The Certainty Premium: What’s Driving the Tech Sector Divergence? | Jeff Keller

**Jeff Keller** (0:00)
In this market, long-term uncertainty is so high that anything with short-term certainty is trading at a huge premium. Whenever you get heavy retail involvement in any trade, that usually, in my experience, has meant that the clock is ticking for the end of that trade. There's been maybe a disconnect between the financial analysis of this and the religious analysis that maybe comes from the West Coast. There's gonna be a lot of pain, I think, if this ever rolls over, and I just don't think it's yet.

**Max Wiethe** (0:28)
Welcome to Other People's Money. I'm Max Wiethe, and I'm joined today by Jeff Keller, founder and portfolio manager of Capelight Partners, a technology sector focused hedge fund that he's been running since 2021 Jeff, thank you so much for joining me today.

**Jeff Keller** (0:43)
Hey, thanks for having me, Max. Big fan of yours, so glad to be here.

**Max Wiethe** (0:46)
I'm a fan of yours. I've been really enjoying following along with Capelight and everything that you've been doing. There were a lot of tech-focused hedge funds that were birthed in 2021
A lot of them rode the tech sector up, and then they rode it down in 2022 And so I think just seeing how well you navigated 2022 and the undulations that we've had in the tech sector has been something that's been a pleasure to watch and observe from the outside. That's why I wanted to bring you on today, because it does feel like since the start of Q3, we have had a bit of shift. I actually ran the numbers as of yesterday's close.
So since the start of Q3, software and services are up 20 percent. Technology, hardware and equipment are basically flat. But if you go down to semiconductors and semiconductor equipment, we're down seven and a half percent to start the quarter. Clearly, a massive divergence from what we saw to start 2026 So what are you seeing? And maybe a little bit about your background to give us the perspective that you're coming at from the tech sector.

**Jeff Keller** (1:51)
My background is a little more operational. So I spent some time actually working at Salesforce and MongoDB. So a bit of a software background. And I think that maybe orients me a little more towards the big themes, a longer term horizon, looking for extreme dislocations in markets. I think you had in the beginning of this year, an extreme dislocation actually where the war in Iran was distracting everyone from what was just massively inflecting adoption of AI. And that's been a long running story, but you really had the takeoff moment in Q1.
And Q2 was, I don't know that it was the blow-off top for this trend, but you had 100% gain in socks. You had retail get heavily involved. And so it's not surprising that that trend has chopped around a bit. And obviously we had situation awareness and de-leveraging in Korea. So I think some of this volatility is, it's certainly obvious in hindsight. It's to be expected. I think we're still moving upwards on an S curve with regards to AI adoption. And the bulls would say, Hey, Apple services is still growing, double digits today. Google search is still growing double digits today. Meta is growing in the 20s. And so, you know, you could have 10 to 15 years of double digit growth for some of these AI labs and that'll lift all boats. So I think the volatility is to be expected. I think software was thrown out with the bathwater obviously. And so some of that balance makes sense. But you know, if you zoom out, I don't think that late June was the end of this mega trend. I think this is just kind of normal volatility.

**Max Wiethe** (3:14)
And so within software, obviously there was the big disruption narrative and it's hard to say whether that narrative has been disproven. I mean, if you take like the analog of newspapers and how much the market was able to suss out the pain the newspapers were going to go through before it actually showed up into earnings. So if you are in the disruption of software camp, it's really easy to point to examples like that and say, yeah, software looks strong now. We really haven't seen the disruption.
But the results have been extremely strong. So when you look at this rally, is it the market saying that software actually isn't as much at risk as maybe we felt at the beginning of the year? Or is it more technical in nature? Because software shorts were paired with a lot of these AI longs. And as much as the big deleveraging event has happened, de-grossing is still happening across the whole hedge fund complex.