ExpertsFMAlex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477]
Invest Like the Best with Patrick O'Shaughnessy · June 9, 2026
5 Selected Lessons:
heuristic · 2 priority · 2 framework · 1
Infrastructure/chips first, then foundational models, applications last
Source
Invest Like the Best with Patrick O'Shaughnessy — Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477] (June 9, 2026) · at 3:07 ▸ · at 9:37 ▸ · at 57:47 ▸
When this applies
when deciding which layer of a new technology stack to bet on first, amid uncertainty about who wins higher up the stack
The takeaway
When uncertain which competitor will win further up a value chain, invest first in the layer below where demand is certain and the winners are already identifiable, and only commit higher up once that layer's leaders become clear.
Why it works
The infrastructure/picks-and-shovels layer captures demand immediately and its winners are knowable with high confidence regardless of which higher-layer company ultimately wins, because all competitors need the same underlying compute.
One level up
Resolve uncertainty by sequencing commitments down the certainty gradient of a value chain rather than betting on the most uncertain layer first.
Where it stops holding
This stops working when the infrastructure layer itself becomes commoditized with low differentiation/margin (true commodity, not decommoditizing), or when applications turn out to capture most value early (as happened historically with internet/mobile apps).
Detail
hierarchy:
- Chips and infrastructure (certain winners, immediate demand)
- Foundational models (winners became clear only after 2-3 years of consolidation)
- Applications (still unclear ecosystem, deemed risky, mostly avoided)
rationale: Historically, apps captured most market cap eventually (smartphones), but it took 3-4 years for application winners to emerge after the underlying platform; Whale Rock preferred the lower layers where winners and demand were knowable sooner.
In their words
At that time, this was 2023 early, we said, we want to be in the chips and the infrastructure first. And not only do they get the demand first, but we know who the winners are.
Why generalist investors underweight mega-cap tech alpha
Source
Invest Like the Best with Patrick O'Shaughnessy — Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477] (June 9, 2026) · at 1:03:40 ▸
When this applies
when deciding whether a widely-followed, large asset class can still be mispriced
The takeaway
Look for asset classes where a common belief ('this segment has no alpha') causes structural under-allocation and under-coverage, because that gap itself can be the source of alpha.
Why it works
Large allocators structurally underweight mega-cap tech because of a belief that 'large cap has no alpha,' leading them to staff small/mid-cap stock pickers instead; but tech's structural tendency for the leader to grow bigger, win disproportionate market share, and sell globally means mega-cap tech profit pools and market caps will keep expanding, creating alpha that the crowd's under-allocation and under-coverage leaves on the table.
One level up
Consensus beliefs about where alpha 'can't' exist create exactly the structural mispricing that generates alpha, if the belief is wrong.
Where it stops holding
This stops working when the consensus belief is actually correct and mega-cap tech truly has no differentiated information left to find (because it is covered by hundreds of analysts).
Detail
hierarchy:
- Realize endowments are underweight mega-cap tech due to large private allocations, international public exposure, and a belief in no large-cap alpha
- Recognize tech's digital-economy dynamics (leader wins big, high margins, global reach) make continued mega-cap profit pool growth likely
- Exploit the fact that it takes ~100 diversified generalist PMs to collectively realize a mega-cap name is a 'winner not a loser,' versus one person spotting a small-cap mispricing — meaning the mega-cap mispricing can persist longer
rationale: A small cap needs only one investor to recognize value and move the price; a mega-cap needs ~100 diversified PMs to recognize it, so correctly identifying mega-cap winners ahead of that broad recognition is itself a source of alpha.
In their words
a small cap, it just takes one person to figure out it's good and move it up. But it takes 100 people, 100 diversified PMs to realize Google's not a loser, it's a winner.
S-curve / competitive advantage / underappreciated earnings power
Source
Invest Like the Best with Patrick O'Shaughnessy — Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477] (June 9, 2026) · at 19:06 ▸ · at 22:20 ▸
When this applies
when deciding whether to invest in any business riding a new adoption wave
The takeaway
Combine a timing signal (is demand about to inflect), a durability filter (can this player's edge survive competition), and a valuation lens (is future earnings power priced in) before committing capital.
Why it works
When a technology crosses its adoption inflection point, unit growth becomes exponential rather than linear; if the leading company also has a durable moat, earnings compound exponentially too, letting you buy great businesses at deceptively low current multiples.
One level up
The market underprices exponential processes because people reason linearly about the near term; identifying truly exponential dynamics early is where asymmetric returns live.
Where it stops holding
This stops working when the technology's adoption curve stalls or plateaus early (hits a wall) before reaching scale, or when the apparent leader lacks a real moat and gets displaced.
Detail
procedure:
- Identify a technology that has existed but not yet taken off (S-curve not yet inflected)
- Determine what barriers (price, infrastructure, usability) need to fall for adoption to inflect
- Estimate how tall/large the ultimate TAM is, not just that growth is starting
- Identify which player(s) have a durable competitive advantage (network effects, scale, IP, brand, industry standard status)
- Buy before earnings power is appreciated by the market, holding through the exponential growth phase
- Sell or trim once penetration reaches roughly 30-50% and growth decelerates toward linear
benchmarks: {"NVIDIA_2023_PE":"4x earnings","Tesla_2019_PE":"5x earnings","Apple_PE":"4x earnings","Apple_sell_point":"~50% US smartphone penetration"}
rationale: Exponential earnings growth from genuinely moated S-curve leaders lets you pay low multiples on trailing earnings because forward earnings will be many multiples higher.
In their words
We have an investment framework. It's S curve, competitive advantage, and then underappreciated earnings power. And when you get the right part of the S curve, you get exponential unit growth.
It's okay to be late to an S-curve
Source
Invest Like the Best with Patrick O'Shaughnessy — Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477] (June 9, 2026) · at 27:14 ▸
When this applies
when you feel you missed the early move on any large, long-duration growth trend
The takeaway
Judge opportunity by remaining runway length relative to total market size, not by how much time or price has already passed.
Why it works
If the total addressable market is enormous, the growth runway extends for many years, so missing the first 100% of a stock's move can still leave most of the opportunity ahead.
One level up
Future potential, not historical price action, should anchor investment decisions in long-duration trends.
Where it stops holding
This stops working when the total market is actually small or growth decelerates well before reaching the late-stage penetration where most of the opportunity lives.
Detail
rule: Don't avoid an investment just because you missed the early run-up; check how tall the S-curve is and how much growth runway remains.
threshold: If the top of the S-curve represents a market in the hundreds of billions, missing the first few years of growth is acceptable.
rationale: Peter Lynch told him to 'white out the chart' and focus purely on the future, not past price performance.
In their words
And by the way, it's okay to be late. It's okay to miss the first one, two, three years in a lot of cases, because if the top of the S curve is half a trillion, the growth can go on for a long time.
Sell/trim near 30-40% penetration
Source
Invest Like the Best with Patrick O'Shaughnessy — Alex Sacerdote - How to Invest Through Technology Cycles - [Invest Like the Best, EP.477] (June 9, 2026) · at 22:20 ▸
When this applies
when deciding the right time to exit a position in any fast-growing trend before it matures
The takeaway
Exit or de-risk a growth position once the market consensus has caught up to the trend and outsized surprises become structurally less likely.
Why it works
Once penetration crosses roughly 30-40%, growth shifts from exponential to more linear, sell-side estimates catch up with reality, and the 'beat and raise' surprises that drive multiple expansion stop occurring.
One level up
The alpha in any S-curve investment is concentrated in the gap between public perception and underlying trajectory; once that gap closes, the edge is gone even if the business remains good.
Where it stops holding
This stops working when the company develops meaningfully new growth vectors (new products, new TAMs) after the original curve matures, as happened with Apple's services and ecosystem revenue.
Detail
situation: Apple was Whale Rock's largest position during the early smartphone S-curve, compounding 50-70% a year.
decision: Sold the position in 2012 once roughly 50% of the US had a smartphone, because growth was about to decelerate from exponential to linear.
outcome: Apple went on to have a couple of underperforming years before re-rating via buybacks, services, and app store revenue — the big gains, however, had been in the 0-50% part of the curve.
lesson: Generally sell/trim once penetration crosses ~30-40%, because that's when exponential growth and earnings surprises end, even if the company keeps compounding at a lower rate afterward.
In their words
And generally, when gets to sort of 30, 40 percent penetrated, then you stop having exponential growth, which means the sell side catches up and there's no longer big beats.