Newsletter commentary Apr 2026

The Beginning of a “Win-Win-for-All” Era?

Following the ceasefire in the U.S.-Iran conflict in April, market risk appetite rebounded rapidly. AI, encouraged by Anthropic’s ARR reaching USD 30 billion, became the primary driver of the market rally. Its model capabilities have created a non-competitive market structure, allowing it to capture a large share of a high-value, usage-based pricing market at premium pricing levels. This market is growing very rapidly because the benefits users obtain far exceed the associated costs, while the pricing structure also implies very high gross margins. According to the latest reports, its ARR has already reached USD 44 billion, with the inference business achieving gross margins close to 70%.

What it is effectively doing is replacing part of the salary expenses of high-value workers. Numerous examples have emerged where highly productive users significantly increase their token budgets and achieve several-fold increases in output. Its success has strengthened market confidence that AI may indeed enter a positive self-reinforcing cycle. Within this high-end market segment, a virtuous loop now appears to have formed among models, cloud providers, chips, and end users. Broadly speaking, this resembles a situation where all participants in the high-end ecosystem are benefiting simultaneously. Commercially, better models are outperforming cheaper models.

Looking at the earnings results already released across the AI supply chain, most supporting ecosystem companies have delivered substantial growth in performance. Some overseas power equipment companies have extended their industry upcycle guidance all the way to 2035. Memory companies are actively trying to secure medium- to long-term supply agreements with customers that include certain volume and pricing guarantees. While CSPs have shown varying levels of execution quality, they have generally exhibited accelerating revenue growth and improving profit margins, albeit with differing levels of return on investment. Along the model–chip–cloud–proprietary application ecosystem, the advantages of companies with longer integrated supply chains, such as Google and Amazon, are beginning to emerge. The production of proprietary chips has become an advantage in rapidly delivering computing capacity.

Some A-share companies have also experienced significant earnings growth. Although some results fell short of expectations after the share price rallies, the market has generally chosen to forgive and wait, reflecting very high overall risk appetite. The launch of DeepSeek’s new model, while creating opportunities through compatibility with domestic Chinese chips, has also significantly raised the threshold for entering the commercially non-competitive segment of the large-model market. If a model’s capabilities do not substantially exceed V4-level performance, then it can only compete fiercely within a highly competitive market environment, and its commercial value would be greatly diminished. Another major shift this quarter is that AI subscription models are beginning to give way to usage-based pricing. This is a significant sign of increasing bargaining power on the seller side.

Across the industry chain today, the best-performing models have achieved inference gross margins of around 70%, while other models may range anywhere from 0% to 70% gross margin depending on their competitiveness. In the chip sector, it used to be only NVIDIA enjoying 80% gross margins; now memory companies have also reached 80% gross margins, while Taiwan Semiconductor Manufacturing Company maintains gross margins of roughly 60%. If Amazon’s and Google’s TPUs were sold externally, they could likely achieve gross margins slightly below NVIDIA’s, perhaps around 50%.

As agentic AI arrives, CPU utilization density within AI data centers has increased dramatically. NVIDIA, Qualcomm, Arm Holdings, Amazon, and Google are all increasing investments in this area. Other supporting companies across the ecosystem have also achieved very attractive returns. At present, it truly does resemble a “win-win-for-all” environment. To quote the CEO of SanDisk: “At this industry inflection point, it is hard to identify any losers.” The losers may all be outside the industry itself, those being compressed or replaced.

During this earnings season, many CEOs shared highly insightful views regarding both their own strategies and the future direction of the industry. From a cyclical perspective, profit margins across the supply chain are currently not low. What is different from previous cycles is that the pricing power behind new demand is very strong. In addition, capacity expansion remains relatively disciplined. For example, SanDisk’s CEO stated that their expansion pace mainly consists of technological improvements to existing capacity and only modest incremental expansion. Existing industry participants generally appear to be controlling capacity growth. The main variable may come from outside the existing industry structure, with Chinese suppliers representing a variable.

Anthropic has already established a commercially viable path within high-paying B-end niche markets. However, successful monetization models have not yet emerged on the consumer side. Recently, China AI giant Doubao has begun preparing to launch a paid version, which will serve as an important observation point. The key question is whether consumer AI products, despite having hundreds of millions of active users, can also establish a sustainable commercial loop. Another question is whether C-end products have achieved sufficient differentiation in consumers’ minds to justify charging fees.

Another signal from first-quarter earnings is that exchange-rate volatility has become much more intense than before, creating significant impacts on companies with large proportions of overseas business and overseas profits. The influence of currency fluctuations on corporate valuation may no longer be merely temporary or one-off in nature. This creates new challenges for corporate operations, pricing strategies, and investors’ valuation frameworks.

Our positioning within the AI-related opportunity set remained relatively selective during the period, which resulted in a modest contribution to overall portfolio performance. Following recent corrections, the valuation attractiveness of non-ferrous metals-related equities has improved. However, with metal prices remaining elevated due to persistent inflation expectations, there is still limited motivation for a near-term breakout to the upside. Under a scenario where metal prices remain stably high over the long term, these equities remain reasonably attractive, although they may not necessarily attract strong short-term capital inflows. From a long-term perspective, trends such as de-dollarization, constrained supply, and electrification remain intact.

Chemical-related companies have already recovered significantly since last year due to anti-involution policies combined with the U.S.-Iran conflict. It is possible that if the Strait of Hormuz remains blocked, chemical product prices could rise again after part of the inventory overhang is digested. However, if the strait reopens quickly, the scenario would look entirely different, especially given that current demand conditions remain weak. Nevertheless, this situation may imply opportunities arising from supply-side changes. Capacity exits in certain regions could accelerate, while some agricultural regions may miss planting and fertilization seasons.

What we are doing is increasing our research and investment exposure along the AI supply chain, while expanding coverage of technologies undergoing breakthrough changes. The market is likely to favor areas offering new sources of growth.

Since April 18, U.S.-Iran negotiations have fallen into deadlock, while the Strait has remained under dual blockade, causing energy prices to surge sharply and leading to global equity gains alongside bond market declines. The equity market’s reaction to the war itself has generally been appropriate. Although the duration of the Strait blockade remains uncertain, the tail risks associated with the war appear manageable. However, the longer the blockade persists and the longer elevated energy prices remain in place, the greater the probability of sustained long-term inflation. The stock market may still be underreacting to the risks associated with rising inflation and higher interest rates, which remains a potential risk.