Blogger edition published 10 October 2026 · Source updated 10 October 2026. Original publication dates are preserved; the website import date is not used.
Historical article. Figures, holdings and views reflect the original publication, not current conditions. Claims are preserved, not independently revalidated. Capital at risk.
When the 10-year US Treasury yield breaches 5.0%, conventional equity valuation models crack. In September, our portfolio decoupled entirely from index beta, generating an +11.71% return (+1,132 basis points of relative alpha against the S&P 500) and extending our return versus January 2024 to +126.48%.In classical financial theory, rising risk-free yields lift hurdle rates across discounted cash flow models, penalizing long-duration assets and forcing cyclical enterprises to curtail capital spending. For broad indices, this transmission mechanism is toxic. Following a 25-basis-point Federal Reserve policy hike, the S&P 500 stalled at +0.39%, held down by constituents facing borrowing pressure and margin contraction.
Our outperformance is driven by the microeconomics of compute rationing, specifically CapEx Inelasticity.
Broad market indices assume corporate capital spending functions elastically relative to borrowing costs. In frontier compute architectures, that elastic relationship collapses. Hyperscalers (Alphabet, Amazon, Microsoft) are locked in an existential platform transition. Under-allocating capital to computing clusters guarantees the permanent loss of platform dominance. As a result, hyperscaler infrastructure spending exhibits near-zero price elasticity of demand.
Regardless of whether capital costs sit at 2% or 5%, physical hardware must be procured at scale. Because compute demand is price-inelastic, rising interest rates cannot force price concessions from physical bottlenecks.
Capital concentrates where absolute barriers to entry prevent substitution:
Lithography: Foundries cannot substitute toolsets from ASML or KLA to offset interest expenses.
Accelerator Architecture: Output from NVIDIA and AMD dictates cluster throughput, leaving pricing power entirely with the supplier.
Interconnect Fabric: Custom silicon from Broadcom and Marvell scales directly with cluster size.
Rather than absorbing higher rates, these structural monopolies extract economic rents directly from buyers' cash balances.
Copier Blueprint
We do not hedge against interest rates by buying defensive, low-margin utilities. We insulate capital by owning structural monopolies.
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Copy Trading is not investment advice | Capital at risk | Past performance does not guarantee future results.
eToro version · 8 October 2026
This published adaptation is preserved in full alongside the Blogger article.
Original eToro publication →
𝗖𝗮𝗽𝗶𝘁𝗮𝗹 𝗘𝘅𝗽𝗲𝗻𝗱𝗶𝘁𝘂𝗿𝗲 𝗜𝗻𝗲𝗹𝗮𝘀𝘁𝗶𝗰𝗶𝘁𝘆: 𝗗𝗲𝗰𝗼𝘂𝗽𝗹𝗶𝗻𝗴 𝗥𝗲𝘁𝘂𝗿𝗻𝘀 𝗶𝗻 𝗮 𝟱% 𝗬𝗶𝗲𝗹𝗱 𝗥𝗲𝗴𝗶𝗺𝗲
When the 10-year US Treasury yield crosses 5.0%, conventional equity valuation models crack.
In September, financial conditions tightened sharply following a 25 bps Federal Reserve rate hike that lifted the policy rate to 3.75%-4.00%. The benchmark 10-year yield moved past 5.0%, expanding corporate discount rates. Financial media pushed an "AI slowdown" narrative, and broad indices stalled: the $SPX500 closed the month up just +0.39%.
Our portfolio generated +11.71% over the same period, delivering a +1,132 bps alpha spread against the market. Performance versus January 2024 reached +126.48%.
Understanding why this divergence occurred requires examining one core principle: CapEx Inelasticity.
𝗧𝗵𝗲 𝗩𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗧𝗿𝗮𝗽 𝗼𝗳 𝗕𝗿𝗼𝗮𝗱 𝗜𝗻𝗱𝗶𝗰𝗲𝘀
In traditional financial theory, higher cost of capital compresses equity multiples. When the risk-free rate spikes:
1. Future cash flows are discounted more heavily.
2. Capital expenditure budgets contract across cyclical industries.
3. Companies with weak pricing power absorb margin compression.
For 90% of the constituents in the $SPX500, a 5% yield environment is restrictive. They cut investments, delay upgrades, and protect cash reserves.
𝗧𝗵𝗲 𝗖𝗵𝗼𝗸𝗲𝗽𝗼𝗶𝗻𝘁 𝗘𝘅𝗰𝗲𝗽𝘁𝗶𝗼𝗻: 𝗭𝗲𝗿𝗼 𝗣𝗿𝗶𝗰𝗲 𝗘𝗹𝗮𝘀𝘁𝗶𝗰𝗶𝘁𝘆
The physical infrastructure layer of high-performance compute operates under different economic rules.
Hyperscalers are locked in a structural arms race. Halting compute deployment does not save capital—it forfeits market survival. As a result, hyperscaler infrastructure spending exhibits near-zero price elasticity of demand. Even as yields cross 5%, cloud giants must fund data center expansion, advanced packaging procurement, and memory stacks.
This creates a closed-loop economic system:
• The toll booths—$NVDA , $ASML, and $TSM —hold absolute pricing power.
• Higher borrowing costs do not force price concessions from suppliers of critical components.
• The economic burden is absorbed entirely by hyperscaler free cash flows or passed down the software stack.
Our September return of +11.71% was not an accident of market timing. It was the mathematical result of owning companies whose revenues are insulated from the discount rate.
We do not hedge against interest rates by buying defensive, low-margin utilities. We insulate capital by owning structural monopolies whose products the global economy cannot choose to forgo.
Copy Trading is not investment advice | Capital at risk | Past performance does not guarantee future results.
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