Q4 2025: Moats Remain But I Was Completely Wrong About the Reinvestment Needed to Sustain the Moats — Cutting TP to $50 from $95 as Asset-Light Dreams Give Way to Asset-Heavy Reality

Q4 2025 Commentary

1. Despite steady 4Q25 earnings, I am cutting my intrinsic value estimate from $95 to $50 because I was wrong about the level of reinvestment required to sustain Kuaishou’s moat. I had assumed that the sharp increase in investment tied to AI and infrastructure in 2025 would be largely one-off, followed by a more moderate normalization. Instead, management is guiding to another 70%+ year-on-year increase in CapEx, which suggests these spending needs may be more structural than temporary.

2. My core mistake was treating Kuaishou like a traditional asset-light platform business, when it increasingly appears to be an asset-heavier platformthat must keep investing aggressively to defend its competitive position. If that is the right framing, then the economics of the business are weaker than I had assumed, even if the moat itself remains intact.

3. The key issue is not reported earnings today, but the ongoing cash investment required to support future growth and relevance in an AI-driven content ecosystem. With a maturing user base and structurally elevated CapEx, FCFE is likely to be materially lower than I previously expected. That reduces both near-term cash generation and terminal value, which justifies a significant cut to valuation.

4. In that context, I think the post-results share price decline is understandable, and at around $45 the stock now looks closer to a reasonable fair value range in my view. The upside scenario to this more cautious stance would be stronger monetization, including better pricing power in advertising, or a less supply-constrained semiconductor market that reduces hardware costs and eases the capital burden.