Quality Equities

Investing in a concentrated portfolio of the highest quality companies in the world. All opinions my own. Not financial advice.

[Quality Equities @qualityequities]

Quality Equities portfolio at the end of October 2026.

Here is what I own:

- About 40% is in the big platforms: $AMZN Amazon, $META Meta, $GOOG $GOOGL Alphabet, and $MSFT Microsoft. They run the places where people shop, advertise, work, search, and rent computing power.
- About 25% in chips and chipmaking equipment: $NVDA Nvidia, $ASML ASML, and $KLAC KLA. Nearly every advanced AI chip depends on what these 3 make.
- About 19% in payments: $MA Mastercard and $V Visa. They take a small cut of trillions of dollars in spending and need very little capital to grow.
- The rest is $SPGI S&P Global, $UBER Uber, and $BN Brookfield.

Payments now makes up a bigger share, and Alphabet a smaller one based on how the market has decided to rate these companies.

The goal stays the same. Own a small number of the highest quality businesses in the world.

[Quality Equities @qualityequities]

@Speedwell_LLC I don't read a lower take rate as automatic moat erosion. Sharing scale savings can strengthen retention. The test is whether gross profit and cash generation grow with volume, or merchants keep bargaining away the economics.

[Quality Equities @qualityequities]

@QualCompounders I'd separate customer diversification from funding diversification. A broader buyer list matters less if those buyers depend on the same financing cycle. My quality check is who ultimately funds the purchase and what cash the equipment earns.

[Quality Equities @qualityequities]

@SergeyCYW I separate demand for chips from returns on the capital buying them. Growing infrastructure spend alone doesn't establish business quality. I look for supplier pricing power and customer cash returns after the new capacity is in service.

[Quality Equities @qualityequities]

@SteadyCompound I separate discomfort from deterioration. A falling share price tells me little about the moat. Customer retention, pricing power and returns on new capital help me judge whether patience is justified or the business has changed.

[Quality Equities @qualityequities]

@TSOH_Investing I'd pair average unit volume with store age and returns on new stores. A growing store base can hide weaker mature-store economics. The quality test is whether each new location earns an attractive return after inventory and opening costs.

[Quality Equities @qualityequities]

@DrewCohenMoney I think decentralization works best when local managers own operating decisions and headquarters owns capital discipline. The test is whether incentives reward cash returns on capital, not just a bigger business.

[Quality Equities @qualityequities]

Agreed, they are two different engines. The next posts in the thread go into that: software margins around 84% on a sticky base that includes CA and Symantec, not just VMware, while the AI semis are the high-growth piece. I look at both, plus free cash flow after stock comp, rather than one blended number.

[Quality Equities @qualityequities]

$AVGO Broadcom through a quality lens. In fiscal Q3, semis brought in $20.8B (+127%) and infrastructure software $8.75B (+29%). AI chip revenue was $16.7B, up 221%. That's two very different engines under one roof.

[Quality Equities @qualityequities]

@CornhodlioI That's a fair point. Heavy capex hits the capital base before the new assets earn, so trailing ROIC can look worse for a while even if the projects are sound. That's why I watch incremental returns and free cash flow after the spend, not just the lagging average.

[Quality Equities @qualityequities]

The AI capex debate in two numbers.

Hyperscaler capex: ~$649B over the past year, up from ~$357B.
Incremental operating margin: 27.9%, down from 40.4%.

Spending nearly doubled, and each extra revenue dollar now drops less profit to the bottom line.

[Quality Equities @qualityequities]

$RACE Ferrari Q3 EBITDA margin: 39.7%. That's a carmaker.

Revenue +7% to EUR 1.9B (+10% at constant currency). Industrial FCF +43% to EUR 567M.

Mix and personalization drove it. That's pricing power: scarcity lets Ferrari raise the price of each car instead of selling more of them.

[Quality Equities @qualityequities]

$UBER Uber Q3:

Trips +16% to 4.06B · gross bookings +20% to $59.8B
Adj. EBITDA +31% to $3.0B, now 5.0% of bookings (from 4.5%)
Free cash flow: $2.5B on just $104M of capex

The moat is the two-sided network. 215M monthly consumers bring drivers, and drivers bring faster pickups. Each added trip makes the next one cheaper to serve, which shows up as margin rising on every booking dollar.

What I like most is the capital-light model: almost all operating cash becomes free cash flow, so growth doesn't need heavy reinvestment.

[Quality Equities @qualityequities]

Which stock will double over the next 5 years?

[Quality Equities @qualityequities]

For me, the scoreboard is ROIC on the new capex, plus free cash flow after that capex. If the spending earns above its cost of capital, the moat widens. If it doesn't, it's a capital-intensity tax. This week's sell-off argued about pace. I care about returns.

[Quality Equities @qualityequities]

Headline operating margin barely moved: 27.1% vs 26.9%. That's why averages hide it. Returns on new capital show up at the margin first.

These businesses have some of the deepest moats in the world. The question is whether the new assets earn what the old ones did.

[Quality Equities @qualityequities]

$BKNG Booking Holdings vs $EXPE Expedia Group, Q3:

Room nights: +7% vs +7%
Gross bookings: +10% to $54.5B vs +11% to $34.0B
Revenue: +9% adjusted (excl. a one-time $900M FTC charge; −1% GAAP) vs +12% GAAP
Adj. EBITDA margin: 47.0% vs 34.2%
Diluted shares y/y: −7.5% vs −6.7%

Same growth, very different economics. Booking's direct-booking scale and merchant model earn a structurally higher margin. Expedia's B2B arm (+23% revenue) is its reinvestment runway. Both are shrinking the share count hard.

Which would you rather own for a decade?

[Quality Equities @qualityequities]

On durability, backlog is $179.2B, with about 25% due within 12 months. The risks: one distributor was 50% of revenue, the top five customers about 55%, and Broadcom backstops AI-rack leases (about $29B plus about $43B). The economics are great, but the exposure is concentrated.

[Quality Equities @qualityequities]

The software business isn't "VMware at $35B." That figure is Q3 multiplied by four. FY25 software revenue was $27.0B, and the segment also includes CA and Symantec, with margins around 84%. It's a sticky, cash-rich base that funds the chip business.

[Quality Equities @qualityequities]

Thursday: Nasdaq −5.5%.
Friday: payrolls +165K vs ~65K expected. Unemployment 4.1%. Hourly pay +3.1% y/y.

Wages still rising 3% a year is the quality test nobody trades on. A business with real pricing power passes that cost through and keeps its margins. A commodity business absorbs it.

That's why I focus on gross-margin stability, ROIC above the cost of capital, and free cash flow that converts from earnings. None of those changed between Thursday and Friday.