Beware the 'quality bubble' - here's what to focus on instead

When it seems like the investing world is full of monkeys banging cymbals together, keeping your head on straight can be tough. I sat down to talk to Jacob Mitchell of Antipodes Partners, whose insights are grounded in years of experience, and an approach that is refreshingly pragmatic.

Watch the video below where Mitchell discusses how he and his team at Antipodes are navigating risk, and where they’re finding real value when much of the market seems either overpriced or overhyped.

Please note, this interview was filmed on 29th April, 2025.

Echoes of the past

While Mitchell sees some similarities between today’s market and the 2000 tech bubble, he is also quick to point out that it isn’t a simple case of history repeating itself - there are key differences. 

“Back then, it was a bubble in a narrow part of the market,” he says. “Today, the overvaluation is concentrated more in so-called ‘quality’ stocks – especially in the US.”

US exceptionalism has been partly earned through productivity and innovation, but loose fiscal policy has also played a big role. The result is a buildup of risks at the end of a long cycle, and a need for investors to shift to capital preservation mode.

When geopolitical uncertainty meets economic uncertainty

What’s the goal of the tariffs? Is it re-industrialisation? Is it about revenue? The market can’t tell – and that makes it hard to know when the uncertainty will peak. Mitchell points out that when you can’t identify the objective, you can’t forecast the outcome.

That said, there are glimmers of hope. Europe is showing signs of fiscal flexibility, and China is stimulating domestic consumption. 

“Ironically, ‘Make America Great Again’ may end up making the rest of the world more investible,” Mitchell quips. 

And his team is positioning accordingly.

Staying balanced in the “war room”

Inside the team discussions at Antipodes, the focus is clear: balance, discipline, and vigilance.

Yes, the team is watching for signs of hard data deterioration. But they’re also looking for surprises on the upside, especially where policy responses, like in Europe or China as mentioned, could offset tariff or other external shocks.

A key focus is avoiding “fat tail” risks. 

“If something looks expensive and exposed, we just don’t need to be there,” Mitchell says. “There are plenty of other opportunities.”

Capital preservation starts with paying the right multiple

Antipodes is known for its capital preservation mindset and that means digging deep to figure out who the real winners and losers are, and being brutally honest about valuation.

Mitchell notes that US stocks still look expensive, trading over 20x earnings. Earnings growth expectations also seem too high given policy uncertainty. That’s why Antipodes is instead favouring mid-caps, emerging markets, and overlooked European multinationals.

He’s particularly wary of cyclical exposure, warning that while some areas may look cheap, investors need to be confident that a recession is already priced in.

Going against the tide (but don’t get caught in a rip)

Mitchell is not afraid to be contrarian, but only where it’s justified.

“In the mega caps, Alphabet (NASDAQ: GOOGL) is probably the most contrarian idea.”

“It’s trading on 18x earnings, which is cheap for the quality,” he notes. Investors are worried about AI competition from OpenAI and ChatGPT, but most of that threat is non-commercial. Meanwhile, Alphabet’s search business grew 8% last quarter, and YouTube and Cloud remain strong. Waymo – its autonomous driving arm – also provides optionality, which Jacob says is being completely ignored in the valuation.

Outside of tech, he sees opportunity in utilities – the so-called “boring” sector. Specifically, those with transmission assets in Europe and the US. “These are protected by regulation, and their growth is accelerating thanks to the energy transition and data centre demand,” he says.

Where the risks are and how to stay safe

Mitchell is watching one in particular: private credit in the US.

“It’s grown 20% annually for five years – that’s far outpacing the economy,” he says. 

He’s concerned about aggressive lending and its tight links to private equity. It’s a key tail risk in the system, and Antipodes is mitigating that by avoiding exposure and using short positions in their long-short fund, the Antipodes Global Growth Fund.

They’re also maintaining a strong preference for high-quality balance sheets across the portfolio.

AI: Avoid the hype

Michell’s view on AI is clear: don’t chase the obvious plays. Instead, look for businesses that can use AI to sharpen their edge against the competition.

“Having your data organised is really a key competitive advantage.”

He singles out Capital One Financial (NYSE: COF) as a winner in the AI adoption race. Its cloud-native infrastructure gives it a significant edge over peers in applying AI to credit risk and customer acquisition.

“It’s not an expensive stock. Forward multiples are six to seven times. And it's now unassailably the dominant credit card company in the US.”

When you have a combination of data, tech-savvy management, and a good starting position, “AI will drive real, sustainable value.”

And he urges caution on overhyped names like Nvidia (NASDAQ: NVDA):

“We’ve been wary about Nvidia… it isn’t the monopoly that many investors think it is.”

As AI evolves and costs fall, Mitchell believes we’ll see broader adoption and more democratic winners (and losers).

Watch out for “quality purgatory”

Mitchell leaves investors with a simple but powerful warning, borne from experiencing many lessons of past cycles: Beware of overpaying for quality.

“We’re not living through a growth bubble - we’re living in a quality bubble.”

He advises investors to look beyond obvious, high-multiple stocks and to be wary of paying too much for even the best businesses.

“Is paying 50 times for Costco an appropriate multiple? It just seems a bit careless.”

He reminds us that once-beloved names like Starbucks and Nike have already felt the pain of being priced for perfection. “Look for quality – but don’t overpay. Seek the cheap expressions of quality in the less obvious parts of the market.”

Time to re-assess your portfolio’s value allocation?

Calendar year-to-date, the Antipodes Global Fund has delivered 12.7% alpha (at 30 April 2025). Click here to learn more about Antipodes’ flagship long/short Fund which is designed to deliver capital growth, along with strong downside protection.