Hayden Capital Has Rough Quarter Down 28% Founder Fred Liu On The AI Trade, Drawdowns, And The Case For Internet Stocks

(MENAFN- ValueWalk) The following is Hayden Capital's quarterly letter to partners for the first quarter of 2026, authored by Managing Partner Fred Liu, CFA. The fund returned -28.3% net for the quarter as capital rotated aggressively into the AI infrastructure trade and away from the internet and fintech names that make up most of the portfolio. In the letter, Liu argues the better opportunity now sits in those beaten-down application and internet businesses, revisits the firm's long history with drawdowns, and lays out the theses for Sea Ltd (NYSE:SE) and Unity (NYSE:U). Liu first outlined this preference for internet and application businesses over AI infrastructure in Hayden Capital's Q3 2025 commentary. The complete 20-page letter, including all charts and exhibits, is available to download at the end of this article.

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It's been a challenging few months for the portfolio. The market is wrestling with two concerns simultaneously: potential AI disruption to incumbent business models, and slowing global growth driven by the Iran War and resulting spike in energy prices.

As a result, businesses seen as either digitally exposed or economically sensitive are being heavily punished. Internet and fintech businesses – which are the majority of our portfolio – happen to sit squarely in both camps, leading to our recent under-performance.

That said, while drawdowns are never pleasant, they're a normal part of the investment journey (see below). In fact, our portfolio seems to experience 20 – 30% declines at some point in almost every calendar year, typically when external shocks negatively impact market sentiment. It's to be expected for a concentrated, tech-heavy portfolio like ours. And we've also lived through enough of these episodes to recognize them for what they are – temporary. Historically, the portfolio recovers once the macro clouds disperse.

While our corner of the market has been sold, capital has been rotating aggressively in the opposite direction – into anything tied to the AI infrastructure buildout.

Even a war hasn't been enough to stop the nearly trillion dollars in annual spending being funneled from the mega cap technology companies to the“picks & shovels” semiconductor and hardware makers around the world.

This has turned once commoditized chip makers into coveted“bottlenecks” in the AI-trade. Semiconductors (SOXX) are up +76% YTD and continue to propel the majority of the market's gains year-to-date. The memory companies (like Micron and SK Hynix), have been the poster children of the move, going parabolic with +100% moves in the last few weeks alone (and over +700% in the past year).

To be fair, earnings have grown tremendously, as these companies push through price increases and margin expansion to meet insatiable demand. But has the industry really transformed from a notoriously cyclical industry into a secular grower with pricing power? Has TSMC's restraint in building new capacity really prevented us from a bubble this time? And will end-user demand ramp quick enough to justify all of this infrastructure once its built?...

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