September 2025 Newsletter

Highlights of this month’s newsletter:

“The man who does not read has no advantage over the man who cannot read.”

— Mark Twain

Market overview: performance figures (%)

Source: Edmond de Rothschild, 30.08.2025

Source: Edmond de Rothschild

Federal Reserve Chair Jerome Powell’s highly anticipated address at the central bank’s annual conference in Jackson Hole, Wyoming, on August 24th has reinforced expectations that an interest rate cut is likely in September.

Powell began his speech by outlining three key factors supporting a reduction in rates:

1. Progress on inflation: Although inflation remains above the Federal Reserve’s 2% target, it has moderated significantly over the past two years and is moving closer to the objective.
2. A cooling labor market: The latest employment report revealed lower-than-expected job growth, accompanied by meaningful downward revisions to prior data. Powell noted that the labor market has eased from its previously overheated state.
3. Reduced inflationary risks: With labor market conditions softening and economic activity slowing, the probability of renewed inflationary pressures has diminished.

Economists now widely interpret Powell’s remarks as signaling that the September meeting will mark the start of the next rate cut cycle. In particular, his shift in emphasis, from concerns over tariff-driven inflation toward the risks posed by a weakening labor market, has been viewed as a decisive pivot in policy direction. This has led to investor sentiment turning more constructive.

The VIX Index, which measures implied volatility on the S&P 500, has retreated, while equity markets posted strong performance. Investor positioning reflects this renewed confidence: net short positions on the VIX have now reached their highest level since 2022. Chart 1 illustrates the build-up in net short positions on the VIX. Chart 2 shows the decline in the VIX alongside the corresponding rise in the S&P 500. We find the over confidence somewhat concerning and we will remain more neutral.

Graph 1: Speculators net short VIX positions at highest since 2022

Source: Bloomberg

Chart 2: The VIX saw spikes the past year after long stretches of calm

Source: Bloomberg

Nvidia’s August earnings release once again exceeded expectations, underscoring its dominant position within the artificial intelligence (AI) and broader technology space. In this newsletter, we take a closer look at the AI/technology sector to share our perspective on its current trajectory and investment implications.

The headwinds that defined the early part of 2025, concerns around a potential AI investment bubble, the “DeepSeek shock,” as well as broader macroeconomic and business uncertainties, have largely subsided. In their place, renewed confidence in AI’s medium-term potential has begun to take hold.

This shift in sentiment is reflected in the strong rebound of technology equities since April, as investors reassess valuations and growth prospects. The sector’s resilience highlights not only the durability of AI-driven demand but also the market’s conviction that transformative technological adoption will continue to drive earnings and innovation across industries.

We identify several structural and cyclical factors that justify maintaining meaningful exposure to the technology sector, with particular emphasis on AI-related segments:

Structural Growth

Demand for computing power and AI services remains exceptionally strong. Companies positioned as “shovels and pickaxes” (semiconductors, cloud platforms) and those delivering large-scale AI applications are experiencing rapid expansion of their total addressable markets. This growth is already visible in earnings performance (e.g., Azure +39%, Google Cloud +30%) and is expected to persist, supporting incremental revenue and profit expansion.

Competitive Advantages and High Barriers to Entry

AI strengthens the position of industry leaders. Hyperscalers benefit from superior financial resources, proprietary data, and access to top talent, advantages that are difficult to replicate. Their investments in infrastructure, software ecosystems, and proprietary models create durable competitive moats. From an investment perspective, this could translate into stronger-than-expected future earnings through pricing power and market share gains. Importantly, these companies maintain robust balance sheets, with cumulative free cash flows exceeding $300 billion, enabling them to fund significant capital expenditures without compromising financial stability.

Chart 3: Hyperscalers’ cash and short-term financial instruments, in USD billion, and cumulative capex as a % of cash

Source: Edmond de Rothschild

Productivity Gains

At the macroeconomic level, AI adoption is expected to deliver meaningful productivity improvements, providing a structural tailwind to global growth and corporate revenues. McKinsey estimates that generative AI could add $2.6 trillion to $4.4 trillion annually to the global economy. For enterprises, investing in AI solutions is increasingly a competitive necessity, boosting demand for technology providers. Over time, automation and efficiency gains may also ease inflationary pressures, creating a more favorable macroeconomic backdrop for the sector.

Sustainable Valuations

Despite the recent rally, valuations for leading AI and technology companies remain broadly supported by superior growth profiles and structurally higher margins relative to other sectors. While multiples have expanded, the earnings growth trajectory and consistent monetization of AI initiatives continue to justify current levels, with scope for further upside if consensus estimates are revised upward. That said, valuations vary widely across the sector, requiring investors to remain selective and to carefully balance growth potential against current pricing.

Chart 4: Historical 12-month P/E valuation of the US technology sector and +/- 1 standard deviation

Source: Edmond de Rothschild

Nvidia’s August earnings release once again exceeded expectations, underscoring its dominant position within the artificial. Nvidia is trading on a PEG ratio of 0.94x.

Chart 5: Quarterly net margins: US technology vs. global markets

Source: Edmond de Rothschild

FOMO (Fear of Missing Out) risk

A significant part of the S&P 500’s performance since 2023 has been driven by a small number of “AI” stocks. For an investor, deviating from these trends can weigh on relative performance. As long as this conviction persists and is supported by a positive evolution in fundamentals, we believe it will provide a floor to valuations.

Chart 6: S&P 500 performance breakdown since 2023: Magnificent 7 vs. S&P 493 rest

Source: Edmond de Rothschild

While the investment case for AI and the broader technology sector is compelling, it is important to remain selective. Not all potential winners have yet been identified, and certain segments may face headwinds. Risks include intensifying competition in consumer AI services and software, as well as the possibility of regulatory constraints related to privacy, intellectual property, or generative AI applications. These factors warrant careful monitoring as the sector evolves.

That said, the overall investment thesis remains favorable, particularly for companies at the core of AI deployment. For the first time since the smartphone and cloud revolution of the 2010s, we are witnessing an innovation cycle of potentially greater scale, both in duration and in revenue impact. This dynamic could mark the beginning of a new expansion phase for the technology sector, reinforcing its strategic importance within diversified portfolios.

Source: Moneyweb, SARB

South Africa is currently benefiting from a sharp improvement in its terms of trade. Since the start of the year, gold is up 35%, platinum 40%, while oil has fallen 12%. This combination has lifted the country’s terms of trade, export prices relative to import prices, to their highest levels in two years. Trade surpluses have already widened meaningfully and are likely to expand further as the latest commodity price gains filter through to the data (Chart 7).

The terms of trade have been the dominant driver of the rand in the post-Covid period (Chart 7). With precious metals continuing to show strength and oil prices under pressure, we expect this supportive backdrop to persist. Our commodity outlook remains constructive: we see further upside potential in gold and platinum, while risks for oil remain tilted to the downside.

Chart 7: Major commodity exports and imports

Source: Bloomberg, RMB Global Markets Research

Foreigners have been buying into South African bonds since May last year following the establishment of the GNU and the first signs that the Fed was moving towards cutting interest rates. Inflows have been erratic, but we estimate that they have totalled R150bn over the past 15 months. This marks the strongest period of inflows since Covid.

SARB’s Monetary Policy Committee (MPC) unanimously cut the repo rate by 25bps to 7.0% at its latest meeting, in line with market expectations. The MPC cited persistently weak underlying growth, largely the result of structural supply-side constraints, as a key reason for the cut. Heightened uncertainty has further weighed on output, with both business and consumer confidence deteriorating in the first half of the year.

Company results:

Northam Platinum

Northam reported a 14% decline in HEPS for the year to June 2025, in line with guidance. Second-half HEPS fell 4% as the group benefited from higher PGM basket prices and the sale of previously refined ounces. A final dividend of R2.00/share was declared, bringing the full-year payout to R2.15/share. Net debt closed at R5.1 billion, which remains very manageable. Following the year-end, the group received $66 million from Heraeus as a result of a contractual renegotiation.

Looking ahead, management is guiding for at least 2% sales growth in FY26, although the ramp-up at Eland remains disappointing. Unit cash costs are expected to rise 7%–11%, broadly in line with consensus. On valuation, Northam trades on an FY26 P/E of 11.7x, compared with Implats at 9.1x and Valterra at 13.1x.

Impala Platinum

Impala’s FY25 results came in broadly in line with market expectations. Free cash flow generation of R2.4bn had already been reported, and the group reinstated dividends with a payout of 165cps, equating to 60% of adjusted free cash flow, well above the minimum 30% stipulated in its policy. Strong cash returns should continue to support the share price in the near term. However, elevated capex from FY26 and a slower pace of inventory liquidation may temper some of this support. Importantly, the extended destocking timeline is positive for underlying PGM market deficits and pricing dynamics.

Sasol

Sasol’s FY25 results were broadly in line with the recent trading statement. EBITDA declined 14% to R51.8bn, reflecting the Transnet settlement (R4.3bn) and lower environmental provisions (R2.9bn). HEPS rose 93% to R35.13/share; stripping out once-offs, HEPS was up ~51% to R27.40/share. Net debt fell by nearly $400 million to $3.7 billion, although dividends will only resume once debt drops below $3 billion under the new policy.

FY26 guidance was constructive: Secunda production is expected to increase by +6% as the coal destoning project comes online, although higher coal buy-ins and weaker saleable coal output will partly offset this benefit. Chemicals International EBITDA, $123m in FY25, is expected to jump to $500m in FY26 on restructuring gains. With 60% of oil production and 30% of forex exposure hedged for the next year, Sasol has downside protection. On 3.7x FY26 consensus P/E, Sasol remains inexpensive.

ADvTECH

ADvTECH’s 1H25 results were strong and broadly in line with expectations. Revenue grew 10% y/y, while normalised HEPS rose 16% y/y, supported by 13% enrolment growth (organic +9.5% y/y) and efficiency gains that lifted operating margins to 21% (1H24: 20%). Cash generation was robust (+18% y/y), helping to reduce net borrowings to R32m (excluding leases) and supporting an 18% increase in the interim dividend to 45cps. The group is executing well on its African expansion, including the launch of the Sandton mega-campus in Ghana, while pursuing university status. On c.12.5x forward P/E, mid-teens earnings growth, and a ~4% dividend yield, ADvTECH (along with Stadio) remains our preferred pick in listed education.

Portfolio strategy

In the wake of heightened market volatility following President Trump’s tariff announcements, our stance has been to remain disciplined and avoid reactive portfolio shifts. History consistently shows that impulsive responses to short-term political noise often result in suboptimal investment outcomes.

Instead, we have used this environment to evaluate high-quality businesses that were indiscriminately sold off despite their strong long-term fundamentals. Periods of uncertainty can create attractive entry points into quality companies at compelling valuations, and we continue to focus on identifying these opportunities with a long-term perspective.

The portfolio remains concentrated in leading global businesses with durable competitive advantages, particularly those delivering high returns on capital and robust free cash flow generation. Dividend policies are not a central consideration in our selection process, as we generally favour companies that reinvest earnings to drive future growth.

We also resist the temptation to follow short-lived market trends or fashionable investment narratives, as preserving portfolio quality takes precedence over chasing momentum.

Changes we made during the month

Rheinmetall — Trimmed position

We reduced our holding in Rheinmetall for the third time this year, following a year-to-date share price gain of 185%. While we continue to see upside supported by a substantial order backlog and strong structural demand for defence spending, we chose to realize some profits and rebalance the position to manage concentration risk.

Nestlé — Reduced position

We lowered our exposure to Nestlé. Although the company remains a high-quality defensive holding, its earnings growth has been modest relative to other opportunities, and we saw merit in reallocating capital to higher-conviction names offering stronger growth potential.

Palantir — Increased position

We added to Palantir, reflecting growing conviction in its role as a leading platform for artificial intelligence and data integration. The company’s accelerating commercial adoption, combined with a robust government business, supports our view of a long growth runway.

Alphabet — Increased position

We also increased our position in Alphabet. We believe its dominant position in digital advertising, expanding cloud business, and leadership in AI make it one of the most attractive compounders in global equities. Recent market weakness provided an opportunity to add at an attractive valuation.

Microsoft — Increased position

We increased our allocation to Microsoft, reinforcing our conviction in its long-term compounding potential. Its leadership in enterprise software, cloud computing (Azure), and rapidly advancing AI capabilities positions it as a core holding in the portfolio. We view Microsoft as a high-quality compounder benefiting from multiple structural growth drivers.

Top 10 Holdings

Monthly returns in USD net of fees

Share of the month: Meta Platforms (META)

Meta Platforms, better known by its flagship brand Facebook, is one of the world’s most influential technology companies. Founded in 2004 by Mark Zuckerberg, Meta has grown into a digital empire, connecting nearly four billion people every month across Facebook, Instagram, WhatsApp, and Messenger. Few companies in history have ever achieved this scale, Meta today reaches almost three-quarters of the world’s internet-connected population, giving it an unrivaled position in global communications and digital advertising.

A business built on connections and advertising

At its core, Meta’s business model is simple: it provides free platforms where people connect, share, and engage, while monetizing that activity through highly targeted advertising. Digital ad spending has been steadily shifting toward social media, and Meta remains the primary beneficiary thanks to its powerful algorithms and deep user data.

The average revenue per user (ARPU) has risen consistently, increasing from approximately $25 in 2018 to over $40 in 2023. This reflects not just higher advertising demand but also Meta’s ability to introduce new formats, from Stories to Reels to Threads, that keep people engaged and advertisers interested. Every time a new challenger emerges, Meta has proven its ability to adapt, neutralizing Snapchat with Stories, TikTok with Reels, and even Twitter/X with Threads.

Competitive advantage

Meta’s competitive moat is both broad and resilient. Its strength lies in two areas:

1. Network effects: billions of users are embedded in Meta’s ecosystem, making it extremely difficult to leave without losing personal and professional connections.
2. Intangible assets: Meta’s vast trove of user data and world-leading ad algorithms give it an unmatched ability to deliver results for advertisers.

This combination ensures a sticky platform for users and high returns for advertisers, a self-reinforcing cycle that competitors struggle to break.

Financial strength and cash generation

Meta is also a financial powerhouse. At the end of 2024, the company held $78 billion in cash against $29 billion in debt, giving it one of the strongest balance sheets in the tech sector. Its advertising business is a cash-generating machine, producing tens of billions in free cash flow annually.

Following a dip in profitability in 2022, Meta’s operating margins have rebounded sharply to 42% in 2024, reflecting tighter cost control and efficiency improvements, despite the company’s continued investment in artificial intelligence and next-generation infrastructure.

AI and the future

Artificial intelligence represents both a growth driver and a strategic necessity for Meta. The company has launched its own large language model, Llama, and is embedding AI across its platforms, from ad targeting to content discovery to consumer-facing chatbots. These efforts aim to keep users engaged while offering advertisers more precise tools.

Meanwhile, Meta continues to pour billions into Reality Labs, its virtual and augmented reality division. While currently unprofitable, Zuckerberg believes the “metaverse” will be the next frontier in human interaction. We view Reality Labs as an option for the future, while the advertising core remains the real engine of value creation.

Valuation and outlook

We estimate Meta’s fair value at $850 per share, which implies a 2025 P/E multiple of around 31x and an EV/EBITDA of 16x. With expected revenue growth of around 14% annually over the next five years, driven by ARPU gains and emerging market adoption, Meta remains attractively positioned.

The company’s ability to monetize new features, expand globally, and integrate AI into its platforms suggests continued long-term growth, even if Reality Labs remains a secondary contributor for now.

Risks to consider

No investment is without risks, and Meta faces several:

• Regulatory scrutiny around data privacy, content moderation, and antitrust.
• Heavy spending on unproven ventures, such as Reality Labs.
• Governance concerns, as Mark Zuckerberg’s dual-class share structure gives him outsized control.
• Social concerns, including the impact of social media on mental health, particularly among younger users.

Despite these risks, Meta’s scale, balance sheet strength, and core advertising dominance make it one of the most resilient companies in the global technology sector.

Conclusion

Meta Platforms is more than just Facebook. It is a global communications utility, a digital advertising powerhouse, and a leader in artificial intelligence development. Its wide moat, financial strength, and relentless innovation give us confidence that Meta will continue to compound value for long-term investors. While challenges remain, Meta is one of the best-positioned companies in the world to benefit from the ongoing digitization of human interaction and the shift of advertising spend into social media.

Chart 9: Fixed capital expenditures of major hyperscalers, year-to-date 2020 and expected to 2032, in USD billion and % of total capital expenditures

Source: Edmond de Rothschild

After finishing our deep dive into Morgan Housel’s The Psychology of Money, we now turn to his latest book, Same as Ever: A Guide to What Never Changes. While his first book explored the timeless principles of human behavior and finance, this new work takes a broader view. Housel argues that in a world obsessed with predicting the future, it’s often more helpful to understand what remains constant. Human nature, incentives, risk, and emotion are the enduring forces that continue to shape our lives and financial decisions, no matter how much technology or society evolves.

This series will cover all 24 chapters of Same as Ever, breaking down Housel’s key insights into digestible lessons that you can apply to your own life and investment decisions.

Chapter 1: The Little Laws of Life

Morgan Housel begins his book by emphasizing a paradox: the world feels like it’s in constant flux, yet the way people behave rarely changes. This is where his idea of the “little laws of life” comes in. These are not written laws or scientific formulas, but recurring truths about human behavior, incentives, and decision-making that seem to apply across time, culture, and circumstance.

One of the central points he makes is that while circumstances change —wars, recessions, booms, and technological revolutions —the reactions of people to these circumstances tend to look remarkably similar.

Fear, greed, overconfidence, envy, and short-term thinking are as present today as they were hundreds of years ago. This is why history often “rhymes.” The details are new, but the underlying behavior remains the same.

Housel also warns that people often put too much emphasis on forecasting the future, as if it were knowable. However, because human nature remains constant, what truly matters is not the precise prediction of events, but understanding how people consistently behave under specific pressures. For example:

• In times of prosperity, people take on more risk than they should.
• In times of fear, people become too cautious.
• In times of uncertainty, narratives and stories tend to drive decisions more than data.

Another insight from this chapter is that most of these laws are not complex. They are simple, almost obvious truths, yet because they are so ordinary, we often overlook them. Housel argues that wisdom comes from remembering these basics and not getting distracted by noise, novelty, or the illusion of constant change.

In short, the first chapter sets the tone for the book: if you want to navigate life and investing successfully, don’t focus on what is constantly shifting; focus on the timeless rules of human behavior.

“The most important laws are the ones that never change. They are too simple to be exciting, which is why they’re so easy to ignore.’”

What this means for investors

For investors, the lesson is powerful. You don’t need to know precisely what markets or economies will do next. Instead, recognize the recurring human tendencies that drive markets, overconfidence in booms, panic in downturns, herd mentality, and short-term bias. By anchoring your strategy to these “little laws,” you gain resilience and clarity in an unpredictable world.

Source: Edmond de Rothschild

Source: Charlie Bilello