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Atoms vs Bits

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Author: Citrini
Published: Feb 11, 2026

Introduction Capital is rotating out of bits and into atoms. Software companies, the darlings of the last decade, are being forced to answer a question they’ve never had to answer before: what happens to your 30x revenue multiple when new technology poses a potentially existential threat? See, for many of these companies, valuations were so high and such sustained growth was priced in that agentic AI didn’t even need to actually impact the business. The threat of a threat was enough to reprice them. Into this software selloff, anything that wasn’t nailed down was thrown overboard.

Vertical SaaS, digital advertising platforms, portions of fintech, all suddenly trading at discounts to their historical ranges as the market begins to assign what I’d call an “AI Disruption Discount”. Does your high switching cost or sticky UX matter in the AI era? Don’t know? Okay - trade lower until you do. Will agentic commerce threaten your marketplace? Maybe? Okay, well, you’re worth 30% less. The logic is ruthless and correct: none of us really know what AI will look like in a few years, and the technology is advancing at a rate that has us asking if the singularity actually just got penciled in for next Thursday.

Agentic AI was a talking point for investors, but once Anthropic et al. shoved it in their face they had to reconcile with some hard potential realities that didn’t align with their portfolio. We could spend a lot of time debating what moats will endure in software – do we just sell anything you click and buy the dip in the APIs? Is this just empowering new entrants to challenge incumbents or will enterprises bring entire software workflows in house via AI? The more you think about it, the more you realize that without a crystal ball you’ve got a lot more questions than answers.

That’s why I think investors will opt for a simpler outlook - what can’t you prompt your way out of? The answer to this question leads you to a simple conclusion: Atoms have become more valuable relative to bits. As hyperscalers exponentially ramp up their bit-generation capabilities, their demand for power and materials has moved in lockstep. Virtually every single bottleneck or constraint surrounding the AI trade has been in the real world. Claude, increase the global supply of Titanium by 5% above forecasts this year… See. That still doesn’t work. Not even on Opus 4.6 Fast.

A lot of the “real world” beneficiaries that investors have piled into so far, however, are the obvious ones. Power generation equipment. Optical Interconnects. Grid infrastructure. Copper miners. Nuclear. Don’t get me wrong - these were great calls (many of them were ours), but they are all relatively crowded trades now. Many are priced for the perfection that physical world constraints ironically make impossible to deliver. So where do we go from here? The next evolution of the “atoms” trade is where new sources of demand collide with the existing data center buildout to constrain supply chains even further.

A poster child of this collision is in jet engines.

The Trump Administration is shooting for a $1.5T defense budget, with NATO allies building out their own capabilities. Japanese defense spending will also stay bid as a result of the recent election. Demand is stacked from the aerospace industry, which is hitting an inflection point with a historic, sustainable backlog. Data centers use old jet technology for their natural gas turbines. And while the turbines are manufactured independently from current generation jet engines, both supply chains use the same input materials. In under a year, once overlooked businesses are now the “belle of the ball” with suitors ranging from AI hyperscalers to the Department of War.

Finding the winners of this new preference for “stuff” boils down to one question: can this company command pricing power over an entire capital cycle due to multiple tailwinds, or is it just a commodity trade with extra math? Every material or chemical in this primer shares a specific profile that we feel will result in outperformance as the market becomes more intent to focus on atoms over bits. We expect this theme to evolve over time, but today we will highlight our current favorites across: ● Advanced Materials & Processes ● Electrical Steel ● Literal Picks and Shovels

● AI Materials & Electronic Chemicals Advanced Materials & Processes These are all companies that deal with material sciences and advanced processes that sell into sectors we’re broadly bullish on: defense, electrification, aerospace, artificial intelligence, space. Production is concentrated among a handful of qualified suppliers, often operating as regional duopolies, oligopolies or outright monopolies. Manufacturing requires decades of process knowledge, stringent quality controls, and customer qualifications that take 2-5 years (you can’t simply build a bigger plant in response to price increases). Their moat is not in question, but their multiple may be now that the market places a premium on being resilient to AI-driven disruption.

Unlike lithium, PVC, or solar-grade silicon, these materials are protected by a combination of physics, technical barriers, defense procurement restrictions, chronic underinvestment, and/or quality requirements that Chinese producers struggle or choose not to meet. Cyclical demand recovery in many of their end markets is now converging with structural spending increases for the first time since the post-GFC period. Finally, for many, the market is still pricing most of these names as if only one of those tailwinds exists. Uranium Conversion Solstice Advanced Materials (SOLS US): The Cheapest Nuclear Play in the US Uranium miners and enrichers have done quite well, but there’s a second stage that gets talked about less: conversion.

It’s a quite interesting stage as well, and perhaps the last part of the trade where a beneficiary has flown under the radar. That beneficiary is Solstice Advanced Materials (SOLS US). We spoke briefly about Solstice Advanced Materials (SOLS) in our 26 Trades for 2026 and added it into the Citrindex on January 28th before earnings. Now that they’ve reported earnings and validated our suspicions, we believe the stock is even cheaper than it was before it rallied in response. SOLS was an under-the-radar spin-off from Honeywell in October 2025 that the market originally seemed to value solely based on their HVAC/refrigerant business.

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