August 2025 Newsletter

Highlights of this month’s newsletter:

“We know they are lying, they know they are lying, they know we know they are lying, we know they know we know they are lying, but they are still lying.”

— Aleksandr Solzhenitsyn

Market overview: performance figures (%)

Source: Edmond de Rothschild, 31.07.2025

Source: Edmond de Rothschild

Markets delivered a strong performance in July as the second-quarter earnings season got underway. While the majority of companies have yet to report, early results have been encouraging. The VIX (S&P 500 Volatility Index) has declined notably, reflecting a calming in market sentiment following an exceptionally volatile first half of the year. The U.S. Federal Reserve opted to keep interest rates unchanged at its July meeting, despite mounting pressure from President Trump to implement rate cuts.

Key themes to monitor during the second quarter 2025 earnings season include:

• How will tariffs impact company earnings and guidance?
• Will President Trump’s One Big Beautiful Bill (OBBBA) boost consumer spending expectations?
• How will Europe’s infrastructure and defence plan impact company earnings and guidance?
• Will the U.S. industrial sector benefit from the progressive re-onshoring to the U.S., given persistent tariff threats?
• Will US hyperscalers confirm their capital expenditure guidance?

Expectations remain strong for U.S. technology and communications sectors, while energy and materials are anticipated to lag. In Europe, healthcare and technology are expected to perform well, whereas discretionary and utilities sectors may face challenges.

Graph 1: Earnings per share (EPS) growth expected in 2Q25

Source: Edmond de Rothschild

The following notable companies reported earnings:

Coca-Cola (KO)

Coca-Cola reported a 5% increase in organic sales in the first quarter, driven by a 6% price/mix benefit that offset a 1% decline in volume. Adjusted operating profit rose 15%, with operating margins improving to 35%. Despite macroeconomic, geopolitical and weather-related headwinds, Coca-Cola achieved organic revenue growth across all major geographies. Innovations in healthier product lines, flavors, packaging and strong in-market execution drove this success.

Double-digit volume growth in Coca-Cola Zero Sugar and Fairlife underscores the company’s strategic focus on low-calorie and nutritious beverages. Innovation in prebiotic sodas, vitamin-infused teas and coffee is expected to support volume growth further. Coca-Cola is forecast to implement a 4% price increase in 2025, driven by favorable product and channel mix, while continuing to invest in affordability to maintain brand value.

The company is currently trading at a valuation in line with its 5-year average. We continue to view Coca-Cola as an attractive investment opportunity. KO is trading on a forward price-to-earnings (P/E) ratio of 24x and a price/earnings-to-growth (PEG) ratio of 3.9x.

ServiceNow (NOW)

ServiceNow delivered strong second-quarter results, with revenue rising 22% year-over-year to $3 billion. Solid renewals, generative AI integration, and increased customer workflow adoption supported this. The company’s operating margin is improving at an impressive rate; it is currently 30%. Subscription revenue exceeded guidance, growing 23% year-over-year to $3 billion.

Generative AI remains a key long-term growth driver, underpinning strong demand and consistent performance expectations over the next five years. We see substantial long-term potential, particularly given that the majority of revenue is subscription-based, providing a high level of predictability and customer retention.

ServiceNow currently trades at a price-to-earnings (P/E) ratio of 58x, which may appear expensive when viewed in isolation. However, when factoring in the company’s strong earnings growth and the high quality of its earnings, we believe there is a compelling investment opportunity as earnings per share (EPS) have grown at a faster pace than the share price.

Alphabet (GOOG)

Alphabet posted a strong second quarter with $96 billion in revenue, up 14%, and maintained operating margins at 32%. Google Cloud revenue grew 32%, fueled by continued demand for AI-powered cloud infrastructure solutions. We continue to view Alphabet as attractively valued. The company is currently trading at a forward price-to-earnings (P/E) multiple of approximately 19x, which is below its 5-year average and notably lower than that of its peers.

Source: Moneyweb, SARB

The JSE All-Share Index broke through the symbolic 100,000-point level during July, marking a thousand-fold increase over the past 65 years. While concerns remain about the declining number of listed companies and the challenging competitive landscape, focusing solely on these negative risks misses the broader context. The JSE remains Africa’s largest and most sophisticated stock exchange.

With a 137-year track record and a spot among the top 20 global exchanges by market capitalisation, the index continues to provide deep, liquid exposure to high-quality businesses, many of which are global in scale, diversified across geographies and underpinned by solid fundamentals. As of July 2025, the JSE All Share Index comprises 125 listed companies with a combined market capitalisation of R21 trillion.

The index’s strong performance during July was led by the resources sector, which surged 4% on the back of rebounding commodity prices and renewed investor appetite for emerging markets. Gold and platinum miners were standout performers, with gold and platinum prices rising an impressive 25% and 41% year-to-date (YtD).

Silver has delivered an impressive 27% return YtD, supported by its unique dual role as both an industrial metal and a store of value. Sliver’s widespread use in solar panels, electronics and electric vehicles ties its demand to economic growth and the green energy transition, while silver’s status as a precious metal gives it defensive appeal during times of monetary uncertainty. The gold/silver ratio suggests silver is undervalued relative to gold.

Should this ratio revert to its long-term average, silver could offer greater upside potential than gold. Ultimately, July’s rally underscored South Africa’s strategic role as a key beneficiary of global commodity trends and the enduring relevance of the JSE as a vehicle for accessing that opportunity.

Relative attractiveness of SA equities

Recent research from Deutsche Bank highlights the strength and breadth of South Africa’s equity market rebound in a global context. Since the tariff-related market scare on 2 April, referred to as “Liberation Day”, South African equities have staged one of the most comprehensive recoveries globally.

Nearly 80% of companies in the SA Top 40 Index are now trading above their 200-day moving averages, reflecting widespread market strength and growing investor confidence.

Notably, the SA Top 40 Index also exhibited some of the lowest volatility among global peers during this period. This stands in sharp contrast to the US equity market, where fewer than half of listed companies are above their 200-day moving averages, and volatility levels have been roughly three times higher than in South Africa.

This divergence may mark the early stages of a shift in global capital flows, as investors begin to differentiate between markets more acutely in response to growing policy unpredictability in the US. With much of Trump’s economic agenda primarily focused inward, global investors appear increasingly open to opportunities elsewhere.

Chart 2: SA’s forward P/E discount to EM remains large

Source: IRESS, Momentum Investments

From a valuation perspective, South African equities continue to trade at attractive levels within the emerging market (EM) universe. The local market maintains a one standard deviation discount to its historical average relative forward P/E ratio since the onset of Covid-19. This suggests meaningful upside potential, especially given the market’s strong absolute performance over the past year.

Dividend yields remain another bright spot. South Africa continues to stand out as a superior dividend payer within the EM peer group, offering a forward yield that is currently 27% higher than the EM average, slightly above the 24% historical premium.

Even assuming a conservative profit growth outlook of 15% (versus the consensus expectation of 20%), SA equities are still trading below their long-term forward P/E average. This valuation gap, combined with improving breadth, relatively low volatility and a substantial yield premium, reinforces the compelling case for South African equities in a world of shifting global dynamics.

Graph 3: SA equity market forward P/E

Source: IRESS, Momentum Investments

Share of the month: Palantir

Palantir is a category-defining artificial intelligence company that transforms how organizations use data to make decisions. Through its proprietary platforms, Gotham (government-focused) and Foundry (commercial), Palantir enables companies and institutions to integrate, clean, and analyze the most complex datasets in real time. Its systems don’t just visualize data; they learn from it, automate solutions, and drive efficiency gains across sectors.

At the core of Palantir’s competitive edge is its ontology framework, a powerful and flexible architecture that uncovers relationships between data points that traditional systems overlook. This unique capability supports dynamic, organization-wide decision-making and improves continuously through machine learning. Inspired by a branch of metaphysics that explores the nature of being, the ontology framework captures the real-world complexity of modern organizations and helps solve it.

Why we like Palantir: A strong competitive advantage

We believe Palantir has a narrow but durable economic moat, supported by two key factors: high switching costs and intangible assets.

While other firms like AWS, Snowflake, and ServiceNow offer analytics tools, none match Palantir’s ability to unify structured, unstructured, and even analog data into a single, actionable framework. Palantir’s system goes far beyond dashboards, it creates a closed-loop environment where real-time feedback improves decision-making and operational efficiency over time.

This capability doesn’t just add value, it makes it hard for customers to leave. Many spend over $1 million per quarter on Palantir’s software. Clients have invested profoundly in the platform, both financially and operationally. Abandoning it would not only incur high costs but could severely reduce productivity, especially in high-stakes environments like healthcare or defense, where Palantir’s impact has been profound. (Notably, its platform helped shorten patient stays by 30% at Tampa General Hospital and supported U.S. military intelligence operations in the hunt for Osama bin Laden.)

Palantir’s Net Revenue Retention (NRR), a key indicator of customer loyalty and expansion, currently stands at an industry-leading ~120% and continues to rise, driven by the release of the Artificial Intelligence Platform (AIP). AIP integrates large language models (LLMs) into workflows, making Palantir’s advanced tools accessible even to non-technical users.

Customer acquisition has also accelerated thanks to Palantir’s “boot camp” strategy, a high-touch, tailored approach that shortens the sales cycle and aligns the software closely to a client’s specific pain points. This approach, coupled with deep onboarding from Palantir engineers, fosters long-term adoption and expansion.

Valuation: A high-multiple growth story with long-term optionality

We estimate Palantir’s fair value at $100 per share, implying a 2025 EV/Sales multiple of 57x. This premium reflects our conviction in the company’s long-term growth trajectory and unique strategic positioning in the AI space.

The key driver of Palantir’s valuation is its Total Addressable Market (TAM), a figure we estimate will grow to $1.4 trillion by 2033. Growth is expected to be non-linear, with acceleration likely between 2028 and 2030, reaching annualized rates of around 35% as AI adoption matures.

We view Palantir as a potential infrastructure layer for enterprise AI, much like Salesforce revolutionized enterprise sales workflows a decade ago. Businesses are increasingly dependent on sprawling internal IT departments to extract value from data. Palantir automates and streamlines that function, potentially becoming an indispensable tool across industries.

Most of the company’s future growth is expected to come from its U.S. commercial segment, where customer stickiness and net revenue retention are extreme. If Palantir executes well, it could become essential infrastructure for data-driven decision-making.

In our bull case, we assume a TAM of $1.6 trillion with just under 3% penetration, leading to a valuation of approximately $280 per share.

Bottom line

Palantir stands at the intersection of AI, big data, and mission-critical enterprise solutions. Its differentiated technology, expanding commercial footprint, and high switching costs form the foundation for durable long-term growth. While near-term volatility may persist, we believe Palantir is in the early stages of becoming one of the most important software companies in the world.

Because Palantir is in a high-growth phase, it does not pay a dividend, and we do not expect this to change. With high cash generation, the firm approved a $1 billion share repurchase program where deployment is at the management team’s discretion. We think this shareholder distribution strategy is appropriate given the firm’s current position and future growth prospects.

Chart 4: Palantir’s earnings per share (pink line) versus share price (yellow line)

Source: LSEG

In the final lesson, Stay Humble, Morgan Housel emphasizes a core truth about both money and life: no one has it all figured out. Success, especially financial success, can sometimes breed overconfidence. But Housel warns that the moment you believe you’re invincible in the financial world is often the moment you’re most vulnerable. Markets change. Luck runs out. The future surprises us all. That’s why humility is not just a virtue, it’s a survival strategy.

One of the most powerful aspects of humility is acknowledging how much of success is shaped by forces beyond our control, timing, upbringing, access to education, who you know and even sheer luck. Housel regularly points out that being financially successful doesn’t mean you’re smarter or better than someone else; it could simply mean your risks paid off where others’ didn’t. Recognizing this truth cultivates empathy and a grounded perspective, keeping you from becoming arrogant or reckless with your decisions.

Humility also keeps you open to learning. The financial world is constantly evolving, and what worked in the past may not work tomorrow. By staying humble, you’re more likely to seek out new information, listen to diverse perspectives, and avoid the trap of thinking you’re above making mistakes. As Housel writes, even experienced investors, including professionals, get things wrong. The difference is that the best of them know they will, and prepare accordingly.

Another reason humility matters is because it helps maintain emotional stability during times of success. When we begin to believe that our wins are entirely self-made and permanent, we often start to take greater risks, convinced we can’t lose. This is how bubbles form, in markets and in minds. A humble investor knows that nothing is guaranteed and that protecting what you’ve built is just as important as building it in the first place.

And finally, staying humble helps foster gratitude. When you understand that your financial position is the result of effort, yes, but also of circumstances and support, you’re more likely to appreciate what you have, rather than constantly chasing more. Gratitude, in turn, leads to peace of mind, generosity, and a more balanced relationship with money.

In conclusion, Stay Humble is a call to keep your ego in check, no matter how far you’ve come. Humility allows you to stay grounded, continue learning, and avoid the hubris that often leads to costly mistakes. As Housel demonstrates throughout his book, the most financially secure people are not the flashiest or loudest, they’re the quiet ones, calmly building, protecting, and appreciating what they have.

“Every job looks easy when you’re not the one doing it.

Bill Gates once said, ‘Success is a lousy teacher. It seduces smart people into thinking they can’t lose.’”

— Morgan Housel, The Psychology of Money

Source: BlackRock

Source: Yahoo Finance