Moon Capital Q2 2026 Letter
The S&P 500 posted a strong quarterly gain in the second quarter, bringing the index's year-to-date return to 9.6%. The stocks in our equity portfolio increased approximately 4% in the first half of the year. We exited our position in DaVita and added Zoetis to the portfo…
Intelligence analysis by Llama
The S&P 500 experienced a strong quarterly gain in the second quarter, with the index's year-to-date return reaching 9.6%. The technology-heavy Nasdaq Composite also saw significant volatility, with a 30% rally in May. Inflation has been volatile, with a 4.2% increase in May followed by a 0.4% decline in June.
Imagine you're playing a game where you have to make smart decisions about how to spend your money. The game is like the stock market, and the money is like the investments you make. Sometimes, the game gets really exciting and the money starts to grow fast. But other times, the game gets really scary and the money starts to shrink. That's what's happening in the stock market right now, with the S&P 500 going up and down a lot. It's like a rollercoaster ride, and it's hard to know what will happen next.
Analysis
A $60B Vote of Confidence
The S&P 500 posted a strong quarterly gain in the second quarter, bringing the index's year-to-date return to 9.6%. This performance is a testament to the resilience of the market, despite the ongoing conflict in Iran. The technology-heavy Nasdaq Composite also saw significant volatility, with a 30% rally in May. However, excluding the contribution from AI-related stocks, the index's return over the period was only 1.6%. This divergence highlights how heavily recent market performance has depended on a relatively narrow group of AI beneficiaries.
Why Cursor?
While markets can experience sharp short-term reactions to geopolitical events, we believe these fluctuations are rarely meaningful drivers of long-term investment returns. As investors, rather than speculators, we have the luxury of largely ignoring the short-term market swings that accompany wars and military actions. Our core assumptions in this regard are simple: every war eventually ends, and it is impossible to reliably predict when one will begin or when it will end.
The Road Ahead
The more significant concern for investors is whether the enormous amount of capital being deployed to build AI infrastructure will ultimately generate adequate returns. History has shown that even the most transformative technologies can attract levels of investment that eventually exceed their economic value. And the race to build the leading AI platform has a handful of companies investing at a pace for which there is virtually no historical precedent. These massive expenditures have fundamentally altered the economics of several of the world's highest-quality businesses, transforming them from capital-light, high cash flow generators into capital-intensive, high fixed-cost businesses that, for the foreseeable future, are expected to generate only a de minimis amount of free cash flow.
Key points
- The S&P 500 posted a strong quarterly gain in the second quarter, bringing the index's year-to-date return to 9.6%
- The technology-heavy Nasdaq Composite also saw significant volatility, with a 30% rally in May
- Inflation has been volatile, with a 4.2% increase in May followed by a 0.4% decline in June
- The market's reaction to the conflict in Iran has been limited to date
- The enormous amount of capital being deployed to build AI infrastructure may not generate adequate returns
If the market continues to perform well, we could see a further increase in the value of our equity portfolio. Additionally, the growth of AI-related industries could lead to new investment opportunities and increased returns.
However, if the market experiences a downturn, our equity portfolio could decline in value. Furthermore, the high levels of debt financing required to fund AI investments could lead to financial instability and decreased returns.
