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Letters & Theses

Fred Liu · Hayden Capital

Hayden Capital's Q2 2026 letter, on the "SaaS-pocalypse" and returns on reinvestment

Covers Q2 2026Published 27 Aug 2026Quarterly letter · Investment

What to notice

  1. 1

    Liu argues that hyperscalers now reinvest close to all their cash flow, so the question is the return on that capital, which spot compute prices may overstate.

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Why read it

Applies one simple equation, earnings growth as return on capital times reinvestment, to the biggest question of 2026: whether AI capital spending will earn its cost.

About this letter

Fred Liu, managing partner of Hayden Capital, wrote this letter to his clients on 27 August 2026. The firm manages concentrated portfolios through separate accounts and a fund; its representative account gained 6.9% in the second quarter and was down 23.3% for the year to date. The letter starts on page 2, after the cover.

Liu opens with the software sell-off of early 2026, which he calls the "SaaS-pocalypse", arguing that disruption from AI is real but slower than markets first feared. The main section returns to a framework he presented in 2017: that earnings growth equals return on invested capital multiplied by the share of earnings reinvested. He applies it to the large technology companies' spending on AI data centres, then to reinvestment programmes at Shopee and Mercado Libre, working through his own estimate of the returns. The letter closes with the sale of the firm's Pinduoduo position.

Companies

  • Sea Limited
  • Mercado Libre MELI
  • PDD Holdings PDD

Themes

  • ai
  • capital allocation
  • valuation
  • technology shifts
  • investing philosophy

L3VLUP does not host this document. It belongs to Hayden Capital; the notes above are L3VLUP’s reading of it.