Where Chips Connect
In this edition of the Smart Investor newsletter, we spotlight a semiconductor infrastructure leader powering the most complex stages of modern chip design. But first, let’s review the latest Smart Portfolio developments.
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Portfolio News and Updates
❖ The Trump admin is looking to build a “U.S. Tech Force” – an advanced-tech task force “to build the next generation of government technology” over two years. The program will recruit workers from some of the largest tech companies in the country to apply their expertise – with their employers’ backing – on AI, cybersecurity, and data analytics. The long list of participating firms includes Amazon (AMZN), Microsoft (MSFT), IBM (IBM), Oracle (ORCL), OpenAI, xAI, Nvidia, Meta, and others.
Another government update relates to the Genesis Mission – a project aimed at harvesting the power of AI to speed up discovery science, fortify national security, and drive energy innovation. The White House revealed the 24 companies slated to become research partners under the program. Among others, these include Smart Portfolio holdings Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOGL), IBM (IBM), and Oracle (ORCL).
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❖ In addition to capitalizing on the federal initiatives, Amazon (AMZN) is expected to reap the benefits of Nvidia’s recent decision to restructure its cloud division, DGX Cloud. Two and a half years after CEO Jensen Huang said that the chipmaker would build a cloud service to rival AWS, Nvidia has effectively abandoned direct competition plans. The restructuring reassigned the DGX Cloud team toward supporting internal engineering and infrastructure needs.
Meanwhile, another AI stalwart, OpenAI, has also supplied positive news for Amazon. According to media reports, OpenAI is in preliminary discussions with Amazon about a potential investment of at least $10 billion. The deal would likely include commitments for OpenAI to use AMZN’s custom AI chips, particularly Trainium – designed for training large AI models and competing with Nvidia’s dominant GPUs – and potentially expand cloud computing usage via AWS. This builds on a November 2025 deal where OpenAI committed to $38 billion in AWS capacity over seven years.
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❖ Alphabet (GOOGL) continued to star in headlines last week with several important news and announcements. The tech behemoth announced an acquisition of the private data center and energy infrastructure builder Intersect. The $4.75 billion deal – set to close in the first half of 2026 – will be funded with cash plus taking on Intersect’s existing debt. GOOGL has already collaborated with and held a minority stake in the company. According to Alphabet, “the acquisition will enable more data center and generation capacity to come online, faster, while accelerating energy development and innovation.” This deal highlights accelerating efforts by the Google parent – along with other tech leaders – to secure the massive power and compute capacity needed to support surging demand for AI.
Alphabet’s Google Cloud (GCI) has also significantly expanded its long-standing strategic partnership with Palo Alto Networks. The deal arrives as a rising number of cyberattacks target AI systems and cloud infrastructure, and focuses on embedding advanced AI-powered security directly into GCI infrastructure to help enterprises securely adopt and scale AI technologies. According to the media, the expanded agreement involves Palo Alto’s commitment to an amount of about $10 billion to Google Cloud over several years, which is GCI’s largest security services deal to date.
GOOGL’s partnership network continues to grow at an accelerating pace. Reuters reported that Google is working with Meta on an initiative to significantly improve software support for its TPUs (Google’s custom AI chips), making them compatible and efficient with PyTorch, the world’s most popular open-source AI framework supported by Meta. This effort aims to erode Nvidia’s dominance in the AI chip market, where its proprietary CUDA software ecosystem has created a strong lock-in effect for developers on Nvidia GPUs. While Nvidia’s ecosystem (GPUs + CUDA) currently powers over 90% of AI workloads, Google’s TPUs are fast gaining recognition, with the Meta partnership expected to unlock wider enterprise adoption, positioning TPUs as a cost-effective, scalable alternative.
The Meta partnership comes on top of the previously reported potential deal between Google and Apple, where Apple would license a custom version of Google’s Gemini AI model to power key aspects of a revamped Siri. Apple is expected to pay Google approximately $1 billion annually, with the deal further validating Gemini as enterprise-grade technology.
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❖ Oracle (ORCL) has been confirmed to co-lead TikTok’s U.S. joint venture – giving a 80.1% ownership to the non-Chinese entities – together with a U.S. private equity firm Silver Lake and an UAE state-backed AI investment firm MGX. According to the binding agreement signed by TikTok’s Chinese parent ByteDance, the three firms will own a combined 45% of TikTok’s U.S. operations, serving as the managing directors of the joint venture. Other minority new investors will hold the remaining 5% of the investor consortium, totaling 50%, with the additional 30.1% stake held by longstanding global (non-Chinese) institutional investors.
Under the agreement, ORCL will house and store all U.S. user data in its U.S.-based cloud infrastructure, while also serving as the “trusted security partner.” This positions Oracle as a central gatekeeper for data and security, further validating its cloud business’s industry standing. Meanwhile, the low price tag – valuing TikTok’s U.S. operations at about $14 billion – gives Oracle and partners a stake in a social platform and a database of over 170 million American users at a massive discount. And that is before even mentioning the potential for Oracle’s cloud business to capitalize on the expansion of its role as TikTok’s U.S. cloud provider, which it has been since 2022.
According to RBC Capital, the deal is highly positive for ORCL, since it is expected to boost OCI revenue growth while lessening concerns about customer concentration with OpenAI. The firm is also slated to reap strategic and economic benefits from access to TikTok’s data infrastructure, along with the profits from its investment stake in one of the world’s most valuable private companies. Wells Fargo analysts went as far as declaring a potential upside of nearly 50% for ORCL, citing the TikTok deal as one of the key reasons for optimism.
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❖ Citigroup (C) saw its stock jump on news that the Office of the Comptroller of the Currency (OCC) announced the termination of a July 2024 amendment to its longstanding October 2020 consent order. Citi had been under close regulatory scrutiny since 2020 due to weaknesses in its risk management, data governance, and internal controls at that time. The OCC slapped it with a fine and issued a formal order to undertake a comprehensive overhaul of its systems and processes. Progress on these fixes was deemed too slow, leading regulators in July 2024 to impose an additional amendment to the order and another fine. On December 18, the OCC stated that it believes the bank’s safety and soundness no longer require the continued existence of the measure, as Citi has made satisfactory progress in amending the issues. This removes a significant layer of enhanced oversight and control and serves as an encouraging signal that Citi’s multi-year transformation program is gaining traction.
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❖ Morgan Stanley (MS) is seen as a leading contender for the role of the lead underwriter on the blockbuster IPO – planned for 2026 – of Elon Musk’s commercial space company SpaceX. Other contenders include JPMorgan Chase (JPM) and Goldman Sachs – but MS is leading the race thanks to its 15-year business collaboration track record with Musk’s endeavors.
With SpaceX IPO projected to be the highest-valued initial offering in history, potentially raising significantly more than $30 billion at a valuation targeting around $1.5 trillion, the underwriting and management fees from the deal are slated to be enormous. Besides landing massive fees, underwriting one of the most complex and high-profile IPOs is expected to notably bolster Morgan Stanley’s (or another winner’s) prestige and industry standing.
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❖ Howmet Aerospace (HWM) has announced a deal to acquire Stanley Black & Decker’s aerospace business – known as Consolidated Aerospace Manufacturing, or CAM – for $1.8 billion in cash. According to Jefferies analysis, the deal could be 2% accretive to HWM’s 2026 EPS and more than 3% in its first full year after close, expected in mid-Q2 2026. The management said that under Howmet, CAM is expected to clock in about 20% year-over-year revenue growth in fiscal 2026.
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❖ Jabil (JBL) reported fiscal Q1 2026 results that exceeded analyst expectations and raised its full-year outlook. Revenue reached $8.30 billion – at the high end of the guidance range and above the expectations of $8.03 billion, while adjusted EPS came in at $2.85 versus the consensus of $2.70. JBL also exceeded expectations in core operating income and core margins. These stellar results allowed management to hike its full fiscal year 2026 outlook, which now guides for $32.4 billion in revenue and core EPS of $11.55. Adjusted free cash flow is expected to be more than $1.3 billion.
All three of Jabil’s business segments contributed to growth in FQ1, with Intelligent Infrastructure leading, Regulated Industries returning to growth, and Healthcare remaining solid with continued strength in GLP-1 drug delivery and continuous glucose monitors. In Intelligent Infrastructure, AI-related revenue is now expected to reach $12.1 billion in FY2026 – reflecting a 35% year-over-year growth, up from the previous projections of +25%. The acceleration is driven by cloud/data center infrastructure revenue surge, primarily from hyperscaler wins and liquid cooling demand.
Several analysts raised Jabil’s price targets, with Bank of America adding that even the upgraded guidance is still conservative, given JBL’s strength in existing programs and the number of new AI programs that it can potentially bid for. Meanwhile, JPMorgan said that Jabil has “multiple levers of demand upside” that should keep it quarterly beats and guidance raises continuing.
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❖ EMCOR Group (EME) announced that its board of directors has approved an increase to the company’s regular quarterly dividend by 60% to $0.40 per share. In addition, the company has authorized a $500 million expansion of its existing share repurchase program.
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Portfolio Earnings and Dividend Calendar
❖ The Q3 2025 earnings season is over, and the Q4 one is still far off. Although some Smart Portfolio holdings have different fiscal calendars, no companies are scheduled to report over the next week.
❖ The ex-dividend date for Philip Morris (PM) is December 26, while for GE Aerospace (GE) it is December 29.
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New Buy: ASE Technology Holding Co. (ASX)
ASE Technology Holding Co. sits at the center of the global semiconductor supply chain, operating as a critical partner to the world’s leading chip designers and manufacturers. Through its advanced packaging, testing, and electronics manufacturing services, ASX enables the transition from silicon design to finished, deployable systems. The company plays a foundational role in turning increasingly complex chips into scalable, reliable products used across computing, communications, automotive, and industrial applications. As semiconductors evolve toward higher performance, greater integration, and more demanding reliability standards, ASE’s expertise in heterogeneous integration and system-level assembly becomes indispensable. Often operating behind the scenes, ASX functions as an infrastructure layer for the modern digital economy – bridging innovation at the wafer level with real-world deployment across data centers, consumer devices, and intelligent machines.
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Back-End Power
ASE Technology Holding Co. was founded in Taiwan in 1984, at a time when semiconductors were already a mature industry – but not yet the modular, globally specialized ecosystem they are today. Chips had existed for decades, evolving from discrete transistors into increasingly complex integrated circuits. What had not yet fully emerged was the idea that the final stages of chip production could become a specialized industry of their own.
That gap is where ASE stepped in. The company focused on outsourced semiconductor assembly and test, commonly referred to as OSAT (outsourced semiconductor assembly and test) – the process of packaging finished silicon wafers, connecting them electrically, testing their performance, and preparing them for integration into electronic systems. In the early years of the industry, these steps were typically handled in-house by chipmakers. As transistor counts rose and performance demands intensified, assembly and test shifted from a protective function into a performance-critical discipline. ASE recognized early that this complexity would scale faster than most chipmakers could manage internally.
Throughout the 1990s and 2000s, ASE expanded alongside the rise of fabless chip design and the growing cost of advanced manufacturing. As leading-edge fabrication became concentrated among a small number of foundries, OSAT providers increasingly became the connective tissue between silicon innovation and real-world deployment. ASE invested heavily in process expertise, capacity, and global reach, establishing itself as a trusted partner across computing, communications, and consumer electronics.
A decisive transformation came in 2018 with the merger of ASE and Siliconware Precision Industries (SPIL). The combination brought together complementary strengths in advanced packaging and testing, creating unmatched scale and breadth in the OSAT market. The integration materially improved utilization, deepened customer relationships, and positioned ASE at the forefront of high-performance applications.
At scale, the semiconductor industry has evolved into a two-pillar model. Taiwan Semiconductor Manufacturing, aka TSMC, dominates wafer fabrication, controlling roughly 57% of the global foundry market, while ASE leads the outsourced back-end, with an estimated 27-30% share of the global OSAT market. The parallel is instructive: as chipmaking concentrated at the front end, complexity migrated downstream, elevating packaging and testing from a support function into a strategic layer. Like TSMC at the fabrication level, ASE built leadership by specializing early, investing ahead of demand, and becoming indispensable to customers that could no longer justify vertical integration.
Over the past five years, ASE’s evolution has mirrored the industry’s shift toward heterogeneous integration, chiplets, and system-level packaging. As Moore’s Law slowed at the wafer level, innovation increasingly migrated into packaging architecture – an area where ASE had spent decades building expertise. The company expanded its capabilities to support high-performance computing, automotive, and advanced networking workloads, while strengthening collaboration with leading foundries and chip designers.
Parallel to this technological progression, ASE refined its corporate structure through its controlling stake in Universal Scientific Industrial, extending its reach into electronics manufacturing services without diluting its focus on advanced semiconductor packaging. The result is a company shaped less by reinvention than by foresight – one that anticipated where semiconductor complexity would land and built leadership there.
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Smoke On The Wafer
ASE Technology operates as the industrial backbone of the semiconductor ecosystem – the company that takes finished silicon and turns it into deployable, high-performance systems. Its role sits at the intersection of physics, manufacturing, and scale, where packaging and testing have evolved from final assembly steps into performance-critical engineering disciplines. As chips grow more complex and heterogeneous, ASE’s value increasingly lies in enabling power delivery, thermal control, bandwidth, and reliability at the system level.
The business is anchored in two segments. Assembly, Testing, and Materials (ATM) is the core engine, accounting for roughly 60% of consolidated revenue and the clear driver of growth. This segment covers advanced packaging, wafer probing, final test, and related services that translate chip designs into usable products. Electronics Manufacturing Services (EMS) contributes the remaining ~40%, providing system assembly and manufacturing support that extends ASE’s reach further downstream, particularly in industrial and automotive electronics. While EMS remains more cyclical, it gives ASE optionality and customer proximity without diluting its focus on advanced semiconductor work. The ATM customer base remains diversified, with the top ten customers accounting for just under 60% of segment revenue, balancing scale benefits with manageable concentration risk.
Within ATM, the business mix is shifting decisively toward higher-value services. Computing – which includes AI accelerators, data-center CPUs and GPUs, custom ASICs, and other high-performance processors used in cloud and enterprise infrastructure – now represents about 25% of ATM revenue, reflecting rising exposure to AI and high-performance computing workloads. Communications remains the largest end market at roughly 45%, while automotive and industrial applications continue to gain share as vehicles and factories adopt more silicon-intensive architectures. At an industry level, advanced packaging has overtaken traditional packaging in dollar terms, reflecting a structural shift toward performance-driven integration rather than a short-cycle demand spike.
By service type, bumping, flip-chip, wafer-level packaging, and system-in-package1 together account for just under half of ATM revenue, underscoring the pivot toward advanced packaging. Testing contributes another high-teens percentage and is currently the fastest-growing component of the business, as advanced AI and high-performance chips require far more intensive validation at the wafer and system levels, with tighter tolerances for power, thermal behavior, and reliability as architectures become more complex and multi-die.2
How ASE grows is as important as what it does. Rather than chasing every packaging format, the company allocates capital pragmatically, focusing on areas where demand is most durable and complexity is highest. Test capacity – especially wafer probing – is being expanded aggressively, reflecting the needs of next-generation AI chips. In parallel, ASE is building full-process advanced packaging capabilities, moving beyond overflow work toward deeper integration with customer roadmaps. Increasingly, ASE is engaged earlier in customer design cycles, co-developing packaging and test solutions that align with chip and system roadmaps rather than acting solely as a downstream capacity provider.
Utilization in advanced packaging lines has been running in the high-70% range, a level that supports operating leverage while signaling tight industry capacity, but still leaves headroom to absorb demand spikes without forcing premature or inefficient capacity expansion. To support this demand, ASE is expanding advanced packaging capacity in Penang to serve higher-value AI and automotive workloads, while developing a new CoWoS-focused3 packaging facility in Kaohsiung to extend its leading-edge capabilities later this decade.
End-market trends reinforce this trajectory. AI and high-performance computing are turning packaging into a system bottleneck, prompting leading foundries (such as TSMC) to rely on partners like ASE to absorb demand that cannot be met internally rather than vertically integrating every step. Automotive electronics adds a second leg of growth, driven by electrification, factory automation, and rising content per vehicle. Meanwhile, mainstream applications are recovering steadily, providing a broader base beneath the AI cycle.
ASE’s global manufacturing footprint – spanning Asia, the U.S., and parts of Europe – allows it to follow customers as supply chains regionalize, while its scale provides leverage in securing materials and managing complexity. The result is a business that grows not by volume alone, but by embedding itself deeper into how advanced chips are built and deployed. As semiconductor innovation increasingly shifts downstream, ASE enters the next phase as a technology enabler rather than a passive contractor – positioned where complexity, demand, and growth converge.
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1 – Bumping, flip-chip, wafer-level packaging, and system-in-package are advanced semiconductor packaging techniques that connect silicon dies to substrates, manage power and signal integrity, and integrate multiple components into compact, high-performance modules used in AI, data-center, automotive, and industrial applications.
2 – Multi-die architectures combine multiple semiconductor dies into a single package to improve performance, efficiency, and scalability compared with monolithic chips.
3 – CoWoS (Chip-on-Wafer-on-Substrate) is an advanced packaging technology that integrates multiple chips on a silicon interposer to improve performance, bandwidth, and power efficiency in high-performance computing and AI applications.
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Where Complexity Pays
ASE Technology’s financial trajectory over the past two years reads like a classic semiconductor cycle – and a clean exit from it. The downturn that weighed on results through 2023 and early 2024 was driven by a global inventory correction following pandemic-era overordering, combined with a sharp slowdown in communications and consumer electronics. Utilization fell, margins compressed, and customers delayed packaging ramps. That phase is now clearly behind the company.
By the third quarter of 2025, the recovery was visible in hard operating data. Q3 revenue rose 14% year-over-year in USD, marking the third consecutive quarter of year-over-year growth and confirming that demand had moved from stabilization to expansion. Growth was led decisively by the Assembly, Testing, and Materials segment, where revenue increased 27% year-over-year in USD, while EMS lagged with a small year-over-year decline, reflecting continued softness in communications-oriented programs. The divergence matters: the upcycle is being driven by higher-value, structurally growing businesses rather than a broad consumer rebound.
Profitability followed the same pattern. Reported gross margin improved to 17.1% and operating margin rose to 7.8%, both measured in TWD terms,4 despite a meaningful foreign-exchange headwind from TWD appreciation during the quarter. Management quantified FX as a material drag on margins, underscoring that the underlying operating improvement was stronger than headline results suggest. Net income reached its highest level in nearly three years, supported by a better mix and rising utilization in advanced packaging and test. As a result, ASE’s Q3 earnings reached 2.41 TWD per diluted common share, or $0.16 per ADS5 – comfortably above analyst consensus expectations of $0.14 and up roughly 20% in USD terms.
Testing stood out as the fastest-growing and most margin-accretive business, consistent with early-cycle behavior in advanced semiconductor upturns. As AI and high-performance chips push tighter tolerances for power, thermal behavior, and reliability, testing intensity rises faster than assembly volumes. That dynamic has historically preceded broader margin expansion in OSAT cycles – and Q3 showed the first signs of that operating leverage re-emerging.
Cash flow reflected the investment phase. Operating cash flow remained solid, but free cash flow was pressured by elevated capital expenditures, as ASE continues to build advanced packaging and test capacity ahead of demand. Leverage has risen as a result, reducing near-term flexibility but aligning with management’s stated strategy of securing long-cycle customer commitments before utilization fully ramps.
Momentum carried into the fourth quarter. November 2025 revenue increased 15.5% year-over-year in USD, despite normal seasonal softness sequentially, reinforcing that the recovery is demand-led rather than calendar-driven. For Q4, management guided to low-single-digit sequential revenue growth and 70-100 basis points of margin expansion, assuming currency stability – a setup that broadly aligns with analyst expectations for a modest top-line step-up and continued profitability improvement. For full-year 2025, management reiterated confidence that advanced packaging revenue would reach approximately $1.6 billion, with ATM growth exceeding 20% year-over-year in USD terms.
Looking into 2026, both management commentary and sell-side forecasts converge on the same theme: revenue growth led by advanced packaging and testing, with margins expanding as utilization improves and learning curves mature. Analysts expect ASE’s earnings growth to outpace revenue growth next year, with the year-over-year earnings per ADS surging by about 67% from 2025 – reflecting that complexity, once absorbed, can pay off handsomely.
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4 – TWD refers to the New Taiwan dollar. USD-TWD conversion is approximate; Q4 guidance assumes an average rate of 30.4 TWD per USD.
5 – One ASX American Depositary Share (ADS) represents two underlying common shares of ASE Technology Holding Co. traded on the Taiwan Stock Exchange.
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Bottleneck Winner
ASE Technology’s most relevant peers span the infrastructure layers of the semiconductor value chain rather than traditional chipmakers. Amkor Technology stands as the closest direct comparison, sharing ASE’s OSAT business model and exposure to advanced packaging and testing demand. GlobalFoundries provides an upstream reference point, reflecting how capital-intensive semiconductor infrastructure businesses are valued through cycle turns. ON Semiconductor (Onsemi) adds an end-market lens, capturing automotive and industrial demand trends that increasingly shape ASE’s revenue mix. Teradyne rounds out the group as a testing-cycle proxy, offering insight into the equipment demand that typically precedes and amplifies OSAT utilization. Together, these peers frame the environment in which ASE’s scale, mix shift, and operating leverage are now being tested.
Among this tight peer group, stock performance has diverged sharply this year – with ASE, Amkor, and Teradyne each up more than 55%, while GlobalFoundries and Onsemi have declined by double digits. The three outperformers are all leveraged to the same bottleneck – complexity showing up after the wafer – as the market has shifted its focus from chip volumes to capacity-constrained, performance-critical layers, where they shine. Meanwhile, the two laggards are exposed to different, weaker parts of the cycle, with Onsemi heavily exposed to oversupplied EV and industrial markets, while GlobalFoundries continues to suffer from its focus on mature nodes (e.g., for auto, smart mobile, and communications), lacking significant AI leverage.
With quality stocks in the hardware and infrastructure universe – and particularly those along the AI value chain – trading at valuations ranging from elevated to eye-popping, ASE’s moderate metrics draw attention. Despite its year-to-date gain of over 57%, the company’s stock – trading on the NYSE under the ticker ASX – carries materially lower multiples than Amkor and Teradyne, which have delivered similar performance.
This is especially notable given ASE’s best-in-class trailing and forward diluted EPS growth, along with TTM revenue and EBITDA expansion – while its forward revenue and EBITDA growth is expected to come second only to Teradyne. In fact, ASE’s stock sits near or at the bottom of the scale on trailing and forward GAAP P/E, Price/Sales, and EV/Sales, as well as on forward Non-GAAP P/E. Meanwhile, its trailing and forward EV/EBITDA and trailing Non-GAAP P/E are not the lowest, but are still coming below the group average. The most striking is its forward PEG ratio of 0.90x, signaling significant growth-adjusted undervaluation.
Moreover, ASE Technology is a dividend-paying company. The company doesn’t commit to a fixed dividend payout ratio or target yield, with its board proposing dividends annually based on the company’s profitability, cash flow needs, capital expenditure plans, and overall financial position. However, it has steadily disbursed dividends since 2009, with the current yield reaching 2.32%, about double the Tech sector’s average. ASE has occasionally conducted buybacks in the past, but they are not a core part of its current capital return strategy. This approach is common among Taiwanese semiconductor companies, prioritizing growth investments while providing consistent (even if variable) dividend returns.
With complexity continuing to accrue after the wafer and operating leverage now visible in the numbers, ASE appears positioned on the right side of both the cycle and the valuation spectrum. In a market that increasingly rewards scarcity, utilization, and earnings momentum, the stock’s relative discount looks increasingly difficult to justify.
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Investing Takeaway
ASE Technology offers investors exposure to a critical and increasingly valuable layer of the semiconductor ecosystem, where performance constraints, not wafer volume, now define progress. The company has spent decades building scale, process depth, and customer trust in assembly, testing, and advanced packaging – areas that have moved from support functions to strategic enablers of modern computing. Its positioning at the intersection of AI infrastructure, automotive electronics, and industrial automation provides multiple demand vectors, while disciplined capital allocation supports long-cycle growth rather than short-term peaks. As complexity continues to migrate downstream, ASE’s role as a technology partner – not just a manufacturer – becomes more pronounced. The result is a business aligned with structural industry shifts, operating leverage, and durable relevance. For investors seeking exposure to semiconductor growth beyond fabrication, ASE presents a compelling case.
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New Sell: KKR & Co. Inc. (KKR)
We are exiting KKR & Co. not because the business has weakened, but because the stock’s near-term risk profile no longer aligns with a market that has become highly selective in where it rewards risk.
Fundamentally, KKR continues to execute well. The firm remains one of the most diversified platforms in alternatives, with scale across private equity, credit, infrastructure, and insurance through Global Atlantic. Fee-related earnings continue to compound, monetization activity is accelerating, and management has demonstrated an ability to generate realizations even in uneven capital-market conditions. Recent intra-quarter disclosures pointing to more than $525 million in realized performance income reinforce that operational momentum remains intact.
The problem is not execution – it is market context and signal degradation. Despite that positive update, the stock has underperformed both the broader market and some of its peers in recent weeks – with all the leading names in alts in the red year-to-date. Even strong, high-quality data points are failing to move the needle on sentiment, suggesting that investors are currently discounting company-specific progress in favor of broader positioning toward exceptional growth and AI-driven narratives, leaving capital-markets-sensitive compounders sidelined.
This pattern has become increasingly familiar. While KKR has consistently beaten earnings expectations over the past several years, recent post-earnings reactions have been mixed and increasingly dependent on broader market sentiment rather than fundamentals. In today’s environment, strong results are no longer a reliable catalyst unless they coincide with areas of explosive growth, while downside reactions to rotation can be swift and indiscriminate. Waiting for the upcoming earnings report in February risks exposing the portfolio to asymmetric downside without a clear line of sight to upside re-rating.
Importantly, this is not a valuation call in isolation. KKR is not the most expensive name in alternatives, but it is still priced as a high-quality compounder in a market that is currently rewarding concentration in perceived winners rather than steady execution across financial platforms. That mismatch matters. When capital flows narrow, even the best operators can trade poorly until attention broadens again.
This exit reflects portfolio discipline, not a loss of conviction in the business. KKR remains a best-in-class operator with long-term growth advantages and strong execution. However, in a market that is favoring velocity, visibility, and thematic intensity, the stock has become a source of drag rather than an opportunity. Stepping aside preserves capital and flexibility, with the expectation that KKR will become attractive again when market leadership rotates beyond today’s narrow set of winners.
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Smart Investor’s Winners Club
The 30% Winners Club represents stocks from the Smart Investor Portfolio that have risen at least 30% since their purchase dates.
Investors have doubled down on the winners of 2025, and JPM has surged into the Club’s ranks, expanding them to 20 members: GE, AVGO, ANET, HWM, TSM, APH, EME, ORCL, PH, IBKR, GOOGL, VRT, CRWD, MTZ, IBM, RTX, BK, MS, JPM, and CSCO.
The first contender for the Club’s entry is now Citigroup (C) with a 21.53% gain since we purchased it on October 22. Will it join the Club, or will another stock outrun it to the finish line?
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