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“Inform me who your heroes are, and I am going to let you know who you’ll develop into.” – Warren Buffett, Chairman and CEO of Berkshire Hathaway
We can not start our letter this week with out acknowledging the approaching finish of an period.
Final month, Warren Buffett introduced that he can be stepping down as CEO of Berkshire Hathaway (BRK.A, BRK.B) on the finish of the yr. He’ll possible get replaced by Greg Abel, who’s at the moment chairman and CEO of Berkshire Hathaway subsidiary, Berkshire Hathaway Vitality.
Buffett is, after all, 94 years previous. Nobody can declare to be stunned that he’s lastly retiring after over half a century on the helm of the esteemed holding firm, nevertheless it nonetheless displays the lack of a genuinely legendary investor, chief, and visionary. The numbers don’t lie: throughout his a long time as its chief, Berkshire Hathaway’s inventory has risen by 5,502,284%. The S&P 500 (SP500, SPX) delivered a meagre (at the very least by comparability) 39,054% return over the identical timeframe.
However the numbers don’t inform the entire story, both. His influence goes past monetary transactions. Common readers of this letter will know we continuously reference his knowledge. He has fairly actually reworked the way in which many traders even take into consideration investing. He’s not the first worth investor (that might be Ben Graham, who taught Buffett at Columbia College), however Buffett has nonetheless develop into the quintessential worth investor for many people. He has a unprecedented knack for pinpointing and relaying the only a few core concepts to which we, as traders, can confidently connect ourselves, understanding they are going to stay as true tomorrow as right this moment and yesterday.
One in every of our favourite Buffett-isms (out of many attainable such examples) is one thing he famously stated practically 30 years in the past: “The inventory market is there to serve you and to not instruct you.”
That one assertion packs a punch, significantly in instances of turmoil and volatility just like the financial period through which we discover ourselves now. The inventory market is nearly designed for short-termism, however this isn’t its supreme use. If we had been to observe its tumult (i.e., permit it to “instruct” us), we’d discover ourselves flailing in every single place—and costing ourselves long-term features within the course of. As an alternative, Buffett advises us to remain indifferent and cool-headed, keep away from abrupt or panic-driven choices, and stay centered on long-term worth. Certainly, Buffett has all the time preached the worth of the long-term: if we make good choices and are affected person, we will probably be rewarded.
In the end, for us to have the ability to overlap our life and studying round somebody who’s contributed a lot to the trade is exceptional. We really feel extremely lucky to reside in a world with Warren Buffett in it. We genuinely want him a contented retirement and hope that stepping again from main Berkshire Hathaway received’t preclude him from persevering with to share his insights and knowledge.
Novo Nordisk
Talking of long-term worth and development potential, we’ve got just lately begun buying a brand new place in Novo Nordisk (NVO), the Danish pharmaceutical firm that makes semaglutide, a compound utilized in its brand-name medicines Ozempic and Wegovy.
Semaglutide basically mimics the actions of the GLP-1 hormone within the physique and has proven unbelievable success in serving to individuals handle situations like diabetes and weight problems.
Novo is working in a comparatively new and rising market, and it has had some stumbles over the previous yr (extra on that momentarily). Initially the dominant entity available in the market of GLP-1 analogues, Novo has since slipped to second place. As we speak, after its principal competitor Eli Lilly, Novo controls a 46% share of the worldwide marketplace for GLP-1 analogues.
And what a promote it seems to be. The section remains to be rising, so nobody is sort of certain set expectations. That stated, each estimate we’ve got seen speaks of a voluminous market primed for expansive development. One estimate, for instance, anticipates the GLP-1 analogues market reaching $471.1 billion by 2032, rising at an astounding compound development fee (OTC:CAGR) of 33.2%. Even when development falls in need of these admittedly formidable numbers, that is clearly a market with a lot of development potential.
That shouldn’t shock us, nonetheless; it tracks straight with the anticipated enhance in Kind 2 Diabetes circumstances over the following decade. World prevalence of diabetes doubled between 1990 and 2022, with practically two-thirds (59%) of adults with diabetes but untreated, in response to the World Well being Group. Prevalence is anticipated to proceed increasing.
Equally, the marketplace for medicines to deal with weight problems has additionally been rising dramatically. Novo Nordisk’s Wegovy did round $8 billion in gross sales in 2024, in a market that’s anticipated to develop to be value $150 billion by 2030. On condition that Wegovy has been proven to do extra than simply facilitate weight reduction—in a single research, it lowered the chance of “main opposed cardiovascular occasions” by 18.75%—its complete precise market is probably going bigger than even this.
Traders have been skeptical of Novo for the previous few months, nonetheless, as seen within the sharp downward development of its inventory worth, falling from its excessive of $141.96 a yr in the past to $58.08 in April 2025.
The query is whether or not that skepticism is born out of real, inherent, and protracted issues; or if it’s an overreaction to non permanent, correctable, and in the end short-term points?
Our learn is that we’re wanting on the latter situation.
First, there have been real missteps by Novo itself, however they’re already correcting them.
On the prime of the record: Novo Nordisk basically botched the preliminary releases of Wegovy and Ozempic by fully underestimating demand, possible attributable to an earlier product (Saxenda) failing to achieve as a lot traction as anticipated. In consequence, they had been compelled to start out rationing in 2023, going as far as to ask physicians not to convey new sufferers on. Wegovy and Ozempic weren’t eliminated from the FDA’s scarcity record till earlier this yr. This hole in provide helped competitor Eli Lilley acquire market share, particularly as they centered on making their very own Wegovy competitor, Zepbound, accessible to priced-out sufferers.
Novo Nordisk has taken reassuring steps towards addressing the problems associated to the botched rollout. Novo CEO Lars Fruergaard Jørgensen, who oversaw the distribution troubles, resigned final month. In addition they acquired contract producer Catalent on the finish of December for $16.5 billion. This can allow them to each enhance and acquire extra management over their very own manufacturing capability. They’ve additionally taken steps to make the medicine extra accessible via partnerships and discounted direct-to-consumer gross sales.
Second, there have been overreactions by the market to late-2024 information popping out of Novo.
Novo has been testing its next-gen weight-loss medicine, CagriSema, with Part 3 trial outcomes revealed late final yr. Novo was initially anticipating the trial to indicate 25%-plus weight reduction in members (in comparison with 15% with Wegovy). Nevertheless, they “solely” hit 22.7%. In consequence, the share value dropped by 19%. This strikes us as a frankly large overreaction. The vital half: CagriSema outperformed Wegovy, which means the next-gen product ought to be more practical than its predecessor. That’s precisely what we wish out of a pipeline of future merchandise.
Third, there has possible been a correction within the investor make-up of the corporate.
We suspect that partly what occurred after the CagriSema trials, by way of investor response, is that Novo had been attracting lots of momentum- and excitement-driven shareholders. Keep in mind, this can be a new market being served by merchandise which were getting so much of headlines. Momentum-driven traders usually are not identified for steadfastness, nonetheless, they usually possible merely reallocated their portfolios within the face of short-term disappointment interrupting the hype cycle.
Fourth, it’s additionally value at the very least mentioning that a number of externalities outdoors of Novo’s management haven’t helped.
For instance, lingering provide chain results from Covid-19 nearly actually performed at the very least some function in Novo’s early distribution woes, and their inventory bottomed out at $58 per share solely within the speedy aftermath of Trump’s April tariff announcement.
What we see in Novo is a agency with sturdy development potential working in a market the place they don’t even needto have dominant market share to outperform. They proceed to carry the keys to long-term worth, together with retention of extremely beneficial patents via 2032; a powerful R&D program that guarantees a pipeline of more and more efficient next-generation merchandise; a lot stronger and extra dependable distribution capabilities; and—final however removed from least—serving a market through which already-high demand is poised to proceed rising for least the remainder of the last decade.
Once we sum up all these benefits, we see double-digit 10-year development, an working margin ranging between 35% to 45%, an annualized return on invested capital (ROIC) persistently hovering round 25%, and a internet revenue margin slightly below 35%—all relative to a steadiness sheet with little or no leverage. Behind a few of these current headlines, Novo has completed extraordinarily properly, and it retains the identical stable core that has pushed previous overperformance.
Put merely, that is an elite firm that prints cash however that’s being priced unduly low for points which might be in the end short-term complications.
And whereas it’s not crucial factor, it’s maybe value noting that we additionally admire the people-oriented ethos below which Novo Nordisk appears to function. On the finish of the day, they’re an organization based with scientific roots, they usually clearly wish to profit individuals. They’re prepared to exit of their method to make it inexpensive and accessible, e.g. growing an inner direct-to-consumer pharmacy operation and partnering with low cost distribution networks like Hims & Hers Well being, Inc. (HIMS) to make their product choices each extra inexpensive and extra accessible.
For extra details about Novo Nordisk, we suggest this practically four-hour deep-dive episode of Acquired, accessible by way of YouTube.
Rivian
We wrote briefly about Rivian (RIVN) earlier this yr, and we’re more and more assured in Rivian as a supply of long-term development potential.
Rivian has admittedly had an uneven historical past. In 2019, Amazon (AMZN) invested $700 million into the corporate in return for a stake and 100,000 supply vans by 2030. However Rivian additionally appeared to stumble out of the gate, in no small half attributable to provide chain disruption attributable to the pandemic. Key components, for instance, proved laborious or unattainable to get. Their preliminary public providing was additionally priced absurdly excessive, possible due extra to hype and Amazon’s involvement than anything, and subsequently crashed. This has led to lots of investor skepticism since then.
What caught our eye, nonetheless, is the diploma to which Rivian has turned its struggles into alternatives.
They laid out a path to gross margin profitability and seem to have achieved it. They reported a gross revenue of $206 million in Q1 2025, marking the second consecutive quarter of gross revenue, and the best but. That is largely the results of steady inner enhancements, like improved provide chain sourcing, more practical scaling methods, and reducing materials prices. They improved fastened value absorption on labor and overhead, which has helped scale back unit prices. Price of products offered (COGS) per automobile fell by $22,600 in Q1 2025 in comparison with Q1 2024, a formidable feat in solely a yr.
Lately, they’ve come out with long-term margin steerage. They count on to attain a gross margin of 25%, free money circulate of 10%, and EBITDA within the excessive teenagers. Briefly, they’ve constructed a machine internally that’s exceptionally good (and getting higher) at producing profitability.
A current partnership with Volkswagen cements their prospects. This association is really a win-win: Rivian will get $5.8 billion (tied to operational milestones, that are being met), in addition to steerage and help with distribution. In flip, Volkswagen advantages from Rivian’s software program stack.
In some ways, Rivian is as a lot a “automobile working system” firm as it’s an auto producer. In actual fact, its software program and providers section generated greater than half of its Q1 2025 gross revenue ($114 million) in comparison with the automotive section ($92 million). Even higher, the software program part opens the door to further consumer-pleasing and money-making choices. For instance, with improved knowledge on shopper use of the software program, Rivian can roll out higher and extra impactful updates, that are particularly vital as they transfer towards full-self driving. It could additionally find yourself fueling a community impact that might assist to lock in market share.
Our take: whereas this place is a bit more speculative, we consider within the bigger imaginative and prescient right here. We see a massively improved inner operation resulting in a really promising rollout of the next-gen, mass-market R2 mannequin, delivering a product with extra improve choices, in order that clients aren’t being requested to make sacrifices, whilst COGS falls considerably. As we wrote again in April: “We suspect [the R2] might develop into a gamechanger, debuting at practically half the value as Rivian’s different, high-end fashions and aggressive with Tesla’s decrease tier fashions.” Even higher, by shifting ahead with partnerships with dependable corporations like Amazon and Volkswagen, Rivian has been capable of de-risk the steadiness sheet and scale up distribution.
Internally, Rivian is founder-led, with a formidable CEO, RJ Scaringe, overseeing a model that deeply connects with clients. Comparable examples embrace Netflix (NFLX), Amazon, and even Apple (AAPL) below Steve Jobs. There’s a mixed stage of buyer engagement and model attraction that’s primed to drive future success.
Nevertheless, we weren’t prepared to take this experience till the value got here down and the liquidity scenario improved. Rivian is working in a aggressive, difficult, and capital-intensive enterprise. It’s no exaggeration to say you’ve bought to lose billions earlier than you make cash on this sector. Plus, their preliminary errors in rolling out the R1 cooled lots of curiosity within the firm. However their current efficiency showcases their dedication to nonstop enchancment and administration geared towards benefitting shareholders.
For extra details about Rivian, we suggest the interviews with Scaringe on (1) the Wealthy Roll podcast and (2) the Kleiner Perkins Grit Podcast. Scaringe additionally participated in an informative “fireplace chat” on the UBS Auto and Auto Tech Convention earlier this month.
We’ll conclude our letter this month by declaring a commonality between each Rivian and Novo Nordisk, two very totally different corporations working in wholly separate markets. The throughline is value.
The chance judgment course of is barely ever one-half of our funding evaluation and decision-making. The opposite half: ready patiently till we will purchase the place at low cost relative to truthful worth. In any other case, if we overpay for belongings, we are going to wrestle to do properly. The current investor flight from these still-strong positions is what has made them engaging now. Right here too we’d flip to the knowledge of Warren Buffett: “Be fearful when others are grasping and grasping when others are fearful”.
At GDS Investments, we diligently and meticulously focus every single day on each making correct threat judgments and figuring out supreme pricing for asset acquisition. By doing so, our purpose is to boost returns reliably and confidently for our shoppers.
As all the time, I stay grateful to you on your ongoing help. With heat regards,
With heat regards,
Glenn Surowiec
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