The AI application mismatch: Why we bought the 200-week breakdown that the herd left for dead
Weekly Update - Week 22
“What the market overlooks today becomes consensus tomorrow.”
Michael Mauboussin
Welcome to our weekly update - Week 22.
One of the most important developments in our Model Portfolio over the past few weeks has been the rapid confirmation of our newest addition:
IGV 0.00%↑,
IGV … our preferred way to gain exposure to what we have repeatedly described as the AI application layer in the United States.
The position is already up more than 25% in less than a month.
That kind of move tells you something important.
These leading software companies were far more punished, hated, and oversold than most investors realized. In fact, if you look closely at the chart above, you’ll notice something even more interesting about the timing of our entry.
We added IGV to the Model Portfolio precisely as it was breaking below what many technicians would consider a critical support zone: the 200-week moving average.
That level had held throughout virtually the entire cycle.
Normally, breaking such a widely watched long-term trend gauge would be interpreted as bearish. But we believed this was a false break. And the reason we had conviction in that view is because we never rely on technical analysis alone.
We reconcile technicals with fundamentals, macro, liquidity, and sentiment... the other pillars of our Investment Process.
Sentiment around software had become excessively pessimistic just as the AI narrative was becoming too narrowly concentrated around semiconductors and infrastructure.
Meanwhile, the application layer, the companies that will actually monetize AI productivity gains across the economy, was being discarded.
That disconnect created opportunity, and we believe the market is only beginning to recognize it.
Another recent addition to the Model Portfolio is also starting to show encouraging signs, although it has not yet delivered the type of relative strength we ultimately expect. We are referring to IXJ 0.00%↑ , our play on global healthcare equities.
Much like software, healthcare has lagged while capital crowded into the obvious AI winners.
But we continue to believe healthcare could become one of the largest beneficiaries of the AI productivity boom.
The ability of AI to improve diagnostics, drug development, operational efficiency, and administrative workflows could fundamentally reshape the economics of the sector over time.
And technically, the setup is becoming increasingly constructive.
Now, in our alternatives book, the picture has admittedly been less exciting.
Both our precious metals complex and our crypto exposure have lagged in recent months.
Bitcoin, in particular had started to show improving relative strength, but as the chart below illustrates, that momentum has recently faded again.
For now.
Because while the price action has cooled, the underlying backdrop continues to improve.
Regulatory clarity in the United States is slowly taking shape through initiatives like the Clarity Act.
Institutional support continues to broaden.
And perhaps most importantly, we believe the emergence of the Agentic AI economy could prove transformational for the crypto ecosystem.
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Why?
Because truly autonomous AI agents will require native digital payment rails, programmable value transfer systems, and machine-to machine economic coordination.
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In our view, that dramatically increases the long-term relevance of blockchain-based infrastructure.
While crypto has garnered far less attention over the past few months than many expected, we increasingly believe the foundations for the next major move are quietly being built beneath the surface.
And as always, we’ll be here to keep you posted.
Good investing!
Vasco Marques de Freitas, CFA, CMT
A quick note on accountability.
We don’t publish these theses to be right on paper. We publish them to express edge in the real economy. Our Leaderboard shows the exact scorecard since inception, tracking every position, our compounding outperformance against the market, and the triple-digit winners we’ve captured along the way.
Disclaimer
The information provided herein is for general informational purposes only and does not constitute financial advice or a recommendation to buy, sell, or hold any investment. It is not tailored to any specific individual or investor profile. All investments involve risks, and past performance is not indicative of future results. Before making any investment decisions, it is important to consider your own financial situation and risk tolerance. We do not guarantee the accuracy, completeness, or reliability of any information provided, and we disclaim any liability for any loss or damage arising from reliance on the information herein. Readers are advised to consult with an authorized financial intermediary before making any investment decisions.