"Themeing" and scheming for 2025

Portfolio: Where will Beachman invest in 2025

An important, annual investing exercise that I like to complete every January is…

Identifying the themes or sectors that I find most interesting for the year.

I have found the resultant short-list to be highly beneficial for the following reasons:

1. It gives me clarity on where I want to invest...which sectors are most aligned with my investor interest and thesis.

2. It forces me to scan the broader market for ideas, to understand sector dynamics playing out that year and over the next 3-5 years.

3. It prevents me (or at least makes me pause and re-think) from putting money into a stock that does not align with one of my preferred sectors.

4. It gives me an investing timeline for each sector as they go through their growth and normalization lifecycle. e.g. I might exit a sector before the growth and adoption slows down.

5. I want my investment funds to be "swimming" in the same direction as secular market and sector tailwinds. I may not get everything right (e.g. I might pick the "wrong" stock), however, if I am generally in the ball park, I can take advantage of some or most of the sector momentum over that timeframe.

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My preferred 2025 themes and sectors

After 2 years of fantastic returns in high growth stocks, tech stocks…for that matter in anything US related…we have to consider how the new administration will realign the US economy and global macro economic order. Everyone and their uncle is busy dissecting tweets, analyzing body language and making predictions. The truth is that no one knows anything, but everyone has an opinion.

We will see how things play out and we will adjust along the way…we will be like water.

In the meantime, there are a few secular themes and sectors that we feel good about for 2025 and a few years beyond. This is where we will put our money to work.

AI infrastructure

Hyperscalers, enterprises and countries are still in the early stages of building new AI data center infrastructure and upgrading existing installations (which were deferred in 2022-2023). I believe that hyper scaler capex spend will slow down in 2025. However, the AI infrastructure train is not going to stop.

AI software

Attention has slowly but surely shifted a bit from AI GPUs to AI software that is actually delivering business results. No, I am not referring to copilots that are becoming table stakes. I am talking about custom AI business software that is driving more sales, higher productivity, new product ideas and larger profits. 2025 will start separating AI software winners from the chaff.

AI data

Data is the blood that helps businesses create stuff, sell stuff and make money. A handful of the leading data management platforms are now playing a critical role in enabling the success of AI-driven operations. They are helping businesses unlock their data, feed it to AI LLMs and agents for training and inference. 2025 is the year in which the smart use of good data will gain market share and overshadow hollow AI-boasting.

AI consumer

Consumers will start using AI more in their daily lives in 2025. AI-driven smartphones and AI PCs will become the norm. Siri and Gemini are already better…they will mature even further now. P.S. This Xmas, we gave Amazon Echo devices to all the “tias” & “abuelas” and got them dancing to Alexa-powered Salsa tunes. Their eyes lit up experiencing this voice-driven AI technology for the first time.

Cybersecurity

Everyone needs toothpaste & soap. All CIOs need to buy good cybersecurity software and services. While CIO budgets get scrutinized by their CFOs each year, cybersecurity spend enjoys more leniency because it protects not just the IT assets but the company's business as a whole. It is a must-have insurance policy for any business or government.

Ecommerce

As per Statista, global ecommerce sales surpassed $6.3T in 2024, +9% from the previous year. It is expected to grow at a +9% CAGR through 2030. Consumers love the convenience, fintech enables easy payments and new order fulfillment & delivery business models have flourished since the pandemic. Here, I will employ a broader view to include ancillary sectors like adtech, social media, shopping platforms, delivery apps, travel and entertainment etc.

Crypto

2025 will be the year of crypto going mainstream. A crypto-friendly US administration is taking office in Jan 2025. One cannot underestimate how bullish this is for crypto…when the most advanced economy in the world…when the most successful financial system in the world…starts breaking down barriers to easy, wide-scale crypto investment. There will certainly be failures and heartbreak along the way. However, high-risk, high-reward is the name of the game and Beachman wants to ride along.

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Seven themes are more than enough for a high growth portfolio. Anything more than ten will lead to too much diversification and muted results.

Other themes I considered but don’t find compelling at this time

• AI power - Over-hyped. Years away from revenues and profits. By then technology will solve power constraints.

• Biotech - High failure rate and hard to pick winners.

• Clean energy - Not aligned with US policies for at least the next 4 years.

• Defense and homeland security - Low growth, low margin.

• Quantum computing - Too naescent and years away from commercial viability.

• Self driving - Still not fully baked-in for widespread usage in 2025.

• Space - Low growth, high capex.

While I don’t like these sectors for investing in 2025, I love many of them for speculating and short-term Salty trading. Follow along here.

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So those are my preferred themes and sectors for 2025.

In the next post, I will list out my Beach Picks for each theme.

I already own some of them and might buy others listed.

Through 2025, we will closely track these stock picks - current business performance, forward prospects, earnings reports, stock charts, technical analysis, BUY and SELL signals, preferred BUY price points and TRIM price points, latest company updates and more.

And we will constantly keep a lookout for new stocks to be added to our Beach Picks list. The new picks might even dethrone something we already own. There are no holy grails in our portfolio…just data-driven, results-driven investing.

Cheers and good luck out there.