GDS Investments' commentary for the month of November, 2025.
“The two most powerful warriors are patience and time.” - Leo Tolstoy
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As we move deeper into the fall and approach year-end, it may be worth pausing for a moment to look back. Politically and economically, this has been a year full of upheaval and surprises. Can a glance in the rearview mirror offer us clues about what lies ahead?
One thing strikes us immediately. Back in May, we speculated that Trump’s unpredictable tariffs-based economic policy risked upending preexisting global economic relationships. “It’s anyone’s guess what kind of new economic order establishes itself over the next four years,” we wrote then, “but the risk that it’s an order without the U.S. at its center is high.”
We may be seeing the beginning of that shift now; and in the absence of any significant change to U.S. economic policy, the continued emergence of a new economic world order now seems inevitable. Last month, for example, the Prime Minister of Canda Mark Carney told Canadians that “the decades-long process of an ever-closer economic relationship between the Canadian and U.S. economies is over.” In essence, he argues that Canada’s deep economic integration with the U.S. has turned from a strength into a vulnerability.
As a result, Carney has now set a formal goal: Canada intends to double its exports to countries other than the United States over the next decade, roughly C$300 billion of new non-U.S. trade and principally aiming to re-engage with India and China.
That is not a trivial or superficial policy tweak. It is an economically significant decision by a close ally to reduce reliance on the U.S.
But what else can they do? When the U.S. uses tariffs and economic pressure in an erratic and sometimes humiliating way, as a weapon rather than as part of a predictable rules-based system, our trading partners are forced, out of pure self-interest, to reduce their exposure to us. Indeed, it’s hard to see the tariffs as anything other than what The Wall Street Journal has termed “a massive money grab,” one that costs American consumers more and alienates global trading partners.
The common denominator here from partners like Canada or Europe is not anti-American sentiment. It is basic risk management. If your single largest customer becomes unpredictable, you diversify your customer base. If your dominant trading partner can impose or shift 25–50% tariffs overnight on key exports, you reduce dependence on that partner, even if you have liked doing business with them for decades.
Worse, we can’t face this kind of global realignment without consequences at home.
So far, U.S. consumers have been at least partly insulated from the full domestic impacts, as the New York Times recently pointed out (“Companies Have Shielded Buyers From Tariffs. But Not for Long.”). We also discussed this in our August letter: many companies have been absorbing higher import costs in their margins rather than pass them on fully to customers, but that cannot last indefinitely. Consumer costs are only going to go up as long as tariffs last (though now that the question has reached the Supreme Court, an end may be in sight; even the conservative Justices seemed fairly skeptical in their questioning during recent oral arguments).
Layer all that onto the larger domestic picture. Officially, U.S. growth is still positive (roughly in the 1.5% range), but a disproportionate share is being driven by an arms race in AI and data-center spending, not by broad-based, real-economy strength. In other words, much of what passes for “growth” right now is a capital-spending super-cycle in one sector, rather than a healthy, economy-wide expansion.
We’ve seen this dynamic before (telecom in the late 1990s, shale in the 2010s, and even parts of the housing boom have all followed the same script). We talked about this extensively last month, so we will only summarize it briefly here:
- A genuinely important technology or resource emerges.
- Capital floods in (a “bubble”).
- Capacity overshoots demand.
- Returns fall well short of the rosy assumptions that underwrote the spending.
- The bubble bursts.
The core concern right now is that American economic policy is not fully contending with the situation we’re in. In fact, this likely bubble isn’t just propping up the U.S. economy; it’s also helping to obscure the underlying economic damage caused by counterproductive trade policy. Tariffs are sapping capacity and straining the resilience of U.S. companies, even as households are being squeezed from multiple directions. Worse, the White House seems stubbornly unwilling to engage with the situation as it stands, sometimes attacking data (for example, suggesting that BLS figures are “wrong”) and more recently dismissing concerns about affordability.
How We’re Positioning the GDS Portfolio
Against this backdrop of a more adversarial and unpredictable trade regime, slow-motion pressure on corporate margins, and a market that has become dangerously narrow and top-heavy, our response has been to lean further into undervalued, durable, cash-generating businesses that have historically held up well in difficult environments.
Defensive consumer brands: Diageo and Constellation Brands
Over the past several months we’ve been adding to positions in Diageo (NYSE:DEO) and Constellation Brands (NYSE:STZ).
Diageo is one of the world’s dominant spirits companies. Beyond its core spirits portfolio (including Johnnie Walker, Smirnoff, Tanqueray, and many others), it also owns Guinness, one of the most resilient beer brands on the planet. These are not fad products. Over multiple cycles, including the 2008 crisis and the COVID shock, Diageo’s volumes and cash flows held up better than most. The business has a long history of sensible capital allocation, shareholder-friendly policies, and recently hired a new, promising CEO.
The stock, however, tells a different story. From a peak around $220 in late 2021, Diageo has been trading near $90–$100, down roughly 30% from its 52-week high of $131, despite no collapse in the underlying brands. Rather, this is a story about overreaction to media reports (“U.S. alcohol consumption has hit a record low”) and investors lured into flashier, trendier AI-linked growth stories. As value investors, that differential between inherent value and stock price is a sign the market is unfairly discounting a strong, reliable, and recession-resilient performer.
A similar story is playing out with Constellation Brands. Roughly 80% of its business is beer, including Corona, Modelo, and other well-known brands, with the remainder in wine and spirits. But if we zoom out, this is still a high-quality, recession-resilient franchise with strong positions in categories that do not disappear in a downturn.
The market has been treating both Diageo and Constellation as if short-term headwinds are permanent. Constellation’s stock has fallen to levels last consistently seen a decade ago, but we’re looking at a business that is larger and more profitable today. Management is acting rationally, too. Earlier this year they announced a new $4 billion share-repurchase program running through 2028 and have already spent over $600 million on buybacks this year, against a market cap of roughly $23 billion. That implies a meaningful reduction in share count over time (nearly 20% if executed fully) on top of a healthy dividend.
When you combine (a) durable demand, (b) strong balance sheets, (c) shareholder-friendly capital allocation, and (d) multi-year-low valuations, that’s exactly the kind of position we want to “ride out” a period of macro and market uncertainty.
Healthcare and other resilient sectors
We’re also holding onto a range of healthcare names, companies such as Merck (NYSE:MRK), Novo Nordisk (NYSE: NVO; we have more detailed discussion of NVO in our June letter), that should be able to navigate a tougher economic environment while continuing to generate cash and pay dividends.
These businesses are not immune to volatility, but they tend to be less sensitive to the economic cycle and more driven by long-term secular demand (aging populations, chronic-disease treatment). In volatile, slower-growth environments, these businesses can look a lot more attractive in hindsight than they do in the fever of a narrow bull market dominated by a single sector (AI).
Core compounders: Amazon and Alphabet
At the same time, we have maintained many of our core holdings in dominant platforms like Amazon (NASDAQ:AMZN) and Alphabet Inc. (NASDAQ:GOOGL), both of which are trading at or near 52-week highs. We continue to believe these companies are well-positioned to weather turbulence and continue to compound value over time.
Amazon in particular seems to have a healthy attitude towards AI. Jeff Bezos, Amazon’s founder, recently agreed that the market is in an AI bubble but has argued it is “a kind of industrial bubble, as opposed to financial bubbles.”
In essence, he’s arguing that AI may be overinvested right now (it is), but it’s a genuine technology that will produce real winners even after the bubble pops, rather than a credit-driven blow-up like the Great Recession. Amazon itself has taken a measured approach to AI, slower and more disciplined than some of its overeager peers, which is not a bad thing in a bubble. That said, recent large-dollar deals suggest it intends to capitalize more aggressively from here. We share the view of tech analyst Mark Shmulik, who recently told Business Insider, “While the long-term debate is likely to have several twists and turns, we take a favorable view of the cloud market leader figuring out AI in-time with multiple ways to win.”
Ultimately, neither Amazon nor Google/Alphabet are “defensive” holdings in the classic sense, but they do possess several important advantages:
- Diversified revenue streams
- Global scale
- Strong balance sheets
- The ability to adjust investment and cost levels quickly in response to changing conditions
Even in an AI spending downturn, we expect them to remain central infrastructure providers and to benefit from productivity gains in their own operations.
A deliberate, non-traditional value holding: Rivian
Finally, a word about Rivian (NASDAQ:RIVN): this might be the most unconventional position in the portfolio from a traditional value-investing standpoint, but our enthusiasm for this holding only continues to grow. Here, we are making a bet on a few specific things:
- Rivian’s engineering-first culture and founder-led leadership will continue to translate into better products and better economics. RJ Scaringe is an engineer who has wanted to build a car company for a very long time. If you listen to his long-form conversations, like his recent sit-down conversation with John Collison of Stripe or other interviews, you hear someone who deeply understands not just EVs, but the entire stack: sourcing, manufacturing, software architecture, charging infrastructure, and the regulatory and geopolitical issues around batteries and rare earths.
- The R2 and subsequent platforms will open up a much larger addressable market. Rivian has solidly moved from concept to execution. When the company went public at a valuation north of $100 billion, it was essentially selling little more than just a story with very limited operating history and little leverage with suppliers. Today it is a very different business: scaled production, real lessons learned from the R1, high-value partnerships with credible industry operators, and a clearly defined path to the more mass-market R2 and follow-on models.
- The combination of high-quality hardware and deeply integrated software will allow them to capture value well beyond the one-time sale of a vehicle. The company is software-centric in a way that many legacy automakers still are not; its partnerships with Amazon and Volkswagen emphasize this point. Scaringe has been explicit that Rivian’s architecture is “software-defined,” and he has warned that carmakers who don’t get software right will be left behind. That matters, because an increasing share of the lifetime value of a vehicle will come from software and services rather than the initial hardware sale. Plainly stated, offering both software and hardware gives Rivian multiple ways to win.
The EV ecosystem is also improving in ways that help them. For example, subsidies that distorted the market in favor of certain low-price leasing deals are being scaled back. That will hurt some marginal players that relied on subsidies to exist, but it should leave the field to better-capitalized, better-engineered companies that can stand on their own.
Altogether, none of this reflects “deep value” in a strict Warren Buffett value investing sense. Rather, it’s a calculated, long-term bet on a business that we believe the market is still mispricing relative to its potential, especially when you compare today’s valuation to the hype-driven levels of late 2021. In other words, Rivian was massively overpriced at launch, but instead of coming down sensibly, the market massively overcorrected. For us, that presented opportunity at the start of the year.
On Our Desk
A few other items we’re thinking about this month:
- Social media and kids. Australia has moved toward a world-leading ban on social-media access for those under 16. The policy is controversial, and Google argues it may be difficult to enforce, but it is at least a serious acknowledgment at the national-policy level that early, unconstrained exposure to social media is doing real harm to children (and sometimes adults too). More here.
- Rare earths and strategic vulnerability. The tug-of-war between the U.S. and China over rare earths and critical minerals remains one of the most under-appreciated risk factors for everything from EVs to AI data centers. We found this short video a helpful overview of how concentrated and fragile these supply chains are.
- Regional-bank risk. Finally, an interesting if concerning story worth keeping an eye on: Zions and Western Alliance recently disclosed bad loans tied to alleged fraud. More here.
Our overall posture remains cautious.
So, in summary, we are currently watching an economic order we all once took for granted slowly re-write itself, with America shifting from anchor to risk factor in the calculations of its closest allies, even as our own economic conditions become more fragile and constrained. This has serious implications for the next few economic cycles.
However, our job in an environment like this is not to predict the exact timing or path of the next downturn or turnaround. Rather, if there’s optimism in one area, and pessimism in another, we aim to buy things that are pricing in the right future scenario. We therefore strive to own businesses that can survive a much tougher world and to be ready with cash, patience, and a carefully curated watchlist when today’s complacency gives way to more realistic pricing elsewhere.
In the meantime, we leave you with our earnest good wishes for happy, healthy, and safe Thanksgiving holiday! Certainly, for us, we cannot express enough how thankful we are for all of you, and how much we appreciate the trust you continue to place in us. As always, thank you for being part of the GDS Investments family.
Best Regards,
Glenn Surowiec
484.888.9155
https://www.linkedin.com/in/glenn-surowiec-02664b7/
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