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I held $FIX (Comfort Systems USA) for one year. Here's my summary and thesis of my decision to sell the position.
Originally, I intended FIX to be a long term hold (3-5+ years) as I saw a high quality business with good operational management and disciplined capital allocation. I did not intend for this to be an AI play. FIX got caught in the AI hype by happenstance being a part of the data center build out.
Now, $FIX touched $1,600 per share today. Based on my calculations, I was not expecting this price for another 3-5 years when I bought 1 year ago. At this time last year, I bought 220 shares for an average cost basis of $350 per share for just under $80K. I have nearly fully exited my position with a ~$220K gain in just 12 months.
Come Monday of next week, I will be selling my remaining 10 shares of FIX to be fully out of the position. I live in CA and have to face 28% capital gains tax (15% Fed, 9.3% CA, 3.8% NIIT), so I don't take selling lightly, but felt this was the time and I’ll explain why.
Over the course of selling, I redeployed into Constellation Software and Berkshire. While I can’t call any tops or bottoms, I feel this is the right decision for the coming years.
In my opinion, irrational Al exuberance and the market at large ignoring quality businesses and their fundamentals seems to be at its peak. I've decided to capitalize while the AI music still hasn't stopped. Call it timing the market, but these valuations are at nosebleed levels and pricing perfection all whilst relying on, at best, highly skeptical financial realities of AI.
Al has driven some hardware and infrastructure names to nonsensical multiples. FIX is now at a 55x TTM PE ($29 EPS), a 45x forward PE (~$36 EPS est), and a 36x 2027 PE (~$44 EPS est). Everything has to go perfect for this to hold. I felt the risk was far too great, whilst furthermore too many other better predictable opportunities available for the long term. A look at some other names reveals similar greedy and exuberant set ups such as: ASML, GEV, CAT, ETN, VRT, MU, SNDK...etc. Mind you, that these are pretty much all physical, equipment or labor constrained cyclical semiconductor / infrastructure / construction businesses.
These names may be enticing to buy now, as it seems all they do it go up and to the right, but time and time again, this has historically been a dangerous game to play buying into the current hype.
Why is FIX and other aforementioned AI names very risky at these multiples? As I said, everything has to go right. For the case of FIX, it was trading just 12 months ago at a trailing teens PE during the Deepseek and Tariff fears for **80% less** than the current price.
Some points I'd like to make for these names, particularly surrounding FIX.
The AI thesis must hold and remain bullish for these multiples to maintain. As it stands, there is still no widespread adoption of AI tools in business enterprise that actually cause a noticeable decline in costs or increase in revenues. Outside of the Bay Area and NY, most people still haven’t even heard of AI. Anecdotally, I am a mobile healthcare worker using a SaaS tool on my work device, and I still see no AI integration in our business operations, 3 years after chatGPT launched.
The AI trade is being largely subsidized and the economic viability remains fragile and unsustainable. As it stands, the current costs of AI compute cannot maintain the current prices hosts are asking. From a source, the $200/mo Claude subscription is giving something like $2,500 in compute costs of inference tokens. This is an unsustainable business. This leaves a big question mark in the future of cap ex spend on AI. Furthermore, highly questionable vendor and circular financing exists within AI, causing further obscurity as to the viability of this new tech technological shift.
Labor availability cannot grow in a compounding fashion like the stock. FIX needs boots on the ground - the stock cannot continue to double and triple without major operational risks such as further concentration in technology projects (already ~50% of revenues and large one off customers) or continuing expansion of multiples (already highly squeezed at 55x TTM). Projects can be halted or cancelled at any time. This is a large risk for FIX as if the backlog cannot be converted to revenue, then the backlog numbers are meaningless.
I believe there are better ***long term and predictable*** opportunities. The SaaS sector has been completely ignored and deemed radioactive by the market. The funny thing is - there is still only, to date, ***one*** SaaS stock that has had a significant **tangible** disruption by artificial intelligence that actually shows on a fundamental level in the quarterly reports and balance sheet - Chegg, which is a simple business to consumer online platform with the primary goal of answering academic questions, precisely what a large language model is trained to do. However, the market is pricing in the entire SaaS sector as if every company will be a Chegg. Other great long term and **predictable** compounders are at very reasonable prices (some that I like: SPGI, FICO, MCO, MSFT, CRM, BKNG, MELI, KNSL, CPRT, BRO, CSU). Think twice about the next hot AI stock.
I now look back and think, when I initiated my Comfort and Constellation positions 1 year ago, on absolute dollar terms, Constellation shares traded about 10 times the cost for every share of Comfort Systems (~$3,200USD vs ~$325 USD), and now, the shares are nearly identically priced dollar for dollar ($1600 vs $1700).
Just goes to show how irrational the market can be and how much narratives temporarily influence price. Remember that in the end, it is the ultimate return on capital that dictates stock price long term, narratives are temporary.
I have selected Berkshire and Constellation as I believe these are the top two most prudent disciplined capital allocators of any listed company in the public equity markets. I would re-initiate my Comfort position, but not at these valuations.