LLMs, Monetization, and Winner-Take Markets

On this episode of Excess Returns, Matt Zeigler and Bogumil Baranowski speak with Rainwater Equity ETF portfolio manager Joseph Shaposhnik about how long-term investors should think about markets in an era defined by geopolitical shocks, AI disruption, and unprecedented capital investment cycles. The conversation explores how disciplined investors can stay focused on durable businesses and long-term free cash flow rather than reacting to short-term headlines. Joseph explains how his team evaluates companies during major events, why the AI boom may create both massive disruption and opportunity, and where he believes the most attractive investment opportunities exist today.

Topics covered in this episode

• Why most macro headlines and geopolitical events rarely have lasting impacts on great businesses
• How long-term investors should analyze conflicts and market shocks without overreacting
• The defense spending supercycle and why aerospace and defense may benefit from rising geopolitical tensions
• How Joseph evaluates the AI investment cycle across semiconductors, software, and hyperscalers
• Why semiconductor companies may offer a lower-risk way to benefit from AI growth
• The risks created by massive AI infrastructure CapEx and concentration around specific AI models
• Why some software companies may face significant disruption from AI tools and LLMs
• How AI could reshape business models that rely on packaging public or commoditized data
• The potential rotation from the Magnificent Seven to the other 493 companies in the S&P 500
• Why capital intensity may change the long-term attractiveness of some technology companies
• The role of management quality and capital allocation in navigating technological disruption
• Fragile vs anti-fragile business models in an AI-driven economy
• Where AI may create unexpected winners across industrial and traditional industries
• Why long-term investors should still prioritize durable cash flow compounding businesses

Timestamps

00:00 Introduction and why most headlines have limited long-term impact on businesses
02:00 How experienced investors think about geopolitical shocks and market headlines
04:00 Defense spending tailwinds and the aerospace and defense supercycle
06:45 How investors should react when major market news breaks
11:10 How Joseph evaluates the AI boom and which companies benefit most
14:15 The case for opportunities outside the Magnificent Seven
17:15 How rising AI CapEx is changing the economics of major tech companies
21:25 Why hyperscalers face increasing concentration risk
23:00 Why semiconductor suppliers may be the best positioned AI investments
27:15 Why Joseph reduced exposure to software companies
33:00 The importance of learning organizations and adaptive management teams
37:00 AI, labor markets, and whether high-income jobs face disruption
41:00 Fragile vs anti-fragile companies in the age of AI
46:00 Where AI could create unexpected business winners
52:00 How great management teams adapt during technological disruption
57:00 How AI may accelerate entrepreneurship and innovation
59:00 Why investors should remain focused on sustainable cash flow
01:02:00 What the next generation of long-term compounders may look like