With the escalating conflict in the Middle East, we believe there is little about Crescat’s portfolio positioning that needs significant realignment. We remain substantially long undervalued high-growth precious metals mining companies across all our funds. These companies should only come more into favor in the current geopolitical environment. To a lesser degree, we also have long oil and gas holdings in our macro and long/short funds. Our more oil-focused holdings will likely get a boost that should provide us with a near-term ability to reduce that exposure, ideally into significant strength. Such is the current opinion of Crescat’s veteran geologist and energy advisor, Lisa Thieme, who will be featured in an upcoming Crescat Market Call video in March. For now, she believes that with the Strait of Hormuz temporarily shut down, the oil price will have a short-term spike. She just reminded us that 20-30% of all seaborne crude goes through the Strait of Hormuz. Lisa is less bullish on the sustainability of the oil price move, however, given her analysis of structural global supply and demand factors. Meanwhile, she remains highly constructive over the medium term for undervalued and natural gas producers in the US, where Crescat will likely remain positioned.
Potential Major US Stock Market Top
Crescat’s macro and long-short funds have continued to maintain short exposure to overcrowded and overvalued US large cap indices, which are now dominated by the megacap tech stocks. Historic high valuations have been a warning sign for several years already for US large cap indices and megacap tech, but valuations alone have not signaled a major market top. Neither necessarily has the US military strike on Iran, though this could certainly increase the market risk premium in the near term. The real fundamental catalyst now finally at play, in our view, to raise our conviction that a major top for the megacap tech stocks already occurred on October 29, 2025, is the sharply plunging expected free cash among the five largest A.I. hyperscalers. The chart below shows the median, combined, rolling forward 4-quarter free cash flow estimates across Wall Street fundamental analysts for Microsoft, Amazon, Alphabet, Meta, and Oracle. Note the past high correlation of these two series. The risk is that the red line starts veering significantly in the direction of the white one in the near term.
The CapEx Prisoner’s Dilemma
Aggregate capital expenditures for fiscal year 2026 across the top-5 A.I. hyperscalers are estimated at approximately $641 billion, representing nearly 70% YoY growth, on top of a similar, nearly 70%, increase from FY2024 to FY2025. To put that into perspective, the aggregate estimated FY2026 CapEx is equivalent to the combined enterprise value of the smallest 47 non-bank companies in the S&P 500. Put differently, with their projected fiscal year 2026 CapEx, the five companies above could, in theory, acquire almost 10% of the companies in the S&P 500. In our view, the magnitude of this investment cycle is bewildering.
The AI and infrastructure CapEx has begun to look less like a growth investment and more like a prisoner’s dilemma. We believe each hyperscaler is incentivized to invest aggressively to avoid “falling behind” in an AI arms race, even if the collective outcome is inferior industry economics. The risk is that simultaneous, large-scale capacity additions leave the system with excess compute relative to near-term monetization, extending payback periods and shifting the profit model from high-margin software toward more capital-intensive infrastructure.
Stop the Spend
A record share of respondents in Bank of America’s Global Fund Manager Survey indicated that companies are overinvesting, signaling a potential inflection in investors’ attitude towards capital expenditures. After an extended period in which large capital expenditure announcements, namely those connected to AI and related infrastructure, were met with blind bullishness, market participants are beginning to whisper the long-forgotten words of Return on Investment (RIO).
Microsoft’s January 28th earnings reaction underscored this shift. Shares declined nearly 10% as the company disclosed a surge in AI-related spending that investors interpreted as intensifying near-term pressure on free cash flow and raising questions around the timing and magnitude of the return on investment. This response stood in stark contrast to the company’s earnings from July 30th, 2025, where the market celebrated the CapEx acceleration, given strong cloud performance and the perception that AI investment was translating more directly into revenue and growth. In our view, the tide is starting to turn, as the market becomes increasingly intolerant of CapEx without near-term visibility on returns and extremely high multiples for these companies.
Chart above as of 2/16/2026
Rate Payer Protection Pledge
On February 24th President Trump delivered the annual State of the Union Address, where he officially announced the rate payer protection pledge that he has negotiated. The general idea is to combat rising energy prices being passed to others by companies building AI data centers and consuming massive amounts of electricity will be required to fund their own electricity usage. “So I’m telling [companies] they can build their own plant; they’re going to produce their own electricity” – President Trump.
At present, limited detail has been provided on the structure or implementation mechanics of the plan, however Energy Secretary Chris Wright confirmed that major hyperscalers have endorsed the deal. The President is expected to host tech companies at the White House in the following weeks to officially roll out the pledge. As reported by The Wall Street Journal, industry participants have cautioned that headline commitments from large platforms may not translate cleanly into delivered capacity, given that a substantial portion of data-center development and utility power procurement is typically executed by third-party developers.
While the ultimate scope and enforceability of the pledge remain uncertain, one possible outcome is that it results in a further acceleration in hyperscaler capital investment. Under this scenario, the largest players may be required to fund a meaningful share of energy infrastructure buildout, compressing free cash flow even further.
Silver Shock
On January 30th, 2026, silver experienced what can be described as nothing short of a historic sell off, with spot closing the day at $85 an ounce, hitting intraday lows of $73 an ounce. The violent unwind dragged down other precious metals with it.
In our assessment, this episode is better characterized as a correction than a definitive blow-off top. The sell-off followed a period of rapid appreciation that left the market extended and increasingly crowded, making prices vulnerable to a downside catalyst. That catalyst arrived with President Trump’s announcement selecting Kevin Warsh to lead the Federal Reserve, which the market interpreted as reducing the likelihood of near-term rate cuts. The resulting repricing, firmer U.S. dollar and higher-for-longer rate expectations, broke momentum and accelerated de-risking, particularly in an environment of thin liquidity where systematic and model-driven flows can amplify downside once technical levels fail.
Importantly, we do not view the move as invalidating the broader macro thesis, which we have discussed at length in past letters, that has underpinned the advance in precious metals. With volatility normalizing and prices stabilizing, we believe the conditions are in place for the underlying uptrend to reassert itself.
Crescat’s Hedge Fund Performance
Despite the flash crash in precious metals at the end of January, Crescat posted another month of strong performance across all Crescat’s funds. One of the most meaningful positive contributors was Tectonic Metals, following the company’s announcement of additional drill assay results from its Flat Gold Project in Alaska. Highlights included a 9.94 g/t over 36.58 m intercept at Chicken Mountain, including 15.73 g/t Au over 22.86 m, with a high-grade interval of 104.23 g/t Au over 3.05 m. Importantly, the hole ended in mineralization at 54.86 m, indicating strong down-dip and along-strike expansion potential. On the negative side, a rapid appreciation of the U.S. dollar weighed on returns after Kevin Warsh was announced as the next Chair of the Federal Reserve. Crescat maintains non-U.S. currency exposure through a long Japanese yen position expressed via futures contracts and through Canadian dollar sensitivity embedded in our mining equity holdings.
Past performance does not guarantee future results; Investing involves risk, including risk of loss. See additional important disclosures below.
Sincerely,
Kevin C. Smith, CFA
Founder & CEO
Nathanial Gilbert
Analyst
For more information, including how to invest, please contact:
Marek Iwahashi
Head of Investor Relations
(720) 323-2995
Linda Carleu Smith, CPA
Co-Founder & Chief Operating Officer
(303) 228-7371
© 2026 Crescat Capital LLC
Important Disclosures
Discussion and details provided are for informational purposes only. This letter is not intended to be, nor should it be construed as, an offer to sell or a solicitation of an offer to buy any security, services of Crescat, or its Funds. The information provided in this letter is not intended as investment advice or recommendation to buy or sell any type of investment, or as an opinion on, or a suggestion of, the merits of any particular investment strategy. This letter may contain certain forward-looking statements, opinions and projections that are based on the assumptions and judgments of Crescat with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond the control of Crescat. Because of the significant uncertainties inherent in these assumptions and judgments, you should not place undue reliance on these forward looking statements, nor should you regard the inclusion of these statements as a representation by Crescat that these objectives will be achieved.
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Performance
Performance data represents past performance, and past performance does not guarantee future results. Performance data, including Estimated Performance, is subject to revision following each monthly reconciliation and/or annual audit. Individual performance may be lower or higher than the performance data presented. The currency used to express performance is U.S. dollars. Before January 1, 2003, the results reflect accounts managed at a predecessor firm. Crescat was not responsible for the management of the assets during the period reflected in those predecessor performance results. We have determined the management of these accounts was sufficiently similar and provides relevant performance information.
Performance data represents past performance, and past performance does not guarantee future results. Performance data is subject to revision following each monthly reconciliation and/or annual audit.
1 – Net returns reflect the performance of an investor who invested from inception and is eligible to participate in new issues and side pocket investments. Net returns reflect the reinvestment of dividends and earnings and the deduction of all expenses and fees (including the highest management fee and incentive allocation charged, where applicable). An actual client’s results may vary due to the timing of capital transactions, high watermarks, and performance.
2 – Performance figures presented Excluding SCM SP represent the fund’s net returns calculated without the impact of the San Cristobal Mining, Inc. side pocket that was designated on July 1st, 2024. The side pocket includes a private equity asset that is not available to new investors in the funds on or after July 1, 2024. Excluding these assets provides a clearer view of the performance to investors coming into the funds after that date. New investors cannot participate in the SCM Side Pocket and will not share in its potential gains or losses. Investors should consider both the overall performance and the performance excluding the side pocket when evaluating the fund’s returns.
Benchmarks
The HFRX Global Hedge Fund Index is designed to be representative of the overall composition of the hedge fund universe. It is comprised of all eligible hedge fund strategies, including but not limited to convertible arbitrage, distressed securities, equity hedge, equity market neutral, event driven, macro, merger arbitrage, and relative value arbitrage. The strategies are asset weighted based on the distribution of assets in the hedge fund industry.
The HFRX Equity Hedge Index measures the performance of the hedge fund market. Equity hedge strategies maintain positions both long and short in primarily equity and equity derivative securities. A wide variety of investment processes can be employed to arrive at an investment decision, including both quantitative and fundamental techniques; strategies can be broadly diversified or narrowly focused on specific sectors and can range broadly in terms of levels of net exposure, leverage employed, holding period, concentrations of market capitalizations and valuation ranges of typical portfolios.
The PHLX Gold/Silver Sector Index (XAU) is a capitalization-weighted index composed of companies involved in the gold or silver mining industry.
The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities. The index includes 500 leading companies and covers approximately 80% of available market capitalization.
Returns for any index include the reinvestment of income and do not include transaction fees, management fees or any other costs. The performance and volatility of the funds will be different than those of the indexes. One cannot invest directly in an index. Benchmarks are unmanaged and provided to represent the investment environment in existence during the time periods shown.
Hedge Fund disclosures: Only accredited investors and qualified clients will be admitted as limited partners to a CPM hedge fund. For natural persons, investors must meet SEC requirements including minimum annual income or net worth thresholds. CPM’s hedge funds are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933 and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The SEC has not passed upon the merits of or given its approval to CPM’s hedge funds, the terms of the offering, or the accuracy or completeness of any offering materials. A registration statement has not been filed for any CPM hedge fund with the SEC. Limited partner interests in the CPM hedge funds are subject to legal restrictions on transfer and resale. Investors should not assume they will be able to resell their securities. Investing in securities involves risk. Investors should be able to bear the loss of their investment. Investments in CPM’s hedge funds are not subject to the protections of the Investment Company Act of 1940.
Those who are considering an investment in the Funds should carefully review the relevant Fund’s offering memorandum and the information concerning CPM. For additional disclosures including important risk disclosures and Crescat’s ADV please see our website: https://www.crescat.net/due-diligence/disclosures/