being pulled in several different directions at the same time.

Gold’s traditional relationship with oil has become more difficult to interpret, the higher interest rate environment continues to create pressure, and central bank gold buying has moderated as stockpiles have increased. This creates a more complex environment. Historically, rising uncertainty and market stress have often supported gold, but the current cycle has played out differently so far.

Central Bank Net Cumulative Purchases (Tonnes)

Recently, oil prices have swung in both directions, while gold and silver have largely failed to follow. We think this divergence is what makes the current setup particularly interesting. Several forces are influencing the market at the same time, and our goal is to determine which factors are temporary and which could represent a more lasting shift in the mining landscape.

We know this may sound bearish at first, but there are also reasons to remain optimistic. More recently, we have seen several trading sessions where both gold and silver moved higher alongside crude oil prices.

This is the type of price action we want to see, as it could suggest that the relationship between these markets is beginning to evolve. Historically, gold has been primarily driven by interest rates and movements in the U.S. dollar, but recent price action suggests that other factors may be starting to play a larger role.

While gold & silver have been trading differently compared with previous cycles, we believe the setup could represent an important moment for precious metals.

The relationship between interest rates, currencies, and gold remains a key factor. However, the market may be entering a phase where these traditional drivers become less dominant, while other forces such as central bank demand, fiscal concerns, and broader commodity trends play a larger role.

If this shift continues, it could signal a change in how precious metals respond to the broader economic environment, with performance increasingly influenced by a wider range of factors beyond traditional macro drivers.

But this also highlights one key lesson from history:

Traditional drivers do not always hold. That is exactly what we are seeing today. While speculative positioning remains high and short-term moves in interest rates or currencies can continue to create volatility, we believe broader forces will play an increasingly important role over the long term.

Over time, one of the most important driver for gold is the continued expansion of U.S. government debt. As debt levels continue to rise, this remains a key factor supporting the long-term case for mining.

What makes us think gold could be approaching an important moment?

One indicator we always watch closely is CFTC positioning data from the U.S. Commodity Futures Trading Commission. By tracking how different market participants are positioned in the futures market, this data provides valuable insight into investor sentiment and potential shifts in market behavior.

Gold CFTC Managed Money

Right now, despite the recent volatility in gold prices, managed money is holding little to no short positions in 2026. In simple terms, this means investors are not aggressively betting against gold despite uncertainty across markets. This also suggests bearish sentiment remains limited, with fewer investors positioned for a decline and potentially less downside pressure from new short selling.

However, we do not think CFTC data should be viewed as a standalone timing indicator. While limited short interest reduces potential downside pressure from bearish bets, it also means there is less fuel for a potential short squeeze to accelerate gains. Overall, current data suggests that investors remain willing to maintain exposure to gold despite recent volatility.

The key question is whether improving fundamentals can attract additional demand and support a sustained move higher in gold.

Another indicator we monitor closely is gold ETF flows, which are showing a more positive picture than recent price action suggests. Despite volatility in gold prices, ETF holdings have continued to see net inflows, suggesting that investor demand for gold exposure remains resilient. While ETF flows are not a perfect short-term timing tool, sustained inflows can signal continued investor interest and provide an additional source of demand over time.

Gold ETF Monthly Flows

On the inventory side, gold ETF holdings have continued to increase, suggesting that investors are gradually rebuilding exposure to gold. While these flows alone do not determine prices, they provide an important signal that demand remains present despite recent volatility. Looking ahead, we believe the balance between supply and demand could become more favorable if interest rates decline and broader market conditions continue to improve. However, the timing and magnitude of any potential move will depend on how these factors develop.

Overall, we remain positive on the long-term outlook for gold and silver, while recognizing that the path higher will be uneven. We believe the current setup is more favorable than recent market sentiment suggests, with improving fundamentals likely to become increasingly reflected in prices over time.

We are not buying gold mining equities at the moment, as we believe the timing is not yet right. Historically, gold has often moved inversely to oil, and we would become more positive on gold if oil enters a sustained decline. For now, we are waiting for a full and lasting reopening of the Strait of Hormuz before changing our view, as the previous reopening was short-lived.

3. Copper: Does China Still Hold the Key?

Despite concerns that an AI-driven equity sell-off could weigh on copper prices in the short term, we believe the long-term fundamentals remain firmly intact.

LME Copper Price Performance

As shown above, copper prices are on the right path, with the overall trend still pointing higher. While we do not know exactly what the future holds for copper, we believe the 2026-2027 outlook remains easier to analyze. Looking much further ahead becomes increasingly difficult and would require more speculation.

Currently, copper inventories are declining so far in 2026, with stockpiles trending lower across major exchanges. While inventory levels can fluctuate, we believe the ongoing drawdown is an important indicator to monitor.

Global Copper Inventories

One important point to clarify is that while data centers have become one of the fastest-growing sources of copper demand, they still represent only a small portion of total electrification-related consumption. The much bigger drivers remain the expansion of power grids, electric vehicles, and the broader shift toward electrification, which is something that is often overlooked.

Grid Investment: A Key Copper Demand Driver

In our view, what makes this cycle different is that copper demand is not being driven by just one industry. Multiple sectors are requiring more copper at the same time. Data centers require significant amounts of power and connectivity infrastructure, but the energy transition is also creating massive demand for transmission networks, renewable energy, and electric transportation.

Projected Global Copper Demand by Sector

This combination of growing demand and limited supply is what makes copper one of the most important commodities to watch in the years ahead.

Then there is China.

As with many Chinese markets, it is important not to take every data point at face value. We reached a similar conclusion in our oil research. While China remains a major driver of global copper demand, we believe the market often overestimates how much additional demand is actually coming from the country.

So far, copper demand in China has remained relatively resilient despite a slower economy. Operating rates at cable and wire manufacturers have improved, while inventories have continued to decline. However, we do not expect demand to move in a straight line. A weaker property market, slower industrial activity, or softer renewable energy investment could temporarily weigh on demand.

Overall, we remain positive on China’s role in the copper market, but we believe a broader view is needed rather than focusing on any single data point. While the path may not be linear, the long-term outlook remains supported by continued investment in electrification and power infrastructure.

While new wind and solar installations may slow this year, China is shifting more attention toward upgrading its electricity grid. Investment in transmission networks, grid modernization, and energy storage remains a key priority as the country continues to increase electrification. The impact is already visible.

Capacity utilization at cable and wire manufacturers has recovered, while copper inventories have continued to decline, suggesting that demand remains resilient despite weakness in some areas. Overall, China’s copper demand story is evolving instead of weakening, with grid investment and electrification remaining key long-term drivers.

Regardless of the final outcome, we believe the fundamental challenge remains unchanged: copper supply growth is constrained, while demand continues to expand across electrification, power infrastructure, and the next industrial cycle.

Another important point is that the copper forward curve is positive, suggesting the market expects tighter supply conditions in the future.

1 Year Copper Forward Curves

In our view, short-term policy decisions may impact prices, but the long-term supply and demand dynamics remain the key driver of the copper market.

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4. Our Final Thoughts

Metals are never easy to forecast, analyze, or, most importantly, time.

That is one of the key reasons why we wrote this piece: to provide our readers with the tools needed to better navigate the commodity market and understand the metals that could play an important role in the next AI infrastructure wave.

While we are positive on the long-term outlook for gold and silver, we do not expect a major move higher in the near term. For now, we are comfortable staying on the sidelines and not owning these assets, while continuing to monitor how fundamentals develop.

On copper, we see a stronger long-term setup. As a key metal supporting the global infrastructure buildout, copper is expected to benefit from rising demand linked to power generation, data centers, and electrification. At the same time, supply growth remains challenging due to long project timelines and limited new capacity, creating the potential for a tighter market over the coming years.

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The Aurelion Team

Questions? Reach us directly on Substack or at contact@aurelionresearch.com.

Disclosures & Methodology

All forecasts and estimates are based on publicly available information, management commentary, and our own modeling assumptions. This report reflects independent analysis by Aurelion Research. All opinions and estimates expressed herein reflect the author’s judgment as of the date of publication and are subject to change without notice. This publication is for informational and educational purposes only and does not constitute investment advice, a solicitation, or a recommendation to buy or sell any security. Aurelion Research and its analysts may or may not hold positions in securities discussed. Use only where legally permitted.