By Barbara Kollmeyer

Christopher Tsai says investors are missing out by not focusing on future earnings

Investors might be overlooking SpaceX's value potential, says one money manager.

Charles Schwab recently warned investors against putting money in companies making growth promises pushed out far into the future.

But successful value investing requires precisely that faith, according to the president and chief investment officer of Tsai Capital, Christopher Tsai. "If you look at SpaceX and say, 'Oh, it's selling at a crazy multiple,' you might be making the classical error that these companies are increasingly investing so much now, depressing earnings now, to create more value later," he told MarketWatch in a Monday interview.

"What you really should be thinking about is what's the base case scenario, what's the bear case and what's the bull case in say, five years. Based on that, you know, and this is how we think about it," said Tsai, whose portfolio holds Elon Musk companies.

The manager introduced a white paper in May, framing what he said was the 4th evolutionary stage, or 4.0, of value investing. It's a step beyond what he called the 3.0 platform/ecosystem models like Amazon, whose heavy investments have often depressed profits to gain more intrinsic value later.

A successful 4.0 value company meets four criteria: building an intelligence-based moat; producing digital labor as its core product; operating a self-sustaining business model; and reinvesting capital into operating businesses at a high rate of return.

Christopher Tsai presents Value Investing 4.0 at Zurich Project 2026.

Tsai sees potential within the "deep moats" of SpaceX (SPCX) and Tesla (TSLA)- he first bought the EV maker in early 2020. Tesla's profitable car business helps fuel its other intelligence-based businesses, such as Dojo AI and Full Self Driving technology, he said.

"These are really the companies at the forefront, and they're going to create, in our opinion, so much value, and people are missing that because they're just focused on the near term," he said.

Guessing future winners in AI and automotive intelligence will be tough, though, as he calculates the likelihood of success for those companies of about 1% to 5%.

"The way we're approaching this is to first be extremely selective as to what kinds of businesses we're investing in. And to recognize the probability of success is low," he said. But the right pick will bring "massive" upside, largely given vast skepticism around AI, for example, that's holding investment money back.

The portfolio is "diversified over 14 very high- quality businesses. We don't own companies where we don't think there are not significant competitive advantages," he said.

Tsai's portfolio owns what he calls AI infrastructure players - Amazon (AMZN), Alphabet (GOOGL) and Microsoft (MSFT). "No matter who wins the AI race, there's going to be more and more data, more and more traffic, and more and more compute flowing over these three cloud providers," he said.

He also isn't budging on some tougher bets, such as building-products company QXO (QXO), whose shares are down 34% over a year. "It's our experience that Brad Jacobs, the CEO, thinks in kind of decade terms, and he's very much aligned with our vision, so we plan to be owners for a decade."

CoStar Group (CSGP) is a recent addition to the portfolio, and he believes AI won't be able to duplicate its proprietary residential and commercial data.

"The CEO Andy Florance has also had a very successful history of buying companies, building them and creating value for shareholders," said Tsai. Shares are down 65% over a year following clashes with big investors around Florence's purchase of Homes.com.

Tsai sees a win-win situation with CoStar, which he said just reported its 60th straight quarter of double-digit revenue growth. Either Florance and his team turn around the residential side of the business, or they drop it and losses disappear, then perhaps buy back stock. "There's a lot of optionality if Homes.com doesn't work out."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are mixed, with tech poised for a bounce, while Brent oil (CL.1) (BRN00) is up over 3%. Gold (GC00) and silver (SI00) are climbing. The 2-year Treasury yield BX:TMUBMUSD02Yinched up to a fresh high at 4.630%.

The buzz

Earnings are coming from Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Goldman Sachs (GS) and Citigroup (C).

The U.S. carried out strikes on Iran for a third straight night. U.S. strategic oil reserves, meanwhile, are dwindling.

Consumer prices are due at 8:30 a.m., with the headline rate expected to fall for the first time in six years.

Fed Chairman Kevin Warsh will testify to Congress at 10 a.m. Also on the speaking docket are Fed Gov. Michael Barr, Chicago Fed President Austan Goolsbee, Fed Gov. Lisa Cook and Fed Vice Chair for Supervision Michelle Bowman later.

Tower Semiconductor stock (TSEM) is surging on news of a $3 billion investment from Japan.

The Americans striking it rich in the data-center build-out.

The chart

The chart from Vanda Track shows how single-stock net buying by retail investors is now at its lowest weekly level since the pandemic. "Retail are simply selling more," said Vanda, which noted retail flows are now becoming more two way. Apple (AAPL), Tesla (TSLA) and Nvidia (NVDA) were among the big names sold as retail investors "appear to be harvesting gains following a powerful AI-led rally and recycling capital into newer opportunities."

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

Erling Haaland's World Cup souvenir/mascot.

-Barbara Kollmeyer

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