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How Citadel Changed Investing Forever
Ram Ahluwalia
July 13, 2025
Here’s a preview of what we’ll cover this week:
Macro: OPEC may pause; China risk is fading; No Recession in Sight
Market: Discretionary rotation; Momentum is breaking; Thematic Exposure; TSMC’s Remarkable Revenue Growth
AI: Distribution as a moat; Gemini’s edge; Grok 4; Open Ai Under pressure
This week I interviewed Caitlin Long, a Wall Street Veteran and CEO of Custodia Bank. Custodia was one of the first banks to focus on stablecoin way before it was cool.
Caitlin shared her perspective on:
Winners and Losers from Stablecoin Act
How Non-Banks have a level playing field with Banks and well positioned
Her direct experience with Operation Chokepoint 2.0
Caitlin’s lawsuit against the Federal Reserve
Check it out here.
Recognition
You can also watch the broadcast here.
How Citadel Changed Investing Forever
Three things changed modern investing:
Commission Free Brokerage: 019, Charles Schwab went to $0 trading. This lowered the time horizon of investors as entry and exit costs were reduced. You’ve seen the average holding period come down considerably since then.
Social Media: In 2021, Gamestop went nuts. Retail traders on Robinhood, loaded with “stimmy” checks, made money betting against Wall Street. Reddit and Twitter played a critical role in galvanizing this community.
Robinhood added dopamine to the process by rewarding traders for buying and selling shares
0DTE options. It’s easier than ever to buy and sell options on these apps. Options trading volume has exploded in volume in recent years.
The key driver behind all of this? Citadel.
Citadel pays Schwab, Robinhood, and other brokerage via “payment for order flow” (aka PFOF).
PFOF is what Citadel pays a brokerage in exchange for having the right to monetize retail trading flow.
Citadel enabled retail brokerage to pivot their business models.
That’s a one-way door, and we’re never going back.
Hedge funds and institutions haven’t figured this out broadly and incorporated this concept.
Famed hedge fund built by Jim Simons Renaissance Technologies has figured it out. (Look at their top holdings in the last 13F - they include social media darlings).
Where did PFOF come from?
It was the natural outgrowth of the SEC’s REG NMS… click this learn more.
The main idea here is that investing has transformed forever. The textbooks are outdated.
Classic investing principals endure - however, social media is a new “factor” driving performance.
Macro
OPEC May Pause
OPEC is discussing a pause in output hikes. It marks a shift in the oil narrative from oversupply risk to potential tightening.
Positioning is turning supportive. Technicals confirm it. Energy is working, and LLMs are picking it up too.
This is not a trade on oil prices alone, it's a broader rotation into inflation beneficiaries with asymmetric setups.
Our horse here is small cap Riley Exploration (REPX) due to the combination of 20%+ ROE and 20%+ Free Cashflow yield.
Read more about an analysis of how Free Cashflow Yield interacts with ROE here.
China Risk Is Fading
China is no longer the target of tariff escalation; this development lowers geopolitical risk and invites capital back into key names.
Technicals agree. BABA’s 200DMA fakeout is a high-conviction signal; the kind that usually precedes sustained trend reversals.
Tariff focus is elsewhere, China tariff fears are receding. We like Ping An (PNGAY) and BABA - and there are others as well.
Next CPI/PPI Will Matter
Headline inflation has cooled, but we are likely to see it reappear in CPI and PPI in the coming months. August and September could bring uncomfortable prints.
That volatility is a known risk, but it doesn’t alter the medium-term path of disinflation.
If inflation re-accelerates briefly, risk assets may wobble, but the setup still supports higher equity valuations as long as earnings remain solid.
No Recession in Sight
The macro data doesn’t support a recession call.
Labor remains strong. Earnings are holding. Financial conditions have eased.
This keeps the door open for multiple expansion, especially as inflation drifts lower and growth stays positive.
August–October tends to be volatile. That seasonality aligns with the expected CPI uptick.
This is a period to own:
Energy
Inflation-linked assets
Select staples that are not over-valued like Costco
And to avoid:
Bond proxies (these are hurt by inflation)
High beta and high momentum (these are due to soften - see Netflix for example).
The setup is tactical, not defensive. This is a window to sharpen exposure, not de-risk broadly.
Crypto
Bitcoin just printed a new all-time high, ~$119K.
Ethereum is cranking. We view Ethereum as the natural beneficiary of greater stablecoin growth. We highlighted this thesis on June 7th.
Since then Scott Bessent and now Tom Lee are on the ETH train.
Bitcoin is benefitting from declining USD values and Congress that keeps spending like drunken sailors with no discipline in sight.
Meanwhile, over $1 billion in short positions were vaporized, a textbook squeeze.
This is what happens when flows, positioning, and narrative all align.
Where we stand today, we do not see excess leverage or positioning in bitcoin or ethereum.
These “high positive skew assets” generally run upwards in short, concentrated bursts of time.
Macro is Driving Sentiment
The rally isn’t just technical. It’s macro-fueled. A soft dollar, AI optimism, and a Trump-led pro-crypto policy shift have flipped the sentiment switch.
“Crypto Week” legislation is on deck.
Having some exposure to participate in Digital Assets makes sense. When funding rates get elevated - or we see excessive euphoria - that could be a time to rotate.
Market
Airlines and cruiseliners were priced for collapse. CEOs had pulled guidance, recession was the base case. That setup is now getting violently repriced.
Delta is up 11%, United 8%. Norwegian Cruise Line is breaking out. We own all three, plus SkyWest. These aren’t just short squeezes, they’re earnings re-rates.
The demand showed up, the recession didn’t, and positioning was wrong. That’s the formula for sustained outperformance.
Discretionary Rotation
Consumer discretionary is working, but not the way most expect. Fancy brands like Nike are failing: high multiples, negative relative strength, no earnings power.
Where is the action? Travel, mobility, auto parts.
Not aspirational consumption, functional spending.
Used car marketplaces and capex on your own vehicle are gaining traction. We’re long APTV and ADNT in auto components. This is how consumers adapt to tight conditions without actually pulling back. The market is only starting to catch up to that dynamic.
Momentum Is Breaking Down
Momentum is rolling over. Netflix is breaking down. Speculative names, PLTR, HOOD, etc., are softening. These were the leadership names into Q2.
We believe these leaders will start to leak liquidity as we get into the 2H of June, and as market breadth and lower-beta mean reversion themes take leadership.
At the same time, everything that underperformed into April is reversing higher. Look at HPP, Abercrombie (ANF), Riley Exploration (REPX). This is classic mean reversion, and it’s not over.
When animal spirits fade, the tape shifts from chasing breakouts to buying what's been left behind. And that’s exactly what’s happening now.
Thematic Exposure > Stock Picking Right Now
This is where many investors get stuck. They try to pick the single best bank, or the one auto stock with perfect KPIs. But that’s not the trade.
In a regime like this, owning a theme is more important than nailing precision. You want the risk factor exposure. That’s what moves P&L when narratives shift and capital rotates.
We talked about this Monday, banks are a beta to the economy. You don’t need to find the “winner.” You need to own the economic exposure when it gets re-rated. Same applies to travel, autos, and inflation hedges.
Speculative Excess Is Fading
You can see it in names like LMND, OKLO, and UPST. The junk rally is running out of steam. The bid is fading. That’s usually when quality, real earnings, clean balance sheets, actual free cash flow, starts to outperform again.
This isn’t about safety. It’s about durability. The next leg of this market belongs to underowned, cash-generating names in mispriced themes.
TSMC’s Remarkable Revenue Growth
TSMC delivered 39% year-over-year revenue growth this quarter, a meaningful acceleration that reflects broad-based strength across AI and high-performance compute.
Demand from key customers like Nvidia, Apple, and AMD continues to scale, driven by ramping 3nm production and growth in advanced packaging.
This wasn’t just a solid transcript, it’s reinforcing what’s becoming increasingly clear: TSMC is one of the most critical manufacturing partners in the global compute stack.
Margins expanded modestly, and the company guided for elevated capex, a signal that management sees this cycle as durable, not transient.
If institutional capital begins treating TSMC less as a foundry and more as AI infrastructure, we could see a valuation reframe.
This is no longer a short-cycle semicap trade. It’s becoming a core enabler of global tech, and it’s starting to get priced that way.
Delta Air Lines: Two Consumers, One Trade
Delta Air Lines delivered a clean Q2 beat: $16.6B in revenue and EPS of $3.28, up 7.83 times from last quarter.
The real story is in the mix: premium travel is holding firm, while economy travel softened. A tale of two consumers.
Technically, DAL is breaking above its 200-day.
Coreweave Acquires Core Scientific
CoreWeave is a big winner from the $CORZ (potential) acquisition. They cut $10 Bn in future lease obligations over 12 years.
It means more earnings and margins. And they are paying in their own stock rather than cash.
The datacenter theme is as much about locking down energy as it is locking down GPUs.
CORZ shareholders get to convert from a volatile crypto mining business (~500 MW today) into stable HPC/A.I. hosting revenue. They also leverage CoreWeave’s customer pipeline to pivot away from sole dependency on Bitcoin economics.
Distribution as a Moat
While most people focus on which model – ChatGPT, Grok, or Gemini – is the smartest, we believe that misses the bigger picture.
The real story isn't about intelligence; it's also about distribution.
This is where Google, xAI, and Meta excel and OpenAI starts to look like the pioneer with the arrows in its back.
Gemini’s Edge: Ubiquity by Design
Gemini wins on distribution.
Most people didn’t sign up for it, it just appeared. It’s baked into Samsung phones, Google Search, YouTube, Chrome.
And with deep integration across Gmail, Docs, Drive, and Android, Gemini isn’t just accessible, it’s ambient.
That’s reflected in usage, too: over the past few months, Gemini’s traffic growth has outpaced ChatGPT’s by a significant margin.
Meanwhile, GPT is having its engineers poached by not just Meta - but now Google. Google acqui-hired the CEO of Windsurf and its team.
It turns out having liquid stock and free cashflow is more enticing to devs than illiquid OpenAI stock.
Grok 4’s leading the chart
Elon unveiled Grok4, and it has performed better than Gemini Pro 2.5 and Open AI’s o3 (high) on Humanity’s Last Exam. It led by 25.4% score against Gemini’s 21.6% and Open Ai’s 21%.
Grok 4 Heavy, with its $300 membership, scored 44% on the same test; Gemini powered with tools could only go as high as 26%.
With Grok’s developing integration with X, and enhanced reasoning abilities, the AI leaders have a formidable challenger.
OpenAI Under Pressure
Glad we passed on OpenAI back in ‘23. Sam is experiencing a ‘Growth to Value’ transition. Capex guzzlers are rarely good investments.
Roughly half of its senior talent has exited in the last two weeks, capping off a two-year bleed of leadership. That alone would be destabilizing, but it's compounded by failed acquisition dynamics and intensifying competition.
Negotiations with Windsurf have reportedly broken down. Microsoft has paused involvement, and OpenAI appears unable to finance the $3B transaction.
Meanwhile, product momentum is slipping. GPT-5 is delayed. Grok-4 has exceeded expectations. Open-source models, including several from China, are narrowing the moat, and in some cases, overtaking it.
OpenAI’s relevance may depend on whether it can shift to a more open strategy, but the window is closing.
AI The Great Equalizer?
AI Is Not the Great Equalizer
Jensen Huang says AI is “the great equalizer,” democratizing software development, slashing costs, and empowering individuals. It’s an optimistic take, and a partially true one.
But here’s the counterpoint: AI is bifurcating the economy into winners and losers, not flattening it.
The evidence is right in front of us, Omnicom and WPP are getting crushed, while Meta and Nvidia are ripping higher.
One group built moats with legacy media. The other built models.
We’re not entering a post-scarcity utopia. We’re entering a hyper-concentrated productivity regime, where a handful of firms and individuals capture outsized upside, and everyone else scrambles to catch up.
This split isn’t just between companies. It’s between people.
Founders and small teams who deeply understand AI will move faster, ship quicker, and scale faster than incumbents with headcount but no velocity.
That’s the future: two-track markets, one compounding, one eroding. If you're not actively embedding AI into your workflows, your skill set is on borrowed time.
What does this mean tactically?
Stock-picking is back. Broad-market beta is a blunt tool in an AI-driven economy. You want to be long firms with proprietary data, technical talent, and defensible distribution: Meta, Nvidia, Palantir, Microsoft. You want to avoid those still pitching last decade’s story.
We’re watching for the emergence of small-cap AI-native firms: think focused, capital-efficient companies solving niche verticals with targeted models.
These names won’t be easy to find. But when you do, they’ll have asymmetric payoff profiles.
To learn how we do this, visit: LumidaDeals.com
They still look sound to me.
Meme of the week
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